Could China Crash the US Dollar on a Whim?

Over the last 30 years, China’s economy has grown at an average annualized rate of nearly 10%. While this statistic alone is jaw-dropping, what is more impressive is the extent to which the nominally Communist country’s economy has become intertwined in the global economy. China now exerts enormous influence over the economies of virtually every country in the world, and a slight change in its domestic economic policy has the potential to send shockwaves rippling throughout the world. Nowhere is this more apparent-and frightening-then in China’s economic relationship with the United States, which is very much at the mercy of China when it comes to prices, wages, interest rates, most importantly, the value of the Dollar.

The precariousness of this relationship is already the subject of significant publicity, redolent of the Japanaphobia of the 1980’s that saw American economists scare-mongering about Japanese control of the US economy. [Of course this later turned out to be unfounded, but that is beyond the scope of our discussion.] With regard to China, most of the analysis is focused on its growing foreign exchange reserves, the majority of which are held in Dollar-denominated assets. This article will go beyond forex reserves and discuss several other facets of China’s economy. From US house prices to global commodity prices, from interest rates to inflation rates, we will explore how China could cripple the US economy, both willfully and unintentionally, if so desired.

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