Wednesday, June 06, 2007

China Isn't Problem Left Says It Is

If a Democrat wins the White House, you won't see editorials like the one in today's Lexington Herald-Leader full of dark warnings about all the money we "owe" China.

And the writers will be right then, but they aren't now.

A trade deficit is not a debt. Speaking frankly, a trade deficit with China means we have their products and they have our little green pieces of paper. They won't want to destroy us before we make good on all our little green pieces of paper.

On the other hand, China has loaned lots of their little green pieces of paper (or whatever color they are) to our Treasury in exchange for our promise to repay. One, they won't want to destroy us until we make good on that debt and, two, it is preposterous to suggest that there is a risk they will "change their minds" and blow up their own investment to get out of Treasury bonds. Again, fearful liberals only need wait for the next Democratic president for a solid explanation they can trust. By the same token, fearful conservatives only need wait for the next conservative president for an explanation they can trust.

But that is another story.

The idea that China is going to take us over by buying up our assets now is as wrong as the same scenario in the 1980's in which Japan was going to buy up all our real estate and eventually force us all to speak Japanese.

Foreign exchange is one of those great political toys few people understand. It's very easy to say the sky is falling, so vote for our guys and the sky won't fall.

The sky won't fall because of our trading with China, no matter who wins the next election. And, mark my words, when Republicans are jumping all over President Hillary Clinton or whoever for selling us out to China, remember this for what it is: a political toy.