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FinalCall.com News
Business & Money
China’s economic nuclear bomb...and us
By Cedric Muhammad
-Guest Columnist-
Updated Aug 22, 2007 - 1:52:00 PM
“The United States as a power is on the way down, but China is on the way up. China is the market of the future.” -Venezuelan President Hugo Chavez
When two officials at leading Chinese think tanks publicly stated recently that China would consider using its $1.33 trillion in U.S. dollar reserves and government securities in order to defend itself from possible trade sanctions being debated in the U.S. Congress, it marked a turning point in American-China relations. The threat, if carried out, would single-handedly be capable of sinking the American dollar and throwing the U.S. economy into a recession, or even depression.
By suddenly unloading the hundreds of billions of dollars it keeps in reserves—perhaps trading them for euros or gold—and by selling the hundreds of billions of dollars it holds in American debt, China would be doing what many have feared for years, utilizing what some observers call its “economic nuclear bomb.”
The Chinese are believed to be waving this weapon in public for the first time due to their growing outrage and concern over American Senators and Congresspersons who want the U.S. to place trade penalties and sanctions on the Asian powerhouse—either preventing Chinese goods from entering the country or taxing them at a higher rate.
The leaders of such legislation are U.S. Senators Lindsey Graham of South Carolina and Charles Schumer of New York. Both men complain and allege that China’s currency is artificially devalued (making its goods and services cheaper and more affordable) and that Chinese companies, operating with their government’s support and subsidies, have an unfair advantage over American companies. Even Democratic Presidential candidate Hillary Clinton has weighed in strongly against China, stating her fear of America being “held hostage to economic decisions being made in Beijing, Shanghai, or Tokyo,” and her concern that the near 50 percent of U.S. debt in the hands of foreigners, like China, makes the U.S. too vulnerable and dependent.
To be sure, the probability increases that the Chinese could conceivably “attack” the American economy in such a way, if Congress acts too aggressively toward the nation of over 1 billion people. But the scenario is not likely, independent of such aggression, and not guaranteed even if it were to take place. Both President Bush and U.S. Treasury Secretary Henry Paulson have voiced their displeasure with the talk of a trade war with China, coming out of the House and Senate, with Mr. Paulson making several trips to China already (he made over 100 business trips to China while he was head of Goldman Sachs.) In addition, the Chinese are host to the 2008 Olympics and many observers and analysts believe that the government is determined to use this international event to elegantly showcase their country’s arrival as the equal or superior of the United States.
A vicious economic war with America could distract from the showcase planned for Beijing next year. And lastly, there is the reality that the United States is China’s biggest trading partner. Intentionally undermining her economy by the act of selling American debt and dollars in financial markets would hurt China’s own economy and interests severely. One must never forget that China owns numerous assets denominated in dollars—the very currency it would be destroying. President Bush called the threat from China, if real, “foolhardy,” while Secretary Paulson labeled the speculation surrounding it “absurd.” Both, logically speaking, may have a point, but they might also be underestimating how serious China is taking the aggressive rhetoric and legislation promoted by some lawmakers in Washington, D.C.
The fact remains that China may not need to torpedo the American economy to surpass it (China currently is estimated as having the third largest economy in the world, recently replacing Germany.) Its own continued economic excellence is already on pace to overshadow the U.S. eventually.
For two consecutive months—July and June—China’s exports have reached record levels of over $100 billion, each. The Chinese economy continues to be red hot at near 12 percent growth annually (by comparison, the U.S. economy is projected to grow at a little over 2 percent this year). In addition, the Chinese government recently started a unique global fund of its own, making investments in private entities outside of its borders (in the process taking money away from its usual purchases of American debt). Its first major investment was $3 billion it gave in exchange for an ownership stake in the powerful American buyout firm, the Blackstone Group. And finally, through wise geopolitical maneuvering and investment, China has more diverse access to African commodities than any other country in the world and is poised to replace America as Venezuela’s main energy trading partner.
A major factor in China’s economic dominance is the manner in which Chinese living outside of the mainland continue to do business with one another and their home country. Their ethnic trading networks and immigrant communities are remarkable for their unity and cooperation with one another. In that way they are exemplary, even being singled out by the Honorable Elijah Muhammad for their characteristics. In his economic blueprint, he stated, “Take a lesson from the Chinese and Japanese and go give employment and assistance to your own kind when they are in need. This is the first law of nature. Defend and support your own kind.” The Honorable Elijah Muhammad said and wrote much about China—publicly and privately. Most striking in his words and actions are the scriptures he indicated China fulfilled in Jeremiah and Daniel, as well as the fact that when the FBI arrested him on May 8, 1942 (in order to keep him from teaching Islam in the public during World War II), one of the things taken from his brief bag by them, and photocopied, was the future of China.
As China’s economic power grows and America’s wanes, in addition to buying land and gold to protect from a dollar collapse; doing business with Asians in Africa; and exploring ways to tap into the Chinese markets; Black Americans would be wise to carefully study the economic practices of Chinese immigrant communities all across the United States. Whether or not China utilizes its “economic nuclear bomb,” it is well past time for us to “do for self,” with our own continent of origin, Africa, in mind.
Nothing, for example is stopping us from starting our own version of the numerous Chinatown Express bus route companies, making millions in cities throughout America, each day. And nothing is stopping us from supporting the launch of the United States of Africa and locking hands across the continent in international trade.
Nothing, that is, except our collective will.
(Cedric Muhammad is a business and political economist who advises entrepreneurs and small businesses through his company, CM Cap (http://www.cmcap.com/). He can be reached via e-mail at cedric@cmcap.com. His weekly “Cedric Muhammad and Black Coffee Program” can be viewed every Wednesday from 12 p.m. to 4 p.m. EST at The Black Coffee Channel by visiting www.blackcoffeechannel.com/.)
