During the boom time, this works as a leverage China can use to push around U.S. However, when the bad time hits, this leverage turns against China. China would fall harder and farther. These days, China even manage to dabble on financial speculation even with their short history of market economy. They feel they reached the top and nobody can touch them. However, their confidence is illusionary. They have even shakier economic system, with less talent to cope with potential crisis. They are now hooked into volatile financial system. This makes things only worse.
The devaluation of dollar now is not directed against China. It might have been true last year. The devaluation is now the necessity if Fed wants to entertain any hope of salvaging financial system. China made tons of money from U.S. spending binge bankrolled by ridiculously big asset bubble, propped up by foreign capital inflow to U.S. financial market. Now that asset bubble is popping and consumption is going south, the dollar is tanking, and investors are flocking to commodities raising their price sky high. However, principal driver of commodity price-hike is vastly increased demand from China and India.
These events are not orchestrated by U.S. to hurt China. U.S. is just trying to dig out of the looming catastrophe. China got caught just as any other countries in the world. However, China is more vulnerable than others because of the way their economy and society work.
China has been the biggest beneficiary of U.S. push for globalism. Now that U.S. economy is going down, it could suffer from the biggest fallout, if you factor in social/political damage as well as economic loss.
This development is structural. It is preordained by the way two economies have been interacting.
Great post. Couldn’t have said it better.