As the U.S. continues to rack up more than $1 trillion of new debt every year, Americans are beginning to worry about who we owe this money to and how much power our creditors have over us.
According to Barry P. Bosworth, a senior fellow at the Brookings Institution, our two biggest foreign creditors are Japan and China.
Although it may seem as though our debt to these countries renders us a puppet on strings, Bosworth says this fear is overblown. The U.S. market is very important to China's economy, so China would be loathe to do anything that might exacerbate tensions or disrupt trade between the two countries. And the same can be said for Japan. China owns $1.15 trillion of U.S. government debt -- more than any other country -- but U.S. taxpayers actually owe less money to China compared to recent years. China holds 10% of U.S. Treasuries, down from 12% two years ago.
And what about all the anti-China rhetoric that we hear about on the campaign trail?
Republican Presidential Nominee Mitt Romney has been promising the country that he will declare China a "currency manipulator" on the first day of his presidency--and then enact tariffs as necessary until he forces China to level the trading playing field. Is that something that Romney is actually likely to do if he gets elected?
No, says Bosworth.
Tough talk with respect to China has become standard rhetoric for any presidential challenger. If and when Romney becomes president, his position will likely mellow.
Bosworth also says that the problem with the U.S.-China trade relationship is not, as is commonly believed, that China doesn't play fair. China has actually addressed lots of its unfair practices over the past decade, Bosworth says, while the U.S. is still pursuing the same old self-destructive habits. Until we stop consuming so much and start producing more, Bosworth says, we're in no position to demand anything.