Chinese laundry is no big deal beside America's huge pile of debt
By Duncan Bartlett
Chinese immigrants once cleaned clothes in America’s laundries, often working long hours in hot and crowded conditions. By the beginning of the Great Depression, New York City had 3,500 Chinese laundries. This thriving industry disappeared with the arrival of the automatic washing machine. Most Americans now do their laundry at home.
This social change has brought many benefits. Women, now freed from household chores, can work or follow leisure interests. The Chinese have moved onto other roles. And it has led to big profits for US washing machine makers like Whirlpool, which still has Chinese rivals. American consumers can choose to buy washing machines imported from China which are much cheaper, yet which are still efficient and reliable. President Trump believes the imports harm US jobs. He has therefore ordered tariffs of up to 50% on washing machines imported from China over the next three years. The Chinese Commerce Ministry has expressed “strong dissatisfaction” and said China will “resolutely defend its legitimate interests.”
A girl walks past shared washing machines on a street in Shanghai, east China, May 19, 2017. [Photo: Xinhua]
The Chinese also stand ready with another form of economic counter response. They have hinted that they could stop - or at least reduce - their flow of lending to America through the bond markets. By late last year, China owned more than $1 trillion US Treasury bonds, accounting for more than five percent of the total Federal debt. America owes a similar sum to Japan.
America’s need for loans from Asia has increased because the US central bank, the Federal Reserve, is tapering off its purchases of Treasury bonds, which it bought to stimulate the economy following the global financial crisis. So when there were rumours that China might scale back its lending there was a spate of alarm among bond traders.
“Beautiful” tax cuts
President Trump promised to “give the American people a big, beautiful tax cut for Christmas.” But like many extravagant presents, the real cost will have to be reckoned with long after it is delivered. The Centre for Economic and Policy Research in Washington projects that as a result of the tax cut the national debt will rise by a further $1.5 trillion over the next decade. Inevitably, that will require more borrowing from Asia.
In return for its loans, China gains considerable influence over the American economy. It also receives a steady flow of US dollars, which brings stability to its own currency, the Yuan. A dollar-supported Yuan keeps down the cost of Chinese exports, which makes China stronger in terms of international trade. Yet foreigners have limited access to China’s financial system, so the Chinese bond market - the world’s third largest - is almost entirely excluded from the main global bond indices.
Mr Trump’s concern about washing machines and solar panels appears somewhat petty when compared to the big issue of the Federal debt. Neither the US or China would gain from a trade dispute. America needs China’s money and China needs a rich and trustworthy America which can pay back the $1 trillion it has borrowed.
(Duncan Bartlett is the Editor of Asian Affairs magazine and a former presenter of World Business Report on the BBC World Service.)