Quote:No, but does it make sense to make trade a one-way street?

 

It's not a one- way street.   They sell us worthless junk, we give them worthless paper in return.  

 

Seriously, though, the way I see it, they intentionally depress the value of their currency vs the dollar to make their exports cheaper for us to buy.   As they sell us more stuff than we sell them, they wind up with excess dollars.   If they exchange those dollars for their own currency, that changes the supply demand ratio of those two currencies enough to depress the value of the dollar and raise the value of their currency.   They don't want that to happen, because raising the value of their currency vs the dollar would make their exports more expensive for Americans to buy.   So they don't want to exchange the dollars on the open market.   So what can they do?   They can use the dollars to buy US government debt.   Again, supply/demand.   Buying US government debt decreases the supply of US government debt on the open market, raising the value of the dollar.   They want a strong dollar and a weak yuan, because that makes their exports cheaper for Americans to buy. 

 

How to cure the trade deficit?   Devalue the dollar.   That would make US exports cheaper on the world markets.  Unfortunately, it would also make imports to the US more expensive for US factories and consumers.  In addition, if the Chinese did not have a trade surplus with the United States, they would not be buying all that US government debt with their excess dollars.   Without the Chinese buying US government debt, that $18 trillion of US Treasury debt would have to carry a higher interest rate, and that would make our deficit explode.  

 

If you read this far, congratulations.   In my humble opinion, even if you think Chinese-American trade is a one-way street, the solution will not be a simple of painless thing.   The cure might be worse than the disease.  

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