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Supluses and Deficits
Supluses and Deficits
Causes Effect
China can produce many consumer goods at China must buy so many U.S. Treasury notes
lower costs than other countries can. that it is the largest lender to the U.S.
Americans, of course, want these goods for the government. Japan is the second largest. As
lowest prices. How does China keep prices so of April 2019, the U.S. debt to China was $1.1
trillion. That's 27% of the total public
debt owned by foreign countries.
Many are concerned that this gives China technology to Chinese firms. China requires
political leverage over U.S. fiscal policy. They companies to do this to gain access to its
worry about what would happen if China market.
started selling its Treasury holdings. It would
also be disastrous if China merely cut back on Trump also asked China to do more to raise its
its Treasury purchases. currency. He claims that China artificially
undervalues the yuan by 15% to 40%. That
Why are they so worried? By buying was true in 2000. But former Treasury
Treasurys, China helped keep U.S. interest Secretary Hank Paulson initiated the U.S.-
rates low. If China were to stop buying China Strategic Economic Dialogue in 2006.
Treasurys, interest rates would rise. That could He convinced the People's Bank of China to
throw the United States into a recession. But strengthen the yuan's value against the dollar.
this wouldn’t be in China's best interests, as It increased by 2% to 3% annually between
U.S. shoppers would buy fewer 2000 and 2013. Former U.S. Treasury
Chinese exports. In fact, China is buying Secretary Jack Lew continued the dialogue
almost as many Treasurys as ever. during the Obama administration. The Trump
administration continued the talks until they
U.S. companies that can't compete with cheap stalled in July 2017.
Chinese goods must either lower their costs or
go out of business. Many businesses reduce The dollar strengthened 25% between 2013
their costs by outsourcing jobs to China and 2015. It took the Chinese yuan up with it.
or India. Outsourcing adds to China had to lower costs even more to
U.S. unemployment. Other industries have just compete with Southeast Asian companies. The
dried up. U.S. manufacturing, as measured by PBOC tried unpegging the yuan from the dollar
the number of jobs, declined 34% between in 2015. The yuan immediately plummeted.
1998 and 2010. As these industries declined, That indicated that the yuan was overvalued. If
so has U.S. competitiveness in the global the yuan were undervalued, as Trump claims,
marketplace. it would have risen instead.
CAUSE
EFFECTS