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I have recently been contemplating the economic relationship between
the US and China and have noticed some interesting points.
This is a relatively recent relationship and is evolving quite
rapidly.
It goes something like this.
The Americans want to buy things that the Chinese can produce far more
cheaply than the Americans can thereby saving themselves a great deal of
money and generating huge profits for their corporations.
The problem is the US is penniless and cannot afford to pay for the
Chinese goods. So, they print IOUs (bonds) and borrow the money from
wait for it the Chinese.
They then print vast amount of little pieces of green paper which they
call dollars that they then give to the Chinese in return for humongous
amounts of T-shirts, TVs, home appliances...etc.
This little game has been going on for a number of years without the
Chinese seeming to tire from receiving little bits of American green paper
in return for the ever increasing flood of goods of all kinds that they
ship to the US market.
The benefit to the Americans is obvious: They get enormous amounts of
cheap goods from the Chinese using little bits of paper (they print them
in a basement somewhere) backed by the IOUs they owe the Chinese
themselves.
The benefit to the Chinese is subtler and less obvious.
They benefit from building the industries and providing work to
millions of their own people that provide the Americans with their
desires.
The deal is so sweet that the Americans shut down their own factories
and open new ones in China and transfer all kinds of technical know-how to
the Chinese.
China is able therefore to quickly build up a vast and powerful
industrial base that they can then use to produce goods to sell to
countries other than the US who are able to pay for what they buy with
real money and not just a bunch of IOUs.
Meanwhile, they continue to ply the Americans with what are essentially
free goods that encourage them to accelerate the migration of their
industrial base to China.
The icing over the Chinese cake is that the US in addition to growing
more and more dependant on Chinese industry also goes deeper and deeper
into debt to the Chinese.
The US is doing what is known in economic circle as a Striptease.
More recently, the Chinese are upping the ante and doing something even
subtler. They are now buying US corporations outright.
What is fascinating is that for most of these acquisitions they are
paying billions in cold hard cash.
In other words, they are dumping the little bits of green paper they
got from the Americans right back into their laps and getting real assets
in return.
What is the US going to do about this?
Probably, beat up some poor weak Third World country (preferably Arab
or Muslim) while continuing to helplessly strip to their Chinese
suppliers.
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