We hear a lot about China in the news. Some of it favorable and some of it not so good. Steel imports were the most recent topic, but the trade deficit, theft of technology, cost of doing business in China, currency manipulation, and the ownership of our government bonds continues to come up in the press.

In 2017, the United States imported 506 billion dollars of goods from China and exported $130 billion of goods to China. The majority of the goods imported to the United States were merchandise, clothing, electronics, and machinery. The United States exports a fair amount of raw materials to China for low cost assembly than they are shipped back here. Who needs who more? Probably China, since their economy is much more dependent on exports. In terms of jobs, if consumers want to continue to pay less money for clothing, electronics, and other merchandise we can expect China to keep those jobs.

There are some other hurdles that are daunting in doing business with China. China requires companies doing business with them to transfer over their technology and confidential industry information. They restrict companies from participating in many industries. The theft of intellectual property is blatantly ignored. These are some of the major problems of doing business with China and something that does need to change.

The Chinese do buy our Treasury bonds. How much do they own and could they sell them all and influence our economy? China owns about 1.17 trillion dollars of our total national debt of $21 trillion or around 5%. Japan owns $1.07 trillion, so the two countries together own about 10% of our U.S. Debt.There are good reasons why they own this debt. One of them is that they are able to help stabilize their currency against the rise and fall of the US dollar. China uses a basket of currencies, including the dollar, to peg the value of its currency (yuan). China has been moving towards letting market forces dictate the value of the yuan. When the dollar weakens, it uses the purchase of US Treasury bonds to buy dollars to support it.

By China buying US Treasury bonds, our interest rates stay lower. That creates less of an overall government deficit. If China were to stop buying US Treasury bonds or dump them on the market, our interest rates likely would rise and move us closer to a recession. In a recession, we would not buy as many of China’s goods. It is really in China’s best interest to keep our interest rates stable.