Category: China

We won’t explicitly cover IPE (international political economy) until the second half of the semester, but it will certainly come up when dealing with views about what constitutes power (state power, specifically). How does the fact that China has built up a 1.53 trillion dollar Forex (foreign exchange) reserve affect its power relationship with the United States? Should the US be worried? Do you know if this affects, or could affect how much interest you pay on your mortgage, car or student loan?

James Fallows has a new article in the Atlantic, in which he analyzes the nature of the China-US trade relationship. He writes:

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China. Like so many imbalances in economics, this one can’t go on indefinitely, and therefore won’t. But the way it ends—suddenly versus gradually, for predictable reasons versus during a panic—will make an enormous difference to the U.S. and Chinese economies over the next few years, to say nothing of bystanders in Europe and elsewhere.

You can find more about the specifics of China’s forex holdings here.