Much has been written about mutual self assured destruction should China use its ultimate economic weapon as reprisal for US potectionist legislation and interference in internal affairs.
Indeed, by cashing in T-Notes and/or diversifying its enormous US currency holdings away from the US dollar China risks killing the golden goose, its prime export market. Fortunately, however, China’s domestic economy is improving and growing fast and much of its current growth now stems from burgeoning domestic consumption. It is slowly reducing its depndence on exports in general and exports to the US in particular.
However, it will not be wholly independant in the short term and until it is, China will be hostage to a US Democratic congress which is, in turn, hostage to US labour unions. So, what to do?
Although a full scale counterattack at this stage would harm ist own interests, China could nevertheless fire a warning shot across the bow of the US. China could bring home to the US the eventual risk it faces in provoking the Dragon by simply suspending for one or two months purchase of Treasury notes and, at the same time, devote a large sum of its massive dollar holdings to increasing its Gold reserves, already the world’d largest holdings (1000 tonnes). The US needs a constant infusion, a fix, of several billion dollars from sale of T-notes each month to keep its financial head above water, and the withdrawal of Chinese support would serve as a loud wake-up call to the present myopic US administration.
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