Commentary by William Pesek
March 13 (Bloomberg) -- A record plunge in Chinese exports may be great news for the U.S. Treasury.
It’s simple mathematics. The U.S. economy is more than four times the size of China’s. Growth in China is wildly lopsided toward exports, many of those goods packed on ships bound for America. So, if China wants to stay afloat, it should spend less money building roads, bridges and dams and more on U.S. debt. That would give the U.S. and its consumers the access to easy credit to reignite spending, much of it on Chinese-made goods.
OK, so that’s not about to happen. China is already spooked about its $696 billion of Treasuries. Their value is subject to the whims of Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke.
You still have to wonder if domestic stimulus is the best way for China to go. It’s only a matter of time before China adds to the 4 trillion-yuan ($585 billion) spending plan unveiled in November. As global demand slides, China’s stimulus needs will grow exponentially. There are few signs it will be enough to ensure China’s projected growth of 8 percent in light of the 26 percent plunge in exports in February.
China, it’s often said, can spend its way out of this crisis. Throwing lots of money at the problem will soften the blow, yet it won’t be enough with the world slump intensifying. The key to China getting back to the all-important 8 percent growth level is a global recovery. Basically, that means the U.S.
$14 Trillion Gorilla
That’s why buying more U.S. debt makes sense. I’m not saying this because I’m American. This isn’t about economic nationalism. It’s just that the sheer size of the U.S. economy makes it a $14 trillion gorilla when officials in Beijing, Tokyo or Singapore grapple with safeguarding growth.
Malaysia, for example, plans to spend 60 billion ringgit ($16 billion) to support its export-dependent economy. Expect fiscal-stimulus packages of similar magnitude to sweep across Asia in the months ahead. Southeast Asia is experiencing this global crisis in slow motion. Even though most economies are still growing, the worst is yet to come.
Savings-rich Asia could almost fund a U.S. budget deficit that is sure to reach previously unthinkable levels over the next two years. And, really, it could be in the region’s best interest to do so.
Hillary Clinton’s visit to China last month dramatized the point. She didn’t exactly arrive with her hat in her hand, yet it was surreal to see the U.S. secretary of State hawking bonds.
China’s Interest
“Our economies are so intertwined,” Clinton told Dragon Television in Beijing. “It would not be in China’s interest” if the U.S. were unable to finance deficit spending to stimulate its stalled economy.
Clinton was referring to the Group of Two, an entity that has eclipsed the Group of Seven nations. The G-7 has been useless in this crisis. The G-2 is the key to restoring global demand.
Japan’s economy may be the second-biggest at $4.4 trillion, but it has its own problems. Germany’s economy is roughly the same size as China’s and it, too, might benefit more from a U.S. snapback than domestic stimulus.
President Barack Obama and Geithner need to get real about the magnitude of U.S. stimulus needs. Getting the U.S. off life- support may require another $2 trillion. Making that case to a disillusioned public and Republican leaders arguing for less public spending won’t be easy. They should begin laying the groundwork immediately.
Paying for It
The next step, of course, is paying for it. That’s where Asia comes in. Rebalancing the global economy will require Americans to become a bit more Asian -- consuming less and saving more -- and for Asians to become a bit more American. It’s not an easy transition, and in the meantime, expect U.S. officials to unleash a massive buy-bonds campaign.
Admittedly, this whole argument is politically incorrect. Asia lending the U.S. even more money would be highly unpopular. The U.S., Asians often point out, was slow to help this region during its 1997 crisis. And why bail out a country that is so successfully exporting its own crisis?
The answer is that Asia is heading into a highly turbulent environment. Governments can spend all they want on stimulus efforts, and they may help at the margin. For better or worse, though, restoring global growth is more of a U.S.-centric exercise than many in Asia and Europe might like to admit.
That inconvenient fact makes it pointless for China to suddenly dump its Treasuries. It’s just not an option for the world’s third-largest economy.
U.S. officials used to fret about the Japanese doing that. Concerns increased after Prime Minister Ryutaro Hashimoto said in June 1997 that “several times in the past, we have been tempted to sell large lots of U.S. Treasuries.” It never happened. The reason: It can’t, and especially now.
China would cannibalize its outlook by curtailing its U.S. debt purchases. It may have more to gain from doing the opposite.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net
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