Bucco, as far as "playing hard ball" with China, I'm going to repeat a saying taught to me by a revered, older banker that took me under his wing when I was starting my career in banking. He called it the Banker's Golden Rule. It's really easy to remember...

"He who has the gold rules."

We are simply not in a very good position to challenge China on anything. Economically, if we do things that aren't very thoughtful--like Donald Trump's proposal to slap a duty on everything imported from China--we'd better understand the consequences. If we did something like that, as an example, how much would prices increase on commonly-used good purchased by the American public? What would the effect be on our rate of inflation?

As far as "hurting" China, let's say a move by the U.S., a duty or even a prohibition on the import of certain goods, really effected our balance of trade with China, really cut into their exports to us. It follows, doesn't it, that their economy would slow, more Chinese would be unemployed, and China would have less cash at the government level to make investments. With more limited money available, would they continue to invest in buying U.S. debt, or might they concentrate more limited resources on investing in China to further improve their own productivity and economic growth?

If that were the case, if we try to play economic hard ball with China, I think it's pretty easy to see that we lose! If we need China to keep buying our debt to finance our government spending, what do we do if they slow or stop such investments? Remember, we borrow 42-cents of every dollar our government spends, most of it from China. And another large chunk of our debt is purchased by our own Treasury, with new money that they printed for the purpose of buying our own debt!

Like the man said...he who has the gold rules.