United States Debt Crisis Means More Power to China

 United States Debt Crisis Means More Power to China

    For over 60 years the United states of America has been known as the superpower nation of the world. However due to numerous reasons the United States is at risk of losing that title in the future, due to the immense debt they have been accumulating, especially with China.  Consequently this creates a power shift that influences the Western world by making the west less financially powerful.  The power is shifting to Asia, especially China.

    According to a recent report in The Economist “In 2012 America’s intelligence agencies forecast the Asia would soon be carrying more weight in the world than any time since 1750.  By 2030, Asia will have surpassed North America and Europe combined in terms of global power” (2014). This is largely because the Unites States has a huge debt and China hold much of that debt.   “In 1980, America was the largest creditor nation in all of recorded history. Just over three short decades later, America now stands as the greatest debtor nation in all of world history” (FTM Daily, 2013).

The U.S. national debt totals 17 trillion dollars.  How did this happen?  As explained by Kimberley Amadeo, “Government debt is an accumulation of Federal budget deficits, and these can be associated with various U.S. presidents. The largest contributor has been President Obama, thanks to the economic stimulus package, the Obama tax cuts and the roughly $800 billion a year on military spending. Next on the list is President Bush. His deficits were a result of the bank bailout,  tax cuts and the War on Terror. The third largest contributor was President Reagan, who also cut taxes, increased defense spending and expanded Medicare. All of these Presidents also suffered from lower tax receipts resulting from recessions.” (U.S. Economy, 2014).  This is outlined in Fig. 1. The gross national debt, in proportion to gross national product (GDP) started to rise at the beginning of the Reagan years.

The US has been turning to other countries to help pay off debt, especially China. This is partly because Europe underwent a financial downturn in 2008, the same as the United States.

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Fig. 1. Chart depicting U.S. national debt by president. (Zfacts, 2012)

http://youtu.be/Jjv-MtGpj2U → Youtube video explaining the US debt crisis (From 2011)

China has been gaining consistent financial power ever since they started loaning money to the USA. China is now one of the primary holders of the US dollar, “China’s holdings of U. S. Treasury bills  increased  in November, 2013, to $1.317 trillion, a new record high” (Fox Business, 2014).  Holding so much U.S. debt can give China power an influence over the United States, as outlined in the Washington Post. The U. S. debt crisis has resulted in many negative responses from China, especially when the United States threatens to stop paying interest, as outlined in this article from the (Washington Post, 2013).

    “BEIJING — The political standoff in Washington has spawned frustration and growing worries in China, which remains the largest holder of U.S. government debt, as the clock ticks down to a possible U.S. debt default this week.

The crisis shows that China and the rest of the world should start to “de-Americanize,” according to a strongly worded commentary from the Xinhua News Agency, China’s leading government-controlled news outlet.

“The world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites,” the commentary said. “Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated” (Washington Post, 2014).

“The congressmen are behaving irresponsibly not only for other countries but also for” the United States’ “own creditors,” said Mei Xinyu at the Chinese Academy of International Trade and Economic Cooperation, which has ties to the Commerce Ministry. “They are gambling the U.S. future on their political-struggle interests.” (Washington Post, 2013).  If China is unhappy with American policies, they can either stop buying U.S. debt, which could cause a crisis ( see Youtube video) or try to directly influence U.S. policy.  

Counter argument

Commentators and policymakers have articulated growing concerns about U.S. dependence on China and other authoritarian capitalist states as a source of credit to fund the United States' trade and budget deficits. What are the security implications of China's creditor status? If Beijing or another sovereign creditor were to flex its financial muscles, would Washington buckle? The answer can be drawn from the existing literature on economic statecraft. An appraisal of the ability of creditor states to convert their financial power into political power suggests that the power of credit has been moderately exaggerated in policy circles. To use the argot of security studies, China's financial power increases its deterrent capabilities, but it has little effect on its compliance capabilities. China can use its financial power to resist U.S. entreaties, but it cannot coerce the United States into changing its policies. Financial power works best when a concert of creditors (or debtors) can be maintained (Belfer Centre, 2009).

Although the statement from the Belfer Centre suggests that people in the west do not have to worry about the influence that China has because it has so much American debt,  this statement is very unlikely. Of course, American institutions have to say this, so Americans will not be worried about China. Money is a main driving force in our world. Money means power, so since China is gaining so much money from this debt that the United States owes them, China is gaining a lot of power. I believe this power will easily turn them into the next big super power.

   

Works Cited

Amadeo, Kimberly. "The U.S. Debt and How It Got So Big." . N.p., 1 Jan. 2014. Web. 10 June 2014. <http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm>.

Drezner, Daniel. ""Bad Debts: Assessing China's Financial Influence in Great Power Politics"." . N.p., 1 Jan. 2009. Web. 11 June 2014. <http://belfercenter.ksg.harvard.edu/publication/19622/bad_debts.html>.

Egan, Matt. "China Now Owns a Record $1.317T of U.S. Government Debt." .

Foulis, Patrick. "How To Keep Roaring." The Economist 31 May 0031: n. pag. Print.

FoxBuisness, 16 Jan. 2014. Web. 10 June 2014. <http://www.foxbusiness.com/economy-policy/2014/01/16/china-now-owns-record-1317t-us-government-debt/>.

"National Debt Graph by President." . Zfacts, 1 Jan. 2012. Web. 11 June 2014. <http://zfacts.com/p/318.html>.

Robinson, Jerry . "U.S. National Debt Hits $17 Trillion: How Did We Get Here?." . FTM Daily, 18 Oct. 2013. Web. 10 June 2014. <http://ftmdaily.com/daily-briefing/how-did-we-get-here/>.

Wan, William. "U.S. debt crisis spurs Chinese calls to de-Americanize’ world." . N.p., 13 Oct. 2013. Web. 12 June 2014. <http://www.washingtonpost.com/world/us-debt-crisis-spurs-chinese-calls-for-de-americanized-world/2013/10/14/8c459486-34d1-11e3-be86-6aeaa439845b_story.html>.