from Follow the Money

Containing China with money borrowed from China

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I sometimes find grand geostrategic commentary a bit amusing, in part because there is so little overlap between geostratists and economists. I think Tom Barnett gets some aspects of the global flow of capital a bit wrong, but at least he tries to bridge the two worlds.

I will confess that I was a bit surprised by Robert Kagan’s argument that the US is already implementing a policy of containing China.

The United States may not be able to avoid a policy of containing China; we are, in fact, already doing so.

After all China buys a fair number of Treasuries. If the US already has adopted a policy of containing China, China is helping to finance its own containment.

Wrapping your head around that thought is a bit hard -- even unsettling. Kagan may be half-right.

This [The US policy of containing China] is a sufficiently unsettling prospect, however, that we are doing all we can to avoid thinking about it.

China presumably thinks that it is winning, or at least not losing, in this trade. Its industrial base is growing rapidly, and that may matter more than anything else. The US presumably thinks its apparent financial dependence on China carries limited risks: if China doesn’t want to buy, another buyer for US debt can be found, at close to current rates.

Or the US thinks that its new policy of "lanes" will work. Lanes seems to be the new DC code word. It means that there will not be any linkages between currency manipulation and North Korean nukes, or trade and human rights. Containing China is in one lane; marketing US debt to China is in another.

Maybe. But it certainly feels somewhat risky to have the government targeted in the Pacific Fleet’s war games (And the justification for the Navy’s next generation of toys) also be the largest current market for US debt. I would guess China feels equally strange financing the current strategic thinking of the US Pacific fleet. This may be a stable equilibrium; but it hardly feels that way.

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