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President’s reaction to China’s currency threat
Posted by: McQ on Wednesday, August 08, 2007

Jon wrote about the Telegraph article and China's threat to liquidate its vast holdings of US treasuries if the US imposes trade sanctions. Here is the only reaction I can find from the administration and it took place in an interview with Neil Cavuto when he brought up the story. Apparently it was the first time the President had heard it:
CAVUTO: Separately, sir, there's a report that was in the U.K. Telegraph, that the Chinese, very concerned about possible sanctions that might be slapped on them, would consider the so-called nuclear option, that is, selling a lot of dollar-denominated assets. I guess they hold close to a trillion dollars. Are you aware —

THE PRESIDENT: Trying to do what? Trying to crater our economy?

CAVUTO: Right.

THE PRESIDENT: That would be foolhardy of them to do that. That's why — first of all, I don't know who put out that report. I doubt it came from the President's office.

CAVUTO: Well, I guess — what happens is it comes through university sources, which is usually the way word gets out of potential government —

THE PRESIDENT: Oh, really. Well, one of the reasons why we've got this Paulson-led economic dialog with China is to particularly work — is to talk about those kinds of threats, if that's, in case, the position of the government. It would be foolhardy for them to do this.

CAVUTO: So in other words, they would hurt themselves more than us.

THE PRESIDENT: Absolutely, I think so. And there are good ways to work through our difficulties. Listen, we have a very complex trading relationship with China. I happen to believe it's very important for our economy that we have access to Chinese markets. I think it's been beneficial, by the way, for consumers that there be Chinese goods coming in, which have helped hold down the cost of inflation, particularly in the face of rising energy prices.

I would hope we could work out our differences in a cordial way, as opposed to whatever the option you called it is, or, frankly, legislation out of Congress that will affect our capacity to have a relationship.

Now, having said that, when there's difficulties, we bring them up. We have used our powers with the — particularly through the Department of Commerce to make it clear we expect to be treated fairly. It is in the interest of the United States, Neil, in my judgment, that we encourage the Chinese to go from a savings economy to a consumer economy, and then have access to those markets so that U.S. producers and service providers can expand their businesses, and therefore create more jobs here at home.
Thinking about this, there may be a little bit of a warning shot at Dems involved here as well, given the Obama quote below (and a Hillary statement on China recently) to let them know they're finding some of the campaign rhetoric a little disturbing. Perhaps they're anticipating a Democratic administration in '08 and they're using the Bush administration as a convenient foil for getting the 'word' out to the Dems that they may want to step just a little more lightly with the rhetoric.

Or not.
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Previous Comments to this Post 

Bruce, I’m sure it’s a "warning shot." I saw an interview with the Chinese Trade Minister on NBR about six months ago where he had nothing nice things to say about Paulson and their ongoing relationship. When asked about Congress he quickly said that the Chinese don’t like being threatened.

At the end of the day, however, Bush is right. It would be foolhardy for the Chinese to do that. It would destroy their own prosperity, not to mention devalue that pile of U.S. assets they sit on.
Written By: Dave Budge
I would hope that the US would link trade relations with China to improvements on civil rights. This has proven to bring about greater change in dictatorships than opening up markets. They need us more than we need them.
Reagan did it to Russia and Bush did it to Arafat, lets do it to the China.
Written By: Brian Kilburn
URL: http://
Linking trade relations to demands they reform their internal political system to be more like ours is almost certain to fail with China. Better is to allow markets to continue to develop a Chinese middle class which, in time, will say "why the heck do we allow the Communist Party to run everything when we drive the economy?" Right now China’s reforms are building a middle class. That will doom the Communist party, and over time improve civil rights. But just as we had slavery for 80 years, women couldn’t vote and minorities discriminated against for a long time, building a democracy doesn’t happen over night, and with China’s culture, it ultimately won’t look exactly like ours.
Written By: Scott Erb
Bush seems pretty smart and articulate in that interview. Must have been his double.

China will end up with a democracy very similar to any other democracy, but it will take time to build up the pressure for reform (or for a sudden revolution like those that happened in many other Asian countries.)

Keep in mind a lot of the rich people in China come from the party, so its not as simple as having a middle class big enough. In fact its the lower class farmers that protest the most after dubious land deals. But eventually Erb is right that people start saying "what have you done for me lately" - this is what happened to Suharto - I have to wonder if a nice solid economic downturn would be enough to knock out the communist party. That probably won’t happen, so it could be a slower process, however, things sometimes move very, very fast.

Note that there is no reason China could not have a democracy RIGHT NOW except the communists won’t give up power. In fact, China has a lot of the institutions and procedures in place - they just need to end the CCP monopoly. What takes more time is probably the judicial side, but seriously, looking at other one party states that made pretty quick transitions to democracy (granted rough and ready democracy) I’m also a believer that the only way to become a democracy is to practice it. No competitive free elections, no learning.

On the economic side, while I generally support free trade and make a living doing so, China really is opaque and I think we rushed too fast to make deals there (like joint ventures that stole our technology, etc.) I don’t think its free trade when you are forced to manufacture cars in China in order to sell them cars at all. I don’t think its free trade when Chinese companies get tax rebates for exports, but others don’t. (That has recently changed, actually - the end of the rebates, the appreciation of the yuan, and maybe Chinese companies deciding to make a profit has made price increases now start to take effect - look for increased trade deficit and then inflation as prices go up sharply and suddenly for imported Chinese goods.)

my 0.2 cents.

Written By: Harun
URL: http://
China, perhaps is talking with Pakistan, who apparently would also like the Democrats to ratchet the noise down a few db.
Written By: Bithead
Well, let’s not forget who prompted this "warning shot." It’s not like it’s out of the blue.

Democrats threaten protectionist measures against China, and China responds...

As if what they say on the stump doesn’t get broadcast to the WHOLE WORLD.

Political naivety and populism at it’s worst.
Written By: Keith_Indy
China bashing is, unfortunately, a bi-partisan sport these days.
Written By: Scott Erb
I did not say make them like us. I said link trade relations to improving civil rights. You know, like free speech, the right to not be killed out of hand for disagreeing with the gov. ect.
Once the internal problems of china are debated openly and fairly, it’s system of government must fall because it cannot withstand that form of attack.
Regan did it to Russia. Why can’t Bush do it to China?
Written By: Brian Kilburn
URL: http://

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