How badly would it roil the markets if China recalls their ambassador and closes their embassy here

[DemocratSinceBirth]

Shortly after news broke of Donald Trump’s phone call with the head of Taiwan—the first direct communication between American and Taiwanese leaders in 37 years—one of the leading Chinese scholars of U.S.-China relations offered a stunning proposal: If the U.S. president-elect took similar actions as president, the Chinese government should suspend the world’s most important (and precarious) partnership. “I would close our embassy in Washington and withdraw our diplomats,” said Shen Dingli, a professor at Fudan University in Shanghai. “I would be perfectly happy to end the relationship.”


https://www.theatlantic.com/international/archive/2016/12/trump-taiwan-call-china/509600/

How badly would it roil the markets if China recalls their ambassador and asks our ambassador and embassy staff to leave China?

We would not get in a hot war. It's unthinkable... But to think China has no leverage is naive.

[JaneQPublic]

1. Or, if Trump really pisses them off...

...what if they call in their loans?

[DemocratSinceBirth]

2. Loans have call dates. I don't think they can be arbitrarily called in.

China is a closed society that is used to privation. America is a bourgeoisie society. In an economic battle America will blink first.

[JaneQPublic]

8. That's good to know.

Just shows not to believe every talking head on TV.

[GummyBearz]

24. They could however dump all the bonds they own on the open market

The problem with that scenario is they own so much, it would hurt them just as much as it would hurt us. We are economically entangled at this point. The worst thing they could do is just stop buying more, which again would hurt them, but it would hurt us more.

[TubbersUK]

29. They could dump though n/t

[DemocratSinceBirth]

30. Please explain to me how that would work?

[TubbersUK]

48. Sufficient political tension and/or US economic factors

Last edited Tue Dec 6, 2016, 01:17 PM - Edit history (1)

might tempt China to take the hit and dump a significant amount.

Analysis: What is Plan B if China dumps its U.S. debt?

To be sure, the idea that China would suddenly sell its U.S. debt holdings is almost unimaginable to some.

After all, any weakening in the U.S. debt markets and the resulting global markets turmoil, including likely weakness in the dollar, would bounce back on China and could hurt its economy badly, especially as the United States is such a huge Chinese export market.

It likely would take something like a massive rise in tensions over an issue like Taiwan or oil exploration in disputed areas of the South China Sea, including possible military confrontation between the two nations. Such a confrontation would also make it easier for Washington to appeal to the American public to buy its debt for patriotic reasons.

But Beijing could also justify pulling back sharply from U.S. Treasuries if the dollar were to plunge, perhaps because of Washington's failure to curb its budget deficit and debt.

"I worry that we could be at a tipping point," said Eswar Prasad, a Brookings Institution economist and former International Monetary Fund official with responsibility for China.

"If the Chinese say 'We're not buying any more Treasuries,' this could act as a trigger around which nervous market sentiment coalesces," he said. "People could start wondering how the U.S. is going to finance its deficit."

http://www.reuters.com/article/us-usa-treasuries-china-idUSTRE70H5NX20110118

[Sam1]

64. China is not going to stop buying or rolling over the US Bonds that it holds.

The bonds earn interest while the cash that they would get doesn't. This is not a problem since the bonds are denominated in US Dollars. China also likes to hold large amounts of US Bonds because it can use these holding to manipulate the exchange rate between American and Chinese money. By keeping American Dollars over valued in terms of the renminbi china can increase their exports to us and decrease our exports to them. These bonds come from the trade deficit not from loans.

[world wide wally]

3. Would Walmart go out of business?

[DemocratSinceBirth]

5. Without Chinese goods many retail stores would go out of business.

[el_bryanto]

4. Financial armageddon I would say. In fairness that's just an indication they they are very upset

But . . . what would the next step be? Trump does whatever is necessary to calm them down? Or we go into a trade war, one in which we are not likely to do well.

Bryant

[Calista241]

6. Pretty bad, but it's not like China can kick us to the curb

Selling their stuff here is what's keeping their economy afloat.

So if their goal is to cause a worldwide depression that includes their own country, they can do whatever they want.

[DetlefK]

9. China has other means of financial retaliation.

They hold a significant chunk of US debt. What if China says "Give us $100 billion."

That's big enough to hurt the US but not big enough to threaten the US economy.

Will Trump pay up and bow down to someone more powerful?
Will he try to pull some shit and cheat his way out of this situation?
Will he straight-up refuse to pay up, default on the debt and ruin the economic rating of the US, just to satisfy his ego?

[Calista241]

12. People will still buy less Chinese goods, which threatens their own economy.

The big nuclear weapon is the US nationalizing our debt which would happen if China wanted to intentionally call in loans that we couldn't pay.

[DetlefK]

20. You think, people would stop buying cheap crap?

What about the recharger-cable for your Smartphone? Read the fine-print on the backside: Made in China.

What about those $5-pants and $2-t-shirts? Made in China.

What about "Make America Great Again"-caps? Made in China.



People will continue buying chinese stuuff, because the retailers will continue buying chinese stuff, because you can't get any cheaper than a chinese sweat-shop. (Except maybe vietnamese or bangladeshi sweat-shops.)

[GummyBearz]

26. You can't call in a treasury bond

They have a specific call date. 5 year, 10 year, 20 year... the only thing you can do is dump your bonds on the open market, which would harm them just as bad as it would harm us since they own so much of our debt.

[DemocratSinceBirth]

31. How would it hurt us if they dumped our bonds. We still don't have to pay until the call date.

OTOH, they win in a game of economic chicken:

which would harm them just as bad as it would harm us since they own so much of our debt.

because they are much more used to privation than us.

[GummyBearz]

34. If they were to dump all our bonds it would flood the market...

...with bonds at at certain rate (say somewhere between 1-5% depending on when they bought them). That means at our next treasury bond auction the government would have to increase the interest rate they are offering to a much higher level in order to attract buyers. Otherwise people will buy the cheaper US-treasury bonds being sold by china

[DemocratSinceBirth]

36. Thank you. That makes sense.

Every nation has the right to pursue their own interests. I just don't see the point of pointlessly rattling another nation's cage, especially a nation that has 1.4 billion people, is the second largest economy in the world, holds so much of our debt, and is suspicious of the west with good reason.

This isn't like rolling Merv Griffin in a land deal which Trump boasts about in his book.

[GummyBearz]

49. Another thing on this topic...

As long as China is happy to just collect the interest they are already owed, I think the worst way China could hurt us is to simply not show up at the next treasury bond auctions. That would also drive demand WAY down, and result in the US having to offer higher interest rates to attract enough buyers to fund our deficits. But it is a slightly short sighted strategy from China's stand point, and China is known for thinking long term instead of short term.

The idea would be to just degrade the US credit rating quickly and hope that we fold like 1989 Russia. It seems like a moonshot idea to me at this point, but our national debt is a very real liability.

[DemocratSinceBirth]

13. China also holds some of Trump's loans.

The Bank of China also holds some of Trump's loans. What if China retaliates against him personally and he uses the power of the United States to respond. In that instance even some of the GOP might not go along with him.

[dumbcat]

38. "Give us $100 billion."

I don't know why so many people think that US Treasury debt is like a Title Loan from some sleazy storefront loan shark on your crappy junkyard car. You just can't "call" most real debt. That is a myth.

[ProfessorGAC]

54. Thanks, Dumbcat!

For decades, everyone who has invested in US Treasury securities knew they were NEVER getting the money back. They were buying them up for the collection of interest. Even a super large owner of bonds like China can't do anything about demanding the money because, what? You'll go to war? Then you definitely will never get the money back and part of the money they would need to mobilize for war is tied up in the money they're never getting back.

China, like all other treasury investors, know the investment is based upon stability and patience and they never expected to simply call the Treasury department one day and demand repayment in full.

[hack89]

40. China cannot say "Give us $100 billion."

when they purchased those Treasury bonds, they agreed to the conditions of those bonds, which among other things stipulate when the US Government has to pay China back.

[jmg257]

7. We buy $482 Billion dollars of Chinese goods - why would they do that?

I guess they could always take over all those US owned factories we have over there.

[DetlefK]

10. There are no US-owned factories over there. China only allows joint ventures for foreign investors.

[jmg257]

17. Ah - thanks!

[Demsrule86]

41. They own 51% of such factories

But if they took them over it would be disastrous and probably cause some of our companies to go out of business.
But therein lies the problem...we can't even manufacture there without them owning more than half of the any company...but our markets are wide open...Trade is a disaster.

[Sherman A1]

16. Precisely

There may be a few elbows thrown in the mix, but I it is not in China's best interest to go too far, just as it is not in our best interest to do so.

[DemocratSinceBirth]

19. China is used to privation. We aren't

Our nation has the infinitely lower threshold for pain.

[spanone]

11. well, then the donald-elect could stop making payments on his chinese loans

win win

[DetlefK]

22. What if the financial world hears that the new US-policy is to not pay debts?

Who will accept debt from the US when Trump has just made clear that you can't expect him to pay his debts?

[still_one]

14. The trump administration is playing a very dangerous game. They are interferring with

a situation between Taiwan and the Mainland China, which would be eventually solved by negotiations between those two parties. They start using Taiwan as a pawn, they will force Mainland China's hand.

Our foreign policy in the middle east, is a perfect example of a disaster

[DemocratSinceBirth]

15. The strategic ambiguity of the One China policy has kept the peace for nearly fifty years.

Last edited Tue Dec 6, 2016, 11:48 AM - Edit history (1)

The goal is one nation with two governments.

[still_one]

23. I understand that, not unlike Hong Kong, but if they continue to push China using

Taiwan as a pawn, it should not surprise anyone if China, not only does as you say diplomatically, but also takes over Taiwan.

Your OP asked if it would affect the markets if China broke off diplomatic ties with the U.S. It should, just based on the uncertainty it would cause

[DemocratSinceBirth]

27. I am sympathetic to the Taiwanese position but not to the point of going to war to defend it.

In the end the results would be cataclysmic and Taiwan would be no more anyway. It would be the perfect example of '"destroying the village to save it."

[still_one]

28. I agree

[randr]

18. It would end the Walmart Empire

[Johonny]

37. Exactly

The one thing W and Co. understood that as long as they kept goods' prices low then the pain of the stagnant economy wouldn't feel as harsh. It was one of the primary goals of his presidency: keep inflation low on household goods. Trump's talk of tariffs, trade wars, and worse would have one certain effect: drive inflation. Particularly inflation in goods destine to the very people that voted for him. The middle America Walmart shoppers. If they think the economy left them behind under Obama, just wait until that 35% tariff kicks in. And no it won't make American goods viable in the market place. Typically tariffs simply allow American companies to drive up the price of their own goods even higher. The result will be run away inflation. And down will go Walmart and most retail stores as Trump will be slashing salaries, driving up middle class tax burden, and likely driving up the deficit.

[DemocratSinceBirth]

42. It would end a lot more than the Wal Mart empire. It would end a lot of retail

THIS:

If they think the economy left them behind under Obama, just wait until that 35% tariff kicks in. And no it won't make American goods viable in the market place. Typically tariffs simply allow American companies to drive up the price of their own goods even higher.

Are there televisions, computers, appliances made in America?

I have all of them in my home, like most Americans, and none are made in the U.S.A.

[Demsrule86]

44. We should manufacture those things though.

But to suddenly slap a tariff on with no investment in manufacturing here would cause economic disaster.

[DemocratSinceBirth]

45. You would have to give working class Americans huge raises to afford them.

You would have to give working class Americans huge raises to afford them. In the absence of those raises they are going to get screwed.

I can buy a 40 inch flat screen for $169.00 !!!. I paid nearly $300.00 for a RCA 25 inch color tv in the early nineties.

[treestar]

21. Probably very bad, but it could be bad for China too

they have to sell all their stuff to us here.

[beachbum bob]

25. US markets would crash for starters.

Depending on retaliations.US goes into deep recession/depression....US debt cost skyrockets....

[heaven05]

32. IF we make it through

4 years of this ignorant chump voted in by racist ignorant chumps, it will be a long time before this country can repair the damage this upcoming administration of the NNPA will cause, And that is a big, huge IF!!! AmeriKKKans have done it this time. Who would have thought the David Duke KKK, Alec Jones and Steve Bannon would cause the ultimate decline of this nation. Bad, bad times coming, for the trumpchumps and the enlightened.

[malaise]

33. Worry when the Chinese start calling in the debt

and remember Groper Don the Con never pays debts.

When that happens get away from the fan

[heaven05]

35. there will be no way

to escape the blast from the "fan". And China and the U.S. and the world, collaterally, will become a smoldering ruin in nuclear winter because white racists want to" make ameriKKKa great again". We have always been our own worst enemy. First by never dealing with the corruption of the Supreme Court regarding ALEC, Congress and Representative greed and finally the cancer(s) of racism, sexism that have eaten away at american unity for generations. Comeuppance time.

[malaise]

50. +1,000

I'd also add that the reality of foreign policy versus the propaganda about it hasn't helped and facilitated the rise of this despot

[Johonny]

39. Don't worry he already said he'd repay them "less" than we owe. Say 5 cents on the dollar

It works for him in the business world so why wouldn't it work in the Geo-political world...OMG we're doomed.

[malaise]

52. And that is my worry

[hack89]

43. They can't just start "calling in the debt".

when they purchased those Treasury bonds, they agreed to the conditions of those bonds, which among other things stipulate when the US Government has to pay China back.

[malaise]

51. We know but when one side changes the terms hell breaks lose n/t

[hack89]

55. No terms were broken

the terms are pretty simple - you give us your money and on this future date we will return your money with interest.

[malaise]

56. Yet

The Con has already suggested that he'll pay pennies for dollars

[hack89]

57. How exactly did he do that?

not sure exactly what you are referring to.

[Dreamer Tatum]

46. I wish people would learn how bonds and debt work before spouting off about "calling debt"

It's not the fucking Sopranos. Paulie Walnuts isn't going to show up at the Treasury with a few goons to collect.

Jesus.

[Sunlei]

47. It will be bad enough for our economy as China takes over the new Asian-Pacific trade that will

directly benefit Chinas huge & growing middle class of consumers.

All the stuff they sell to consumers will be made even cheaper when China can sub-contract 'factory work' to their tiny Asian-pacific neighbor countries.
Those countries will have no 'TPP like' worker protection rules, no trademark rules, and no rules against slave labor at all.

They won't need an embassy in DC, just in places like Canada, Mexico, Australia,& New Z. Those are Chinas new largest trade partners.

[Warpy]

53. It would signal the start of a trade war, not good

and you'd better believe the markets would reflect that.

It would take a year or two, but ordinary people would also feel it fairly fast as their cheap "cotton blend" clothing wears out. Yes, we'd import cloth and clothing from elsewhere, but it would be much more expensive.

[Vinca]

58. The Chinese own us. Someone should remind ManBaby.

[DemocratSinceBirth]

59. An economic war would hurt both of us.

The question is who would blink first; the bourgeoisie nation or the nation with a history of privation?

[former9thward]

60. So China gets to tell U.S. Presidents (or President-Elects)

who they can talk to? Please tell me, who has the U.S. told to China that they can't talk to?

[DemocratSinceBirth]

61. Should the Chinese government open up lines of communication

Should the Chinese government open up lines of communication with Puerto Rican, Alaskan, Texan, and Hawaiian separatists?

Maybe not in our lifetimes but there will come a time when China treats it secessionist colony the way we treated ours.

[former9thward]

62. The separatists you refer to do not hold state power.

They are fringe groups at best. I really don't think the U.S. would care if China talked to them or not. In fact both China and the Soviet Union routinely hosted delegations from the U.S. Communist Party and others who wished to overthrow the U.S. system and the U.S. government did not object. The larger point is that we are not a colony of China. They do not get to tell us who we can talk to or where we can go. They do not get to tell us the Dalai Lama from Tibet can't come to the U.S.

[DemocratSinceBirth]

63. We fought a civil war that killed 600,000 Americans to resist southern secession.

It's not up to foreign powers to evaluate the righteousness of the cause of Chinese secessionists and choose sides just as it wasn't up to foreign powers to evaluate the righteousness of our secessionists and choose sides.