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China’s Big Sticks

NEW HAVEN – US President Donald Trump’s administration is making a major miscalculation by going after China. It appears to be contemplating a wide range of economic and political sanctions – from imposing punitive tariffs and designating China as a “currency manipulator” to embracing Taiwan and casting aside some 40 years of diplomacy framed around the so-called One-China policy.

This strategy will backfire. It is based on the mistaken belief that a newly muscular United States has all the leverage in dealing with its presumed adversary, and that any Chinese response is hardly worth considering. Nothing could be further from the truth.

Yes, the US is one of China’s largest export markets – and thus a central pillar of its spectacular 35-year development trajectory. Closing off the US market would certainly crimp Chinese economic growth.

But the US has also become heavily dependent on China, which is now America’s third largest and fastest-growing export market. And, as the owner of over $1.25 trillion in Treasuries and other dollar-based assets, China has played a vital role in funding America’s chronic budget deficits – in effect, lending much of its surplus saving to a US that has been woefully derelict in saving enough to support its own economy.