WHY IS THE U.S.A. SO INDEBTED BY BILLIONS OF DOLLARS TO CHINA AS A TRADING PARTNER?

The real answer is that the Chinese (Chicoms) pay their people about a dollar a day and they have no recourse or say in their wages. If they complain, they get “reeducated” or shot if they don’t understand communism. Next, the Chicoms manipulate their currency value (won’t allow it to float) and therefore we buy everything from them after we invent it. They manufacture our goods or ideas and products at a cost way below what we could achieve without slave labor. The Japanese do this as well but not to the extent or level of the Chicoms.

One general reason is that investors and corporate treasurers worldwide, including in China, prize U.S. Treasury Bonds as a stable and useful investment. The same is not true with regard to Chinese bonds. When investors choose to invest in US Treasury Bonds, that means the US government owes them money.

Beyond that, there is the issue of recycling dollars. The U.S. runs a trade deficit with China. When a U.S. company buys something from China, they will generally contract to pay for the imports in US dollars (not Chinese money). That means that a lot of U.S. dollars accumulate among Chinese corporations and the Chinese banking system thanks to the trade. What do the Chinese do with the money? Often, they buy U.S. Treasury Bonds as mentioned above.

It is sometimes said that we take on debt to “finance” the trade deficit. That is backwards; in reality, China’s trade surplus finances their purchase of U.S. debt.