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on so-called Liberation Day Trump
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threatened to whack a 34% tariff on all
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Chinese imports coming into the United
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States to go on top of the 20% tariff he
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imposed a few weeks ago this was already
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pretty insane but when in the spirit of
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reciprocity China threatened to impose
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its own 34% tariff on all American
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imports coming into China Trump
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responded by adding yet another 50%
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there was some hope that this was a
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bluff but on Wednesday morning Trump
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went ahead and raised the flat tariff
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rate on Chinese imports to an
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astonishing
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104% which means that if you're an
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American trying to import something from
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China you have to pay more in tariff
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fees than you're actually spending on
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that product the CCP have insisted they
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won't back down but it's clear that
00:00:45
slapping tariffs on American imports
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isn't going to change Trump's mind so in
00:00:50
this video we thought we'd take a look
00:00:51
at China's nuclear option in this
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escalating trade war between the world's
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two biggest economies namely dumping all
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its American bonds whether it could
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actually happen and what this would mean
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for the global economy
00:01:05
[Music]
00:01:17
explore which world leaders are winning
00:01:18
and which are losing every week with our
00:01:20
new podcast The World Leader Leaderboard
00:01:22
find it over on the TLDDR podcast
00:01:24
YouTube channel or in your favorite
00:01:26
podcast app so to understand this story
00:01:28
you need a bit of context as you
00:01:30
probably already know the US runs a
00:01:32
massive bilateral trade deficit with
00:01:34
China in other words the US imports a
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lot more Chinese stuff than China
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imports from the US the US also reliably
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runs the biggest overall trade deficit
00:01:43
in the world i.e It imports more than it
00:01:46
exports overall while China reliably
00:01:48
runs the biggest overall trade surplus
00:01:51
in many ways this is the defining
00:01:53
feature of today's global trading system
00:01:55
china exports more stuff than it imports
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and this surplus is essentially absorbed
00:01:59
by the United States in the form of
00:02:02
American consumers buying tons of
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Chinese-made goods so how does this keep
00:02:07
happening after all trade deficits are
00:02:09
usually temporary because importing more
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than you export eventually puts
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downwards pressure on your currency
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which ultimately forces your trade to
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balance just imagine if say Argentina
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imported more than it exported as has
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often been the case when Argentines
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import things this essentially involves
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selling Argentinian pesos to buy foreign
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currencies and then using those foreign
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currencies to import foreign goods when
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foreign countries import from Argentina
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they will essentially buy Argentinian
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pesos with their foreign currency and
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then use those pesos to buy Argentinian
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goods when Argentina is importing as
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much as it exports pesos are being
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bought and sold in equal amounts so the
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pesos's value should hold steady but
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when Argentina is importing more than
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it's exporting then more pesos are being
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sold than bought which should push the
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value of the peso down reducing
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Argentina's imports and increasing its
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exports until its trade account is
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balanced and the peso stabilizes again
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so how does the US get away with running
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persistent deficits well this is a hotly
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debated question in macroeconomics but
00:03:13
at least some of it has to do with how
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China recycles its dollars when China
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exports stuff to the US it gets lots of
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US dollars in return now usually this
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would push up the value of China's
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currency the yuan via exactly the
00:03:26
mechanism we just described and
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ultimately balance China's trade account
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but China likes having a devalued
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currency because it keeps its exports
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competitive devaluing your currency is
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way easier than overvaluing it china
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just gets its central bank to
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effectively print more yuan and then use
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those to buy dollars on exchange markets
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strengthening the dollar and therefore
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weakening the yuan nonetheless this
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still leaves China with a massive pile
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of dollars which China uses to buy US
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government debt in the form of
00:03:54
treasuries today China holds some $800
00:03:57
billion worth of treasuries making them
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the largest foreign holder of US
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government debt after only Japan while
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this is less than the $1.3 trillion or
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so China had in the early 2010s this
00:04:09
figure probably understates the true
00:04:11
value of China's Treasury holdings
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because partly in reaction to pressure
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from Chinese nationalists who don't like
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the idea of China lending to the US
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China has recently shifted its Treasury
00:04:21
holdings off its official books onto
00:04:23
state adjacent entities instead china
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has also started buying other forms of
00:04:28
US debt like mortgagebacked securities
00:04:30
from Fanny May and Freddy Mack which is
00:04:32
sort of indirectly US government debt
00:04:35
because both agencies are backed by the
00:04:37
federal government so why is China
00:04:39
lending the US government billions of
00:04:40
dollars well it's in part because
00:04:42
treasuries are the world's reserve debt
00:04:44
instrument there are tons of them
00:04:46
floating about which means they're easy
00:04:47
to sell even in a crisis and they pay a
00:04:50
nice interest rate but it's also because
00:04:52
it strengthened the dollar and allowed
00:04:53
the US government to spend more
00:04:55
essentially propping up American demand
00:04:57
for Chinese goods perpetuating America's
00:05:00
trade deficit and making America more
00:05:02
and more dependent on Chinese
00:05:03
manufacturing this has created a sort of
00:05:06
mutual interdependence between America
00:05:08
and China sometimes nicknamed Chime
00:05:10
America china relies on America to buy
00:05:12
its stuff and America relies on China to
00:05:15
fund its debt in the current trade war
00:05:17
Trump is leveraging China's reliance on
00:05:19
American consumers which has raised the
00:05:21
question could China leverage America's
00:05:23
reliance on Chinese lending in other
00:05:25
words could China dump its treasuries
00:05:27
and other American government debt well
00:05:30
there are reasons to be skeptical for
00:05:32
starters selling dollar denominated
00:05:34
assets would cause an appreciation of
00:05:36
the yuan which would make it even harder
00:05:38
for Chinese exporters to sell their
00:05:39
stuff abroad and it's not clear where
00:05:41
else China could park their cash but
00:05:44
perhaps more importantly China dumping
00:05:46
its treasuries and other American bonds
00:05:48
could cause a full-on market meltdown
00:05:50
china only accounts for a small fraction
00:05:52
of the overall Treasury market and in
00:05:55
normal times it might push up American
00:05:57
borrowing costs but the US could
00:05:59
probably handle it however as you might
00:06:01
already know the US is already almost in
00:06:03
debt crisis territory as we're writing
00:06:06
this on Wednesday morning treasuries are
00:06:08
being sold off at record rates as
00:06:10
investors flee America which is pushing
00:06:12
yields i.e the interest the US has to
00:06:14
pay on its debt up to recent highs if
00:06:17
China were to dump its treasuries in
00:06:19
this context it could be the straw to
00:06:21
break the camel's back and perhaps even
00:06:23
push the US into full-blown default
00:06:25
territory this would be terrible for
00:06:27
America sure but it would also be
00:06:29
terrible for the entire global economy
00:06:31
China included this is the reason China
00:06:34
actually refused a Russian plot to dump
00:06:36
their mortgage back securities and
00:06:38
exacerbate America's economic crisis
00:06:40
back in 2008 nonetheless if Trump
00:06:43
continues his assault the CCP might
00:06:45
decide that if there's going to have to
00:06:47
be a global economic crisis it might as
00:06:49
well be on their
00:06:51
terms this story like much of the news
00:06:54
is worth paying attention to in the
00:06:56
weeks ahead because with geopolitics in
00:06:58
flux and Trump throwing the
00:06:59
international order up in the air
00:07:01
there's a lot to keep an eye on every
00:07:03
day we're faced with weird headlines
00:07:05
from Musk declaring anyone who looks at
00:07:07
him the wrong way a terrorist to Trump
00:07:09
declaring war on Jupiter to try and
00:07:11
regain some extraterrestrial allies okay
00:07:14
that one wasn't real but we do dive deep
00:07:16
into the weird world of US politics in
00:07:18
our series
00:07:19
WTFUSA that's our show where we take big
00:07:22
moments from culture and social media
00:07:24
and try to explain the political
00:07:25
implications of say Musk running around
00:07:28
trying to put out Tesla fires unlike
00:07:30
some of our other serious videos the
00:07:32
tone of WTFUSA is more light-hearted and
00:07:34
takes something of an irreverent look at
00:07:36
what's going on if you're interested
00:07:38
WTFUSA can be found exclusively on
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Nebula nebula is also the home to other
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incredible original content from your
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favorite creators like Real Life Laws
00:07:47
series War Room given how much conflict
00:07:49
and geopolitical disagreement there is
00:07:51
right now it's hard to stay on top of
00:07:53
everything that's happening so the show
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attempts to get you up to speed every
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independent creatorowned streaming
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