Does China control enough U.S. debt to influence American foreign policy?
During the Second World War, U.S. President Franklin Roosevelt told British Prime Minister Winston Churchill to get out of the colonialism business. By leveraging Britain’s war debt to the U.S., Roosevelt influenced English foreign policy, opening new markets for the U.S. and for globalization.
China owns 7.5 per cent of U.S. debt. Now with the threat of nuclear war centred around Asia, China has a similar opportunity to influence U.S. foreign policy. Will China take that opportunity?
Over the past 50 years, a synergistic trade relationship has evolved between the U.S. and China. China has emerged as the world’s second largest economic power, based largely on the manufacturing and sales of cheap goods to the U.S.
Like a bad habit, they’re co-dependent. America needs the cheap goods produced by China to keep its citizenry happy. While U.S. living standards haven’t increased significantly in the past 50 years, China’s standards have climbed from one-10th to one-half that of the U.S. China overtook the U.S. in manufacturing in the early 2000s.
China needs America to keep buying its manufactured goods, so it can continue to climb the economic ladder. Harvard historian Niall Ferguson has coined the term “Chimerica” to describe this relationship.
However, there are signs that China is preparing to break away from this interdependency. In 2015, China launched the Beijing-based Asian Infrastructure Investment Bank (AIIB) to compete against the U.S.-led World Bank, which was established after the Second World War.
China has pumped billions of dollars into Africa, Central Asia and Latin America through AIIB. Unlike the World Bank, AIIB doesn’t put pro-democracy conditions on its loans.
The former U.S. administration of Barack Obama tried publicly – and unsuccessfully – to urge its allies, including Canada, not to become AIIB partners.
China is also beginning to fill the world’s soft power vacuum. For example, China Central Television has established 30 new overseas bureaus at a time when U.S. media outlets are dismantling their foreign presence. China is also investing in international think-tanks, such as the more than 500 Confucius Institutes established worldwide.
Then there’s U.S. President Donald Trump. During his election campaign, Trump complained that his country wasn’t getting a fair deal in trade deals with China and vowed he would “straighten them out.” However, after his first meeting with Chinese President Xi Jinping, Trump indicated that trade with China was complicated and he might not be able to fix that deal. What he didn’t say was that China has incredible debt leverage over the U.S. and that America can’t call the shots.
The same is true in the crisis over North Korean nuclear missile testing. While Trump threatens war with Korea because South Korea and Japan are vulnerable U.S. protectorates, China holds all the cards. So China, one of North Korea’s trading partners, is being asked to mediate this crisis.
While the U.S. threatens war, the nature of this conflict may be at China’s discretion. In addition to its growing financial leverage, China is expanding its military at breakneck speed. It has sea denial capability, meaning that U.S. battle-carrier groups aren’t safe from Chinese torpedoes or anti-ship missiles.
Although China has previously backed away in the face of U.S. brinkmanship, such as during the 1996 Taiwan Strait crisis, it’s not clear if it will do so over North Korea.
We know Trump’s The Art of the Deal strategies won’t succeed with China.
If he makes a wrong move, he may have to pivot to the other thing he’s famous for: bankruptcies. Maybe he would be doing his country and the world a favour by restructuring the U.S. debt.
Derrick Rancourt is a professor in the University of Calgary’s Cumming School of Medicine, where he chairs the Graduate Science Education’s Professional Development Taskforce.
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