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Photo courtesy of State.gov
Inextricable Links: Why U.S. Debt to China Poses No Threat to
National Security
Lieutenant Colonel Joseph Francoeur
United States Air Force
cherish credit as a means of strength and security.1
--President George Washington, 1796
n August 2011, Admiral Michael G. Mullen, Chairman of the Joint
Chiefs of Staff and the top military advisor to the President, said
the federal debt was the biggest single threat to national
security.2 Explaining that future interest payments will soon
exceed total U.S. defense spending, Admiral Mullen and others
suppose a direct relationship
between debt service and a reduction in national security.
Others see American security diminishing due to $1.3 trillion in
debt currently held by the Peoples Republic of China.3 This
philosophy holds that state-on-state balances of power tilt toward
China due to U.S. reliance on foreign debt investment, resulting in
a serious risk to national security.4 Most citizens, government
experts, and senior U.S. military leaders agree that this enduring
trend of overspending and debt does weaken the American economy.
However,
1 The opinions, conclusions, and recommendations expressed or
implied within /luce.nt/ are those of the contributors and do not
necessarily reflect the views of the Naval War College, the
Department of the Navy, the Department of Defense or any other
branch or agency of the U.S. Government.
1I
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the impact of debt on national security is far less certain.
While the discussion of military size and strength is often
interchangeable with the state of national security in debate, they
are not necessarily synonymous. More specifically, China, as a
near-peer military competitor, customer, patron, and debt-owner,
presents an interesting study for military leaders considering
Admiral Mullens strong warning. While increasing American debt
levels and Chinese liability ownership provide for interesting
political debate, the complex web of economic interaction between
the two countries offers a more comprehensive view of the
relationship. Given the intricate economic relationship between the
two countries, American debt to China weakens but does not
significantly diminish national security.
As China is Americas largest foreign creditor, studying the
national security implications of the debt is critical.
Miscalculation favoring a view that Chinas financial position as a
lender is somehow a zero sum game where they are dominant and the
U.S. is weak is far too simple and unsophisticated for a realistic
national security discussion. Therefore, senior military leaders
must understand the magnitude of U.S. Government (USG) liabilities
and three dimensions which have a disproportionately large impact
on national security. The first area relating to national security
is the debate over whether American decision-makers are subject to
coercion or compulsion to act in a particular manner due to Chinas
ownership of American debt. This discussion relates our nations
ability to ensure security by sustaining influence and
freedom-of-action in pursuit of American interest. A second
considers Chinas ownership of U.S. debt, and whether our economy
and policy interests are subject to manipulation. Finally, the
third dimension examines the cost of our liabilities and the
potential effect upon national security due to consequences of
reductions in defense spending.
The Debt
The question of debt and national security rests in three broad
areas and is not unlike threats familiar to the average consumer.
First, the size of debt relative to the total economy allows us to
understand the magnitude and expense of the liability.
Understanding debt-to-income ratios, common to consumer loans,
helps illustrate why lenders must prevent over-borrowing which
creates payments in excess of what the customer can afford as well
as additional risk of default. Second, senior leaders must
understand that interest rates and costs can rise and fall as new
debt is sold daily at varying prices (yields). Average consumers
can grasp the implications of borrowing money on a mortgage at
attractive rates only to see them rise unexpectedlyperhaps to a
point where the loan becomes unaffordable. These variables make the
decision to borrow and spend a great risk for both the lender and
borrower.
The third concern relates to the effect of influence and
coercion between the creditor and debtora bit more difficult to
relate to the consumer experience. Unlike a consumer who borrows
from a domestically regulated lending institution, the U.S. sells
debt to nations which have different interests and world-views. A
consumer borrowing to purchase a home does not have to adapt to a
lenders political views or interests. While this may not be the
case on the national-debt level either, the discussion highlights a
common concern over non-domestic liabilities.
U.S. public debt is currently $16 trillion in comparison with
national Gross Domestic Product (GDP) which hovers at $15
trillion.5 Interest payments on the debt for fiscal year 2011 was
just over $225 billionmore than the USG spends on general and
education expenses combined. Loosely tying this to a consumer
debt-to-income ratio, the government sits at 45 percent
debt-payment to revenue.6 Worse, the USG will spend nearly $1.1
trillion more than it earns this year with deficit projections
continuing through 2022.7
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Ownership of USG debt is both domestic and international.
Domestically, state and local governments, private investors, and
the Federal Reserve own approximately 54 percent of USG
liabilities. International investors, owning the remaining 46
percent, are led by the countries of
Illustration 1 Source: Federal Reserve, Flow of Funds Accounts
of the United States, 2011, repr. GAO, accessed 30 December 2012,
http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html.
Countries with Largest Holdings of Treasury Securities (As of
June 2011)
Illustration 2 Source: Department of Treasury, et al. Report on
Foreign Portfolio Holdings of U.S. Securities as of June 30, 2011,
repr. GAO, accessed 30 December 2012,
http://www.gao.gov/special.pubs/longterm/debt/ownership.html.
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China, Japan, and Brazil.8 Putting this further into
perspective, China owns approximately 8 percent of U.S. debt with
Japan at just over 5 percent (see Illustrations 1 and 2). Given the
size of this foreign liability, issues of influence become a common
source of concern for U.S. decision-makers.
U.S. Policy Independence
Foreign ownership of American debt can help conjure up scenarios
where the U.S. might be hesitant to counter a creditors interests
in favor of the financial relationship. In this situation, the U.S.
might be reticent to counter Chinas efforts for fear of a mass sale
of USG debt or unwillingness to purchase more. While the future
possibility exists, the U.S. has shown no signs of reluctance to
act contrary to the interests of China. In Libya and Syria, working
with others, the U.S. has stood against China which had been
advocating for the interests of sovereignty, noninterference, and
stability. Opposing U.S. efforts until the final U.N. vote, Chinas
abstention did clear the way for coalition action in Libya.9 While
it remains to be seen what will occur in Syria, U.S. policy still
appears to remain independent of Chinese interests.10
Another example of U.S. policy independence can be drawn from
competing Sino-American interests in Sudan. U.S. policy objectives
in Sudan support human rights and ultimately the creation of South
Sudan while the Chinese, with significant oil and investment
interests at stake, sought security, and stability through unity.11
Working in opposition to Chinese interests, the U.S. sought and
found agreement on the 2005 Comprehensive Peace Agreement, 2011
cease-fire and subsequent South Sudanese independence.12 Despite
fundamental Chinese interests in the region, the U.S. stood in
clear opposition, bolstering American national values and
policy.
Vital Chinese interests are also in competition with the U.S.
over Taiwan and the Senkaku Islands. Taiwan, long an irritant to
Sino-American relations, continues to enjoy considerable and
increasing support from the USG despite Chinese objections. Since
the debt-crisis began in 2008, USG arms sales to Taiwan have
sharply risen from $608 million to over $1.2 billion in 2011.13 The
territorial disputes over the Senkaku Islands represent significant
issues of sovereignty, sea and energy resources for the Chinese.
While the U.S. position is not aggressively in favor of Japan,
Article 5 of the Japanese-American Treaty of Mutual Cooperation and
Security remains in effect providing a clear message to China and
furthering the notion of U.S. national security independence.14
An argument can be made that U.S. policy independence is at risk
regionally due to the combination of U.S. debt to Japan and China.
Totaling nearly $2.2 trillion, near evenly split at $1.1 trillion
each, the U.S. could potentially be influenced by both nations;
default to the reason of one, or simply remain beholden to
neither.15 While certainly a concern, the combination of Japans
inward focus due to domestic economic problems and the consistent
demonstration of U.S. policy independence with China indicate that
the risk is currently low. The demonstration of independence
represents one key element of the argument, but questions still
remain over American vulnerability to economic manipulation due to
foreign liabilities.
U.S. Debt and Economic Manipulation
In judging American vulnerability to economic manipulation, it
is necessary to analyze Chinas interaction with the American
economy as a customer, patron, and owner of debt. J. Paul Getty
once said, If you owe the bank $100, thats your problem. If you owe
the bank $100 million, thats the banks problem.16 When consumers
sign loan documents and borrow money from a bank, they agree to
contractual obligations with some risk to both parties. Obligations
include the rate of interest and methods of payment, as well as
other fine print requirements. The borrower confronts risk in
two
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predominant ways. First, the risk of the debt burden in terms of
cost relative to revenue. This topic will receive further attention
later. A second risk centers on the potential for changes in the
equation that can increase the cost or make additional credit
difficult to secure. Risks include rate increases and additional
lending restrictions. Another risk exists in the realm of
nation-to-nation liability. Here, some hold that a debtor country
might be subject to a crediting nations dominance. Some, like Karl
Rusnak of Economy in Crisis, opine that our debt leaves us
vulnerable to exploitation by a country such as China.17 This
argument presupposes that Americas largest creditor could disrupt
the economy through various instruments of manipulation. While
theoretically possible, the threat diminishes with further analysis
of Sino-American economic interdependence and the fact that China
only owns 8 percent of U.S. liabilities.18
This interdependent relationship starts with U.S. trade with
China at just over $539 billion in 2011. As the worlds largest
importer of Chinese goods, the American consumer has been
instrumental to the growth, wealth and prosperity within that
country.19 With a GDP of $7.1 trillion, growing at over 9 percent
per year, China depends heavily on U.S. consumers, low cost
capital, and the satisfaction of its 1.3 billion people.20 In any
attempt to influence, coerce, or exert power over the American
economy, the Chinese run the risk of damaging their own.
One risk involves U.S. imports of Chinese goods, which currently
total over $399 billion per year.21 As Chinas largest trading
partner, the U.S. consumers role in prosperity exacerbates
low-levels of Chinese domestic demand for goods and high rates of
saving. Chinas labor force of over 795 million workers earn only
$8,400 per year, on average, ranking in the bottom third of
nations. With poverty-levels of 13.4 percent and a low unemployment
of rate 6.5 percent, Chinas ability to increase domestic demand and
consumption seems unlikely in the near term.22 Therefore, Chinas
current model requires growth and strong international economies
with little tolerance for significant reductions in American
consumption. Illustrating this fact was the steep drop in Chinese
GDP from 14 percent in 2008 to 9.2 percent in 2009 following the
U.S. recession.23 In characterizing this downturn as both massive
and ferocious, experts point to the clear link between U.S.
prosperity and a thriving Chinese economy.24
China must also be attentive to the relative value of their
currency. Experts agree that Chinas renminbi (RMB) is undervalued
to the U.S. dollar (USD) by approximately 27 percent.25 By
suppressing the value, China is able to enjoy the effective
subsidization of its goods in American markets. Also aiding the
cause is a consistent trade imbalance which favors China by an
average of $290 billion per year. This imbalance means that cheaper
domestic products are supplanting more expensive U.S. goods within
Chinese markets.26 While the full implications of this issue are
not germane to this discussion, the global downturn in 2008 offers
a cautionary tale for the Chinese. With the U.S. economy in
trouble, national borrowing on the rise and consumer spending down,
the value of the RMB began to increase relative to the USD, over 8
percent in just one year.27 This phenomenon is a concern for China
as a cheaper USD, relative to the RMB, results in more expensive
Chinese exports and cheaper U.S. products. Both are risky and
costly for China.
Fears of disruptions resulting from China dumping the debt are
also unfounded as experts agree that three other scenarios are more
likely. First, the Federal Reserve and other creditors are capable
of purchasing the $1.2 trillion in Chinese debt, making any sudden
sell-off or concerns for finding further credit a short-term
problem. Second, rising yields in the wake of a sharp reduction in
Chinese ownership would likely be short-lived and only modestly
more expensive. Third, and perhaps most important, are the
follow-on effects of such Chinese behavior. A recent Pentagon study
holds that the Chinese would risk their reputation as a reliable
and respected economic partnera perilous long-term
proposition.28
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The Japanese-American debt relationship also highlights a
difference in how we view security, economics, and manipulation.
Despite the fact that the U.S. debt holdings by China and Japan are
about the same, American security is rarely thought to be at risk
to Japanese influence or manipulation.29 While Japan shares many
similarities with America in terms of democratic values and social
freedoms, they also hold independent national interests which
sometimes differ from the U.S. Instead of an opportunity for
economic manipulation, Japan views American debt as a means toward
a more stable yen, hedging against the greater threat of a slowing
Japanese economy.30 This view may be a better way to consider
similar Sino-American interaction.
The sum of these economic realities leads to the logical
conclusion that Sino-American interdependency makes economic
manipulation a lesser threat to U.S. security. This raw theory of
mutual assured destruction between the lender and borrower
illustrates the Sino-American construct. In the end, the concerns
of Mr. Rusnak and others fail to reconcile the risk of the lender
in this relationship. Considering only the leverage of the debtor,
previous arguments illustrate that China cannot significantly
meddle to the detriment of the U.S. economy because of inextricable
links.31 The conclusion here is that U.S. security is not
significantly vulnerable since the second- and third-order effects
of economic manipulation create great risk for China. However,
other more basic risks do exist, including burdens common to the
structural debt.
Debt: Tough Choices and National Security
The totality of U.S. debt is certainly a source of vulnerability
and has the potential to diminish the security of the nation. This
segment of debate centers on the notion that an additional dollar
spent servicing debt would reduce resources for defense. Further,
this resulting decline in spending would have to be somehow offset
by Chinese advantage for national security to be in jeopardy. In
this vein, it is important to grasp the magnitude of the potential
budgetary pressure of the debt and defense spending. Additionally,
assumptions of defense spending cuts must balance against an
assessment of Chinese military budgets which could narrow the
American advantage.
In 2011, the cost of the public debt was $225 billion amounting
to 6.4 percent of total federal outlays.32 By the year 2022, net
interest on debt, by 2013 projections, will be over $850 billion,
representing 15 percent of federal outlays.33 With a cost of
borrowing at just over 3 percent, using Administration estimates,
just one additional point could drive the deficit higher by $13
billion and result in an extra $1 trillion in interest over the
next ten years.34 The problem gets worse with the USG estimating
deficits of approximately $600 billion per year through 2022.35 In
short, resources are tight, and the pressure of the debt is
mounting for the future.
The defense budget for 2013 authorizes $633.3 billion in
spending to include more than $88 billion in overseas contingency
expenses. By comparison, the 2012 budget of $645 billion was about
2 percent greater, mainly due to a $27 billion difference in the
cost of overseas commitments.36 As a matter of GDP, the 2012
defense budget represents just over 4 percent of national economic
output. Our closest near-peer competitor, China continues to
maintain a consistent 2 percent defense expenditure relative to its
GDP and spent just over $143 billion in 2011--$500 billion less
than the U.S.37 In terms of central government expenditures on
defense, the Chinese commit just over 16 percent in comparison to
the U.S. at 18 percent.38
Illustrating concerns about the debt and diminishing national
defense spending can be found in the recent sequestration debate.
Within the greater fiscal cliff discussion, the Budget Control Act
of 2011 seeks to institute broad cuts across the USG. The impact on
the Department of Defense (DOD)
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would be $500 billion over a ten year period, effectively
reducing spending by $50 billion per year. While sequestration is
draconian in its manner of forcing cuts, the real question is
whether it would have significant national security implications.
Ignoring the manner of cuts and just examining the totals, a $97
billion per year reduction would still leave a DOD budget in excess
of 2005 levels (Figure 1).39
Figure 1
Source: CATO Institute, Department of Defense,
http://www.downsizinggovernment.org/defense.
Carefully choosing his words when discussing the threat of
sequestration in March, 2012, Secretary of Defense Leon E. Panetta
stayed clear of concerns over national security simply stating that
such cuts threaten strategy implementation. Going further into the
issue, General Martin E. Dempsey, Chairman of the Joint Chiefs of
Staff, cautions that cuts may be absorbable given time and the
flexibility to reactsomething that sequestration does not afford.
He also stays away from the comparison of such cuts to a
diminishment of national security.40 While debate continues, the
Chinese by comparison will continue to spend $390 billion less than
the U.S. on defense.41
Others weigh in with concern over the militarys reduction to a
so-called, hollow force. This argument suggests that reductions
might create a military, mission-ready in appearance, but unable to
meet the requirements of national security due to insufficient
supplies, training, and equipment necessary for wartime
commitments.42 The origins of this discussion go back to the 1970s
at the end of the Vietnam War. While defense spending was one
aspect of the problem, analysis shows personnel issues (including
pay and benefits), low popular support for the military, old
equipment and poor maintenance, morale, and recruiting were also
problems. While some modern leaders warn of its return, many like
General Joseph Dunford, Lieutenant General Richard Mills, and the
Chairman, General Martin Dempsey, believe that the risk is
manageable despite cutbacks. Current and future year personnel
policies, compensation, and steady procurement mitigate the risk to
national security (Figure 2).43
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Figure 2
Source: Andrew Feikert and Stephen Daggett, A Historical
Perspective on Hollow Forces, Congressional
Research Service, 31 January 2012,
http://www.fas.org/sgp/crs/natsec/R42334.pdf: 18.
In countering the argument, some might refer to sharp declines
in defense spending as reason enough for national security concern.
With DOD reductions translating to fewer sustainment,
recapitalization and modernization resources, concern exists over
emerging threats world-wide. Those holding this view see U.S.
national security as substantially dependent upon the size and
force of the military. While the U.S. military is the most capable
force in the world, American security is not just a function of
weaponry and might; thus, this argument overlooks links with
economic, diplomatic and social influence. Discussion of U.S.
sticky power, as described by Walter Russell in Power, Terror,
Peace and War: Americas Grand Strategy in a World at Risk, helps
demonstrate how Sino-American economic interdependence makes war
less likely because peace is more profitable and lucrative. Sweet
power also provides a blanket of security with Chinese and American
citizens often finding connections.44 As Chinas social networking,
Internet usage and broadband penetration rates climb sharply,
more-common connections will emerge.45
Conclusion
Admiral Mullens comments on the threats of debt clearly
illustrate U.S. vulnerability. Chinas ownership of U.S. debt, small
in comparison to the total liability, produces some exposure to
risk, but there are limits. American pursuits of national interest
are not appreciably different even when they run counter to that of
the Chinese. Likewise, the argument that America is somehow
susceptible to market manipulation which could result in higher
borrowing rates and lower value currency, are overblown. The U.S.
and China share economic prosperity through opportunity. Therefore,
deterrence is born of an economic, mutually assured destruction
which significantly reduces risk to American security.
Finally, anxiety over reductions in American defense spending
are perhaps most realistic and concerning when considering
long-term security. The variable nature of yields, ongoing deficits
and higher debt will increase budgetary pressure on defense,
bolstering Admiral Mullens broader view of national security.
Despite the growing concerns, decreasing defense spending levels
are not necessarily
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synonymous with diminishing national security, or a hollow force
as China continues to spend far less than the United States.
Additionally, non-military forms of national power help solidify
American security, further reducing concerns over declines in
military spending. All of these factors require the careful
analysis of senior military leaders forging strategies which shore
up true U.S. vulnerabilities. While the debt provides considerable
concern overall, Chinas ownership does not significantly diminish
American national security.
1 George Washington, Farewell Address, 1796, repr. Robert B.
Zoellick, Economics & Security in American Foreign Policy: Back
to the Future?, Foreign Policy, November 2012, accessed 29 December
2012.
http://www.foreignpolicy.com/articles/2012/10/08/the_currency_of_power.
2 Admiral Mullen was not alone in offering this general assessment.
Others such as Henry Kissinger, Paul Volcker, James Baker, and
Madeleine Albright signed a letter offering the same view. Jim
Garamone, Mullen: DoD Must Help Solve Federal Debt Crisis, American
Forces Press Service, 28 April 2011, accessed 29 December 2012,
http://www.jcs.mil/newsarticle.aspx?id=594. 3 Department of the
Treasury, et al, Report on Foreign Portfolio Holdings of U.S.
Securities as of June 30, 2011, repr., Government Accounting
Office, Ownership of Federal Debt, accessed 29 December 2012,
http://www.gao.gov/special.pubs/longterm/debt/ownership.html. 4
Keith B. Richburg, On Eve of Obama Visit, an Uneasy Co-Dependency
Between U.S. and China, Washington Post, 16 November 2009, accessed
December, 2012,
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/15/AR2009111502435.html?sid=ST2009111503225.
5 Department of the Treasury, repr., Government Accounting Office,
Federal Debt Basics, accessed 29 December 2012,
http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html. 6
Based upon $1.09 billion in deficit and $2.449 billion in revenue,
2012. Congressional Budget Office, Choices for Deficit Reduction, 8
November 2012, accessed 29 December 2012,
http://www.cbo.gov/sites/default/files/cbofiles/attachments/43692-DeficitReduction_print.pdf.
7 Congressional Budget Office, Choices for Deficit Reduction, 8
November 2012, accessed 29 December 2012,
http://www.cbo.gov/publication/43692. 8 China owns $1.3 trillion
with Japan maintaining $882 billion and Brazil at $216 billion.
Most U.S. debt to China is owned by the PRC government. Federal
Reserve, Flow of Funds Accounts of the United States, 2011, repr.
GAO, accessed 30 December 2012,
http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html. 9
Libya: U.N. Backs Action Against Colonel Gaddafi, BBC News: Africa,
18 Mar 2011, accessed 31 Dec 2012,
http://www.bbc.co.uk/news/world-africa-12781009. 10 Amiel Unger,
Analysis: Why Did Russia and China Veto UN Resolution in Syria?,
Israel National News, 4 Feb 12, accessed 31 Dec 2012,
http://www.israelnationalnews.com/News/News.aspx/152414#.UPGC_uRZXSg.
11 Through independence, South Sudan owns 85% of the oil. With
Khartoums ownership interests relegated to the pipeline and 15%,
the Chinese lost a great deal of influence and control of nearly
one-third of their oil supply overnight. Nile Bowie, Carnage &
Crisis Aversion in Sudan,Global Research, 8 May 12, accessed
January 2013,
http://www.globalresearch.ca/carnage-crisis-aversion-in-the-sudan/30757.
12U.S. State Dept, U.S. Support to Peace and Security in Sudan, 8
Jul 11, accessed January 2013,
http://www.humanrights.gov/2011/07/11/fact-sheet-u-s-support-to-peace-and-security-in-south-sudan/.
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13 Arms Control Association, U.S. Conventional Arms Sales to
China, October 2012, accessed January 2013,
http://www.armscontrol.org/factsheets/taiwanarms. 14 The Senkaku
Islands have been claimed by Japan, China and Taiwan however, Japan
has controlled them since 1895. September 11, 2011, the U.S. State
Department, in discussing the controversy, confirms American
commitment to the treaty provisions of Article 5 relating to U.S.
protection of Japan. Dillon Zhou, Senkaku Islands Dispute: Before a
War with China and Japan Starts, US Must Decide Where it Stands,
World-Asia, September, 2012, accessed January 2013,
http://www.policymic.com/articles/14650/senkaku-islands-dispute-before-a-war-with-china-and-japan-sparks-us-must-decide-where-it-stands.
15 As of December, 2011, Japan held $1.058 billion in U.S. debt
versus China at $1.151.9 billion. Justin Murray and Marc
Labonte,Foreign Holdings of Federal Debt, 3 July 12, accessed
December 2012, http://www.fas.org/sgp/crs/misc/RS22331.pdf. 16
Washington Times, China Holds More US Debt than Indicated,
Washington Times, 2 March 10, accessed December 2012,
http://www.washingtontimes.com/news/2010/mar/2/chinas-debt-to-us-treasury-more-than-indicated/.
17 Mr. Rusnak and others believe that our nation is nave to the
threat of Chinese debt ownership. In considering the consequence of
a so-called dumping of U.S. debt in the markets, Rusnak points out
that the U.S. would be simultaneously faced with a search for
domestic lenders and high interest rates. Karl Rusnak, The
Consequences of Chinese-held Debt, Economy in Crisis, 24 May 2012,
accessed December 2012,
http://economyincrisis.org/content/what-if-china-dumps-our-debt. 18
Department of the Treasury, repr., Government Accounting Office,
Federal Debt Basics, accessed 29 December 2012,
http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html. 19
Office of the US Trade Representative, China, accessed January
2013, http://www.ustr.gov/countries-regions/china. 20 CIA Factbook,
China, accessed January 2013,
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html.
21 21% of Chinese exports are to the U.S. Office of the US Trade
Representative, China, accessed January 2013,
http://www.ustr.gov/countries-regions/china. 22 Ibid. 23 World
Bank, GDP Growth Annual, accessed January 2013,
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG. 24 John
Wong, Chinas Economy 2008 and Outlook 2009: Crisis of a Sharp
Slowdown, East Asian Institute, 24 September 2008, accessed
December 2012, http://www.eai.nus.edu.sg/BB422.pdf. 25 Daniel J.
Ikenson, Currency Controversy: Surplus of Politics, Deficit of
Leadership, Cato Institute, 31 May 2006, accessed January 2013,
http://www.cato.org/publications/free-trade-bulletin/currency-controversy-surplus-politics-deficit-leadership.
26 This argument/data does not consider the added effects of
Chinese import restrictions which exacerbate the situation. US
Census Bureau, Trade in Goods with China, 2012, accessed January
2013, http://www.census.gov/foreign-trade/balance/c5700.html. 27
John Wong, Chinas Economy 2008 and Outlook 2009: Crisis of a Sharp
Slowdown, East Asian Institute, 24 September 2008, accessed January
2013, http://www.eai.nus.edu.sg/BB422.pdf, 8. 28 Tony Capaccio and
Daniel Kruger, Chinas Debt Holdings Arent Threat, Pentagon Says,
Bloomberg News, 10 September 2012, accessed January 2013,
http://www.bloomberg.com/news/2012-09-11/china-s-u-s-debt-holdings-aren-t-threat-pentagon-says.html.
29 Justin Murray and Marc Labonte,Foreign Holdings of Federal Debt,
3 July 12, accessed 29 December 2012,
http://www.fas.org/sgp/crs/misc/RS22331.pdf.
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30 Wes Goodman and Daniel Kruger, Abe Aids Bernanke as Japan
Seen Buying Foreign Debt, Bloomberg, 14 January 2013, accessed
January 2013,
http://www.bloomberg.com/news/2013-01-13/abe-aids-bernanke-as-japan-seen-buying-558-billion-foreign-debt.html.
31 In illustrating a grand strategy of restraint, Mr. Harvey and
others, point out that a global economy allows for alternatives if
disruptions are encountered. Such disruptions might include a
scenario where U.S. consumer demand decreases and the Chinese find
new markets in Europe or Africa. While this argument holds merit,
the facts of the disruptions caused by the 2008 recessionled by the
U.S. and affecting the worldshow that the alternatives are limited.
Harvey Sapolsky, et al., Restraining Order: For Strategic Modesty,
World Affairs Institute, Fall, 2009, (Heldref Publications, 2009)
repr. USNWC: 5. www.worldaffairsjournal.org. 32 OMB, Budget of the
United States Government for Fiscal Year 2013Historical Tables
repr. GAO, Budget and Federal Debt, accessed 30 December 2012,
accessed January 2013,
http://www.gao.gov/special.pubs/longterm/debt/budgetdebt.html. 33
Ibid, Summary Tables. 34Binyamin Appelbaum, A U.S. Boon in Low-cost
Borrowing, New York Times, 27 February 2012, accessed December
2012,
http://www.nytimes.com/2012/02/28/business/era-of-low-cost-borrowing-benefits-federal-government.html.
35 OMB, The Budget, accessed January 2013,
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/tables.pdf.
36 Defense Industry Daily, Staff, DoD Budget: Fiscal 2013-17
Highlights, Numbers & Unfolding Events, 2 January 2013,
accessed January 2013,
http://www.defenseindustrydaily.com/department-defense-2013-budget-07304/.
37 Critics may argue that Chinese defense spending is in excess of
the reported $143 billion figure due to spending in areas related
to but not reported. While this may be true, the U.S. number of
$633 billion is likely under-estimated at well once you count
activities related to the national defense budgeted under the CIA
and Dept of Energytoo name two. Regardless, these numbers are the
best assessment available for purposes of comparison. Stockholm
International Peace Research Institute, Top 15 in Military
Expenditures, accessed January 2013,
http://www.sipri.org/research/armaments/milex/resultoutput/milex_15/the-15-countries-with-the-highest-military-expenditure-in-2011-table/view.
38 The last record of Chinese central government spending
percentage is 2008. This statement is based upon a comparison of
the U.S. and China that same year. World Bank, Military
Expenditures: % of GDP and % Central Government Spending, accessed
January 2013,
http://data.worldbank.org/indicator/MS.MIL.XPND.ZS/countries. 39
$97 billion per year based upon: $47 billion per year under cuts
implemented by then, Secretary of Defense Gates, plus $50 billion
per year under sequestration. See Figure 1, CATO Institute,
Department of Defense, accessed January 2013,
http://www.downsizinggovernment.org/defense. 40 DOD, Press
Briefing: Sec Panetta and Gen Dempsey, 10 January 2013, accessed
January 2013,
http://www.defense.gov/transcripts/transcript.aspx?transcriptid=5173.
41China has spent approximately the equivalent of 2% of GDP on
defense over the past decade. Assuming consistent levels continue,
it would take decades for Chinese spending to achieve parity with
the US, even with sequestration. World Bank, Military Expenditures:
% of GDP and % Central Government Spending, accessed January 2013,
http://data.worldbank.org/indicator/MS.MIL.XPND.ZS/countries. 42
Andrew Feikert and Stephen Daggett, A Historical Perspective on
Hollow Forces, Congressional Research Service, 31 Jan 12,
http://www.fas.org/sgp/crs/natsec/R42334.pdf: 2-4.
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19 INEXTRICABLE LINKS: WHY U.S. DEBT TO CHINA POSES NO THREAT TO
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43The figures show that even a $97 billion reduction ($47
billion in cuts implemented under Secretary Gates plus $50 billion
in sequestration) procurement will exceed 2005 levels in 2013
dollars. Ibid, 14-15. 44 Walter Russell Mead, Power, Terror, Peace
and War: Americas Grand Strategy in a World at Risk, (New York:
Vintage Books, 2004, 2005): 31-40. 45 This is argument assumes a
degree of openness and access for the average Chinese citizen. The
extent of internet freedom and access to information is
questionable in China. China Internet Watch, China Internet
Statistics White Paper, October 2012, accessed December 2012,
http://www.chinainternetwatch.com/whitepaper/china-internet-statistics/.