Distant, mysterious and authoritarian, China is an ideal scapegoat for politicians hoping to distract attention from the shortcomings of their own economic policies. Washington has preferred to blame China for the gaping US current account deficit instead of cutting back on government spending.
Slow growth in Japan and the eurozone, and the insatiable appetite of the US consumer, are as much to blame for the unprecedented US deficit of more than 6 per cent of GDP, which is expected to drive down the dollar over the next year. And since China holds billions of dollars’ worth of US assets, which have helped to fund the American spending spree, the interests of the two trading powers are less opposed than the angry rhetoric on Capitol Hill suggests. Stephen Roach of Morgan Stanley has warned that if Washington antagonises China with tariffs, Beijing could retaliate by dumping US Treasuries, unleashing a ‘full-blown dollar crisis’.
