China Holds All The Cards In Trade War

Paul Tharp, from The New York Post, August 9, 2007

With help from some Western spin doctors, Beijing is learning how to answer American threats about trade sanctions - shut up, or we'll cut off credit to both Uncle Sam and Wall Street.

China's usually secretive officials yesterday launched their first open push-back campaign aimed largely at political critics of China's cheap economic machine - mainly Democratic presidential hopefuls Hillary Clinton and Barack Obama.

Chinese officials began giving unprecedented public interviews warning that China may liquidate its more than $1 trillion in holdings of dollars and U.S. IOU's in the event of U.S. arm-twisting via a trade war.

A drastic dumping would cause the greenback to crash, ignite a bond-market panic on Wall Street and send oil surging well past $100 a barrel almost overnight, experts said.

One of China's most outspoken officials, He Fan of the Chinese Academy of Social Sciences, said that any kind of trade war the U.S. might launch in order to force China to alter its currency values would trigger what analysts call China's "nuclear option."

"If we start a trade war with China, they would end it on the first day with an atomic currency bomb," said Peter Schiff, CEO of Euro Pacific Capital. "We can't fight a trade war with China - we don't have any weapons, just IOU's."

The two Democratic contenders for the White House have caused an international furor with their trade-war saber rattling, blaming China for stealing factory jobs from America and demanding that Beijing boost its yuan currency to make prices higher for its goods sold abroad, in an attempt to make American exports more competitive.

Treasury Secretary Henry Paulson, a China expert from his years running Goldman Sachs, said a trade war could be a disaster and "trigger a global cycle of protectionist legislation."