Out of all the sensational and frightening campaign ads released during the 2010 election cycle, one distinguished itself from the rest by being especially crazy. The ad was produced by the conservative nonprofit group Citizens Against Government Waste and is set in 2030 China. The commercial features a Chinese professor giving a lecture about the fall of great nations throughout history, highlighting the United States as a fallen power that "turned [its] back on the principles that made them great" by changing health care and enacting the stimulus plan. With a portrait of Mao Zedong and the Chinese flag hanging over his head, the professor cackles and says to the camera, "of course, we owned most of their debt, so now they work for us." The students laugh self-assuredly and the commercial ends right before the president of the United States has to run up on stage and burp the national anthem in Spanish for Chinese amusement.
Suggesting that the burgeoning Chinese economy spells danger for American interests and sovereignty has become a trendy method of heralding doom; this aforementioned ad is a product of that narrative. The fear is generated by several conditions: China recently overtook Japan as the second-largest economy in the world and is on track to surpass the United States in size by around 2020. China is the largest foreign investor in U.S. debt and ostensibly remains a communist government. There is concern that Chinese ownership of U.S. debt will allow it to malevolently exert control over American actions or, more apocalyptically, drop their investments suddenly to crash American markets.
This fear, illustrated by CAGW's campaign ad, is irrational for a variety of reasons. First, it presumes that China invests in U.S. securities - the bonds that constitute the national debt - with malicious intent. On the contrary, China's interests lie in growing its economy, and buying securities is nothing more than an investment strategy. U.S. securities have perennially held little risk and promised a decent return on investment - so the Chinese buy them. Earlier this year when concerns emerged that the value of the dollar would decline, China sold $34 billion dollars worth of securities and committed to further diversification of its portfolio. China is only interested in U.S. treasuries insofar as they can produce.
While we are debunking inaccuracies, let us tackle the myth that China owns enough of the United States' debt that it can leverage American politics or debilitate our economy.
Foreign investment in United States debt is not a new phenomenon; foreign investors account for 30 percent of treasury securities, and the Chinese comprise a full 20 percent of that $4.212 trillion figure. Chinese investments in the U.S. debt increased five fold between 2003 and 2009, yet it still only possesses 6 percent of the publicly held national debt. Six percent is hardly the controlling stake of a country's economic fortune. As for China dumping U.S. assets in order to cripple our economy, this scenario assumes that it would be advantageous for China to do so. That is a big leap; a sudden sell-off of all Chinese securities would dramatically devalue those holdings, resulting in substantial losses on the sale. The sale would greatly diminish the value of the dollar - a currency the Chinese are heavily invested in - and decrease demand for Chinese exports in American markets, which is a large segment of the Chinese economy.
Bringing attention to the impending Chinese subjugation accounts for little more than political posturing; it is a scare tactic to construct a larger narrative that Americans are losing influence in their country. "Fear China!" is an effective rallying cry because communism still elicits an emotional response from Americans and the idea of being owned by a communist government is more distasteful than other future scenarios. That is why you will not hear about Japanese ownership of U.S. debt, which is almost identical in size to China's stake - $836 billion dollars, $32 billion less than China - or Europe's $2 trillion dollar investment in American securities during the last seven years. Those facts do not scare people as much as China's holdings. While legitimate concerns about the United State's debt exist and deserve our attention, we should not resort to boogeymen portrayals of other countries to make those points.
Travis Ortiz's column appears Wednesdays in The Cavalier Daily. He can be reached at t.ortiz@cavalierdaily.com.
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