China’s Hollow Threat to Dump U.S. Bonds – Peter Morici

From Robert H. Smith School of Business website:

The Congress is growing impatient with China’s currency manipulation and export subsidies, and is near passing legislation that would require the Bush Administration to strike back. Faced with the prospect of trade competition on a level playing field–something the Chinese Communist Party fears more than free elections–the U.K. Daily Telegraph reported on August 8 Beijing threatened to dump its hoard of U.S. dollars to panic financial markets and sink the U.S. economy.

Subsequently, the Peoples Bank of China sought to discredit this report. However, given the mess Beijing’s mercantilist policies have created, and remembering this is the same bunch that blamed American greed for Chinese exports of antifreeze in toothpaste and lead paint on children’s toys, we should examine the real potential menace posed by such a Chinese action.

My conclusion is don’t panic. China is as much hostage to the global trade imbalances it has created as the United States. [Full Text]

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.

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