Chinese People’s Liberation Army Majors Generals Zhu Chenghu and Luo Yuan and Colonel Ke Chungqio recently called for the Chinese government to dump U.S. Treasury bonds in response to our decision to make a $6.4 billion arms sale to Taiwan.

“We should go in for a strategic mix of retaliation across politics, military matters, diplomacy and economics… For example, we could sanction them using economic means, such as by dumping some US government bonds.” – Major General Luo Yuan

So, should they? And if so, what should they do? Here’s the deal:

The U.S. has a treaty to sell weapons to Taiwan. We’ve been doing it for decades. During those decades we were either THE or one of the superpowers in the world. Now, China is fast becoming one of those superpowers. We have to care what they think, which is where this gets sticky. China says Taiwan is part of China. Taiwan says they are independent. So, we have to either pick a side or ignore both of them. Same thing with Tibet and the Dalai Lama. We have to either support him or ignore him.

China basically wants Tibet and Taiwan to sit down and shut up. The U.S. has been meeting with the Dalai Lama and selling weapons to Taiwan for decades. Why? Because we don’t much like the Chinese government because they are communists. And because we could meet with all of them and really nobody could say anything about it.

Well, now China is big and powerful enough to say something about it, and they are. They have already said that there will be some kind of sanctions against the U.S. businesses who are manufacturing and selling the weapons. With this happening at the same time that the Chinese government is actively going after Google, it’s obvious that China is not afraid of attacking companies that it doesn’t like. Sort of like the U.S.

The next threat for China? Threatening to dump their U.S. Treasury bond holdings. They are currently the largest holder of U.S. Treasury bonds. They have doubled their U.S. Treasury bond holdings since 2007. Whoa.

But…

“The Chinese economy continues to depend on exporting products for dollars – and accumulating even more dollars,” -Patrick Chovanec, associate professor at Tsinghua University in Beijing.

So, the Chinese economy and hence the government needs dollars? If that’s true, then they will need to keep the dollar up and won’t want to dump their Treasury bonds. Because the U.S. buying Chinese stuff is why their economy is so strong.

So, with an elementary understanding of economics, China will aggressively try to build new markets, right? The next few decades will see China colonizing purchasers the way the U.S. has been doing for decades, and there will be little we can do about it.

For now, those in the government positions of authority and decision-making agree that it is better to keep the dollar where it is value-wise than to dump it and risk losing the value of their own money, bonds and economic demand-source. With that as our window, what can the U.S. do to remain an economically viable state? That, I’d like to hear from all of you…

Photo Credit: IQoncept (via Flickr under CCL)