Political rectitude is a two-way street. China does not appear to be particularly intimidated by Trump. How politically correct is it to steal a submarine, conduct live-fire military exercises in strategic waters for the first time in a very long time, publicly state that Trump is "as ignorant as a child," and say Trump "has no sense of how to lead a superpower?"
Aside from the fact the "political rectitude" is an oxymoron, no, China doesn't appear to be intimidated by Trump, or anyone else. Appearing to be intimidated by anyone would make them look weak, at least in their own eyes. China's actions are not politically correct at all, nor is it intended to be. It's straight-up muscle-flexing.
China has done all of these since Trump was elected. It is reported today that China's state-run newspaper said, "Since he has not taken office, China has kept a calm attitude toward his provocative remarks. But if he treats China after assuming office in the same way as in his tweets, China will not exercise restraint.”
Trump isn't intimidated by that, either.
If live-fire exercises and a submarine theft are examples of restraint, I worry a bit about what non-restraint might look like. China has the ability to deeply harm U.S. interests.
The US has the same ability with China, and they know it. The US and China need each other, but China needs the US more than we need China, and China knows that, too. China's economy is largely based on exporting to the US. In 2011 China's surplus with the US was $155 billion. That's 175% of China’s overall trade surplus being related to sales to the United States. 149.2% for 2010, 115.7% for 2009, and 90.1% for 2008. In 2014 the trade deficit with China was $343 billion, and last year it was $365.7. This year will likely show it inching up even more. China needs us, bad, especially since orders for Chinese goods from the EU and Great Britain has collapsed starting in 2011 (because the EU said enough was enough with China) and it's gotten steadily worse since then. That makes China even more reliant on the American consumer than ever before.
At will, they could trigger a panic in the bond market by signalling the intention to dump some of the U.S. bonds they now hold.
The US Treasury would love that, actually, because it drives the value of their T-bills down, and their interest payments would be less in the long run, including those payments to China. In the short run, there would be disruptions and probably a 1.5 to 2% drop in the US gross national product until the US worked its way out of it (in no small measure by bring manufacturing back here). If China wants to play all big and tuff, the US government could just up and disavow all of the $1.3 trillion of China's securities (which would absolutely happen in the case of any type of serious military actions between the US and China), making them worthless.
Even if China wanted to actually unload all of its T-bills in an attempt to crash the US economy, unless the renminbi becomes an internationalized reserve currency, there is no way China could unload its massive US debt without it ruining its own economy, as more and more of China's business are private businesses that also own a good chunk of those T-bills.
If China does not buy the next Treasury bill, then someone else will buy it with dollars, because it can`t be purchased with anything else but dollars. If China sells a T-bill out of its portfolio, they can only sell it for dollars. What does it do with the non-interest-bearing now-less-valued-cash it acquires? It can buy goods or services or real property available from the US, again, available only for dollars. If China prefers none of these, its remaining option is to trade them for yen or euros, using that cash to buy stuff for sale in yen or euros. But now, someone or some institution that gave up the yen or euros now has those dollars, and where do they go? They can buy stuff for sale in dollars, or they can buy those interest-bearing T-bills that were just sold by the Chinese. There ya go.
There is not a thing China or any other country can to do mess up our economy by ‘manipulating the dollar’ or ‘dumping tens of billions of T-Bills’ into the market. The Fed has the power to offset any inflationary or deflationary disturbance that originates outside the dollar realm. As big and complicated a mess as it might seem, it all comes down to one simple fact -
China cannot create American base money; it can only buy or sell assets or liabilities denominated in dollars (the most important of which is oil, which is, of course, priced in dollars).
At will, China could blockade Taiwan, instantly presenting Trump with a crisis to manage that far outstrips any notion of making a deal and instantly destroying any perception that China is somehow intimidated by Trump.
The "deal" isn't some trade thing or something that convinces China to stop devaluing its currency, the "deal" is that China will no longer be able to yank our chain and pull our strings. If China wants to blockade Taiwan and suicide its own economy as part of that "deal" then Trump is fine with that. No matter what, China will stop taking jobs away from Americans and putting the screws to the US.
Trump has China worried. For good reason. Some of China's enemies, so to speak, are Taiwan, Japan and The Philippines. Some people may think the Philippines' President Duterte and China have become close friends and allies, but they haven't. Duterte has been largely in preservation mode ever since China ignored utterly a Hague court ruling against Chinese colonization of The Philippines' Spratly and Paracel Island territories. Duterte agreed to play along provided China allows Philippine fishermen to use their own Philippine domestic waters without intervention. Obama refused to help out The Philippines with its dispute with China (for whatever reason) which is why Duterte lovingly refers Obama as the "son of a w
hore" among other pet names. But look what's happened thus far. The first foreign leader to meet with the President-elect in person was Japan's Prime Minister. One of the first congratulatory calls after the election was from Duterte. And the call from Taiwan's President was orchestrated before the election even took place.
But Chinese President Xi knows the stakes, and is a little less panicky than the columnists who run China's state-run media. Trump and Xi spoke a few days after the election and both men said it was a good conversation. A couple of weeks ago after a meeting with Henry Kissinger, Xi noted with pleasure that, "The development history of China-US ties since the forging of diplomatic ties has proven our common interests far outweigh the differences."
US-China relations will almost certainly become uncomfortable for both sides, but both sides also know that it's in their own best interest to not let things get out of control. The caveat is that China's ruling elites are quite worried, because their own citizens are big fans of Trump, who see Trump as not only a fresh face in world politics, but Trump’s patriotism exposed the ugly side of the American reality of American politics being corrupt, which is right in the Chinese citizen's wheelhouse, and seeing someone like Trump speak about it is a breath of fresh air for them. The elites know that Trump could be an unprecedented challenge for China and the world because his perceived isolationism (he's not isolationist) and populism is a very dangerous, especially for China. But in the end, China isn't going to shoot themselves in the foot.
). I seriously doubt that I'd come back as a Hindu, because I already know so much about Hinduism, but I may very well come back as an avid practitioner of yoga.