Chinese Checkers

China’s present crowing about the US debt downgrade (and our debt situation in particular) could be very instructive, provided one chooses to actually consider the deeper strategic situation.

First, the enormity of US debt held by the Chinese government is hardly a coincidence: the Chinese government actively manipulates the value of the Yuan versus the Dollar, and as in physics, for every action there is a reaction. In a floating currency regime, the value of the Yuan and Dollar would adjust to make Chinese imports more costly for Americans and US exports cheaper for Chinese. What is not so obvious to Americans is what this imbalance costs the Chinese people.

Shooting from the hip, the Chinese hold about $2 trillion in US debt and have a population of about a billion, or roughly $2,000 per person. In a country with a per-capita GDP of around $3,800, this is an enormous amount of money. What this sum represents in many ways is money that should be in the pockets of the Chinese people, whose low-paid labor earned it, but is instead held by the central bank. It is one thing that the government has essentially forced everyone to partake of this investment, but if it were to be perceived as foolish–and a major default or devaluation could make it appear so–that’s the sort of thing that provokes major upheavals.

But there is another element, in my mind at least as important, and this one is more bluntly geopolitical. Europe does not pose a serious military challenge to China because no European country (or even the EC as a whole) can afford it. Europe’s governments have since WWII (and particularly since 1990) decisively prioritized butter over guns, and the present economic crisis is calling into doubt their ability to maintain their dairies, let alone their armies and navies.

A similar reckoning lies immediately ahead for the US, in the form of the “triggers” established as part of the recent debt-ceiling deal. Unless a bitterly-divided Congress comes together to agree on higher taxes (which will inevitably reduce economic growth) or entitlement cuts (the very thing on which we are bitterly-divided), then massive cuts to defense spending are inevitable. These cuts are likely to fall hardest on the Air Force and particularly the Navy, which is the most capital-intensive of the services, and arguably the least-central to our security if global terrorism is the primary concern.

But it is the Air Force, and especially the Navy, which are most central to countering a rising China. Vietnam, a longtime target of Chinese ambitions, has in recent years hosted a number of port visits by USN ships, and just a few weeks ago participated in a joint naval exercise. In a move which would have been unthinkable not many years ago, there is serious talk of re-opening Cam Ranh Bay as a free port for US naval vessels. And Vietnam is hardly alone: Japan, South Korea, and India have all rediscovered the virtues of a US presence in the region that was until recently becoming a bit unwelcome.

After nearly ten years of seemingly-thankless land wars in Asia, it is understandable if the US public is not particularly excited about spending tax dollars to defend the Vietnamese communists against the Chinese communists. If liberals think the US generally stuck its nose in too many other countries’ affairs, conservatives are feeling like the rest of the world maybe needs to take care of its own $#@! a little more, and the US DoD serves mostly as a form of “defense welfare” that promotes irresponsibility. Fair enough.

The problem is, we are not the only ones who get a vote on what the future looks like. Liberals who see US involvement in a region as malign need to recognize that where we recede, the void will be filled not by Oxfam and Unicef, but by a China whose political-economic structure is most accurately described as fascist. If the US is often clumsy and inept in its attempts to support the right people in foreign governments, China is gleefully unconcerned with the ethics of its business partners. Nor is this entirely disconnected from the War on Terror, in the sense that the low-level police actions, the drone strikes and surgical raids with which even the relatively liberal agree, rely heavily on intelligence and cooperation from a variety of foreign governments.

So from the perspective of the Chinese government, what could be better than the US ensuring the value of her debt by slashing defense spending? On one hand, the investment remains safe, and on the other, the balance of power in east Asia tilts some more degrees in their direction.