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In a recent op-ed for the Wall Street Journal, Donald Trump wrote that the “American people need to be told the truth about our ‘partner’ China.’” One of the problems here is that Trump designated himself the person to deliver what he deems the truth. His thoughts on China reveal aggressive confusion on his part about what was not too long ago a desperately poor country.
As though it’s a scary concept, Trump writes that “China holds over $1.4 trillion in U.S. debt. The Chinese are by far, the largest foreign debt holder.” Ok, the second assertion isfactually incorrect. Among foreign entities Japan holds nearly as much U.S. Treasury debt, and maybe more, than China does.
And while it would be ideal if Treasury borrowed less thanks to Congress spending a great deal less, the fact that foreign entities want to own U.S. debt is hardly an insult. Realistically it’s a loud compliment. Trump knows why it is owing to his own occasional struggles over the years in the area of attaining credit. That Trump has struggled at times isn’t a knock on him as much as entrepreneurs sometimes hit rough patches. Trump certainly has, and when he has borrowing has proven very difficult for the developer.
Applied to China, it’s once again a very poor country relative to the U.S. That its government wants to own U.S. debt at such low rates of interest is a flashing sign that it thinks Treasury a very good bet to pay it back. Leaving aside the horrid externalities of government spending (whether in surplus or deficit), the fact that the U.S. can borrow so easily is on its own a signal of how much the Chinese think we’re “winning.” It also makes war with China less likely since war between the two countries would make debt repayment much less likely. If being really truthful, Trump would love to have anyone, foreign or native, lining up to lend to him in the way that the Chinese like to lend to the U.S.
Trump then writes that the “U.S. trade imbalance with China is already at $237 billion, on the way to an annual trade imbalance north of $350 billion.” First off, countries don’t trade, people trade. In that case Americans should no doubt cheer the numbers cited by Trump.
Indeed, trade is the sole purpose of our work. If you’re reading this column right now odds are almost 100% that you don’t cut your own hair, you don’t raise the food you eat, you didn’t build the apartment or house that you live in, and you didn’t manufacture the computer that you’re reading this critique of Trump on. What you should know about yourself is that you’re an ardent free trader. Your life would be hideous without the ability to trade freely. You earn dollars for your work, but you’re only going to work for dollars insofar as they can be exchanged for haircuts, food, housing and computers.
Since China’s citizens remain very poor in a relative sense, they still save a lot of what they earn. We Americans are so rich that we don’t need to save as much. Instead we consume; as in we import from across the street and from around the world. We trade our immense productivity for the world’s plenty. The Chinese are so impressed by our productivity that they send us trillions worth of goods each year that we buy. Unimpressed with the productivity of the average Peruvian, they send very little there. The huge inflow of Chinese imports is another sign that Americans are “winning,” and winning big. Chinese exporters aren’t charities.
Even better, the savers of China, eager to build up wealth, send some of their savings to us too. Some sadly fund the tax on freedom and prosperity that is government, but the saving also funds investment in the most innovative people in the world: we Americans. The truth about the Chinese is that they think the U.S. such a good investment that they’re willing to risk their precious savings on us. Their investment means that we can consume even more of their goods.
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