China 2

...The challenge now is how to persuade China to at least moderate its strategy without unleashing something even more destructive. As the decibel level has risen in Washington, Chinese officials have implicitly warned that they could retaliate by dumping Treasury bills from their central bank’s $2.4 trillion cache.

This would be risky for both countries. The move would weaken the dollar and lessen the value of China’s holdings. The United States might weather a sell-off or even benefit from the drop in the dollar’s value, but any precipitous move could further disrupt the skittish financial markets. And Beijing has other potential weapons, like tariffs and quotas. There is no guarantee of rationality in these showdowns. NYT editorial: Will China Listen?

No, there isn't a guarantee of rationality*. There is much more certainty of irrationality in varied doses on both sides. The real question is how the US allowed itself to get into this sort of position to begin with.

Ol' Blinky Ishihara once suggested that Japan dump its US holdings.** According to Blinky, although it would severely damage the US and global economy, in the end Japan and Asia would emerge from the crisis first because that's where all the quality products come from. Apparently nobody took/takes him seriously and relegated him to being a loonytune local-yokel populist (or as the US media tends to refer to the bigot: a controversial nationalist) whose ideas were good enough to get him elected and re-elected. Whatever the reason, we paid no attention.

We still don't. Paul Krugman argues that even if China did dump its US dollar holdings, it would not really have a serious effect. If he is wrong then he personally has a lot to lose....uhhh...well maybe not. Plenty of other economists disagree, but Paul has a Noble Prize. So did Milton Friedman, and I still futilely run outside hoping for money to be dropped every time a helicopter passes overhead.

Anyway, I'll take another wild guess and assume that China, after some displays of irrationality, will ultimately "listen" to some degree. If I am right, I can write a book with a blurb on the rear that reads: "One of the visionary few who predicted that China would avoid a trade war with the US." If I am wrong, I'll claim I work for ABC News and it was simply an unfortunate slip.

Note to self: Must get a life soon.

Note to Google. Google spell check is not aware of the existence of the word "futilely" or "futily". As an American for the US who cannot spell because I had no spelling classes except that I did, I chose the former spelling and then misspelled it. Worse than Google spell check.

*Wait, isn't rationality---according to M. Fujiwara-kun---a Western thing anyway?

**I am not able to find a link. The version I read several years ago was translated to English by a Japanese guy. It should be at least as reliable as an ABC report.