The US-China Economic Interdependence: Some Myths

There are a few myths that envelope the economic relationship between the United States and China. Identifying these myths is important because they can have the potential to cloud policy decisions. There is one fact amidst all this, though: US and China are economically intertwined as they are said to be financially dependent on each other. ‘China has become the largest foreign holder of U.S. government securities is taken as indicating that the United States is heavily dependent on China to finance its budget deficits. Similarly, since China is a major source for U.S. imports, U.S. consumers are seen as dependent on cheap Chinese goods.’

Washington is evaluated by some to be ‘having limited leverage because China is the main “banker” for the United States.’ The truth is that, while China is a big customer for US debt, it is not America’s banker. The United States is too big an economic force to be dependent on China to finance its budget deficits.

The United States is observed to be heavily dependent on cheap Chinese goods. The truth is that, ‘only roughly 15 percent of U.S. imports come from China. Moreover, all of the basic types of manufactured consumer goods that China exports to the United States (clothing, textiles, footwear, toys, small appliances, etc.) can be imported from other countries or could be produced domestically.’

There is speculation that ‘external pressure on China for policy changes is counterproductive.’ The plain truth is that, ‘if there is no pressure, there is less incentive to change policy. This is especially true in China, where the authorities are wedded to the status quo because of past success and inclined to make only gradual changes to economic policies.’ If the US does not push, changes in China’s policies are likely to be delayed.

Instability is said to be bad for China. Even Chinese authorities have said that ‘instability in China is bad for the rest of the world because of adverse effects on China’s growth rate.’ However, instability or the fear of it ‘has played a big role in initiating economic policy changes in China.’ Fact is, China is ‘not providing much stimulus for the world economy as a whole, so slower growth in China will have little effect on economic activity in the rest of the world.’

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Via Council on Foreign Relations

US China economic relationship1 The US China Economic Interdependence: Some Myths

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