Why China and Japan are praying the U.S. doesn't bankrupt the CNN business (2023)

Why China and Japan are praying the U.S. doesn't bankrupt the CNN business (1)

U.S. now 9 days away from potential default

05:09 - Those ones:CNN

Hongkong CNN

like the clocktickingTowards Unprecedented US and World Bankruptcy The second and third largest economies are watching in horror.

China and Japan are the largest foreign investors U.S. Treasury bonds. They collectively hold $2 trillion of the $7.6 trillion in U.S. Treasury debt held by foreigners — more than a quarter.

Beijing began ramping up its purchases of U.S. bonds after the U.S. formally ratified China’s entry into the World Trade Organization in 2000, sparking an export boom. This brings huge amounts of dollars to China, and it needs a safe place to store them.

U.S. Treasuries, widely considered one of the safest assets in the world, and China’s debt to U.S. Treasuries rose from $101 billion to $1.3 trillion in 2013.

For more than a decade, China has been the largest foreign creditor of the United States. However, as tensions with the Trump administration escalated in 2019 and Beijing withdrew funds, Japan replaced China as the year's largest creditor.

Tokyo now $1.1 trillion compared to China's $870 billion; that too The high stakes mean both countries are vulnerable to a possible drop in the value of U.S. bonds if Washington experiences a doomsday scenario.

The U.S. Treasury Department building in Washington, D.C., U.S., on Monday, March 13, 2023. Al Drago/Bloomberg/Getty Images America's borrowing is its superpower. The default will overshadow it

"The Japanese and Chinese governments' large bond holdings could hurt them if bond values ​​plummet," said Josh Lipsky and Philip Meng, analysts at the Atlantic Council's Center for Geographical Economics.

Falling bond values ​​will lead to reductions in Japan's and China's foreign exchange reserves. That means they have less money to pay for essential imports, service foreign debt or shore up their currencies.

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But they said the "real risk" was the impact on the global economy and a possible U.S. recession from a default.

"This is a serious problem for all countries, but poses a particular risk to China's fragile economic recovery," Lipsky and Meng said.

China's economy, which initially rebounded after the abrupt lifting of pandemic restrictions late last year, is now in crisissprayWith consumption, investment and industrial production showing signs of slowing.deflationary pressureThe situation has worsened as consumer prices have changed little in recent months. Another big issue is altitudeunemployment rateFor young adults, it was a record 20.4% in April.

Meanwhile, the Japanese economy is just showing signs ofOvercoming stagnation and deflationhas plagued the country for decades.

devastating effect

Even if the U.S. government runs out of money and emergency measures to pay all its bills — something that Treasury Secretary Janet Yellen said could happen as early as June 1 — the chances of a U.S. default remain slim.

Some U.S. lawmakers have already done sorespectedPrioritize bond interest payments to the largest bondholders.

However, this will come at the expense of other obligations, such as the payment of state pensions and wages to state employees That could prevent bigger defaults in countries like Japan and China, said Alex Capri, a lecturer at the National University of Singapore Business School.

A shopkeeper displays barbecued meat during a barbecue festival in Zibo, Shandong province, China, April 29, 2023. After the barbecue video went viral on the Internet, Zibo City became a tourist hotspot. VCG/Getty Images A barbecue craze is spreading in China. Can street food revive the economy?

And in response to a rising market, there is no clear alternative Volatility investors can swap short-term bonds for longer-term bonds. According to the Atlantic Council's Lipsky and Meng, this could benefit China and Japan because their assets are concentrated in long-term U.S. Treasuries.

However, broader financial contagion and recession pose a greater threat.

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"A U.S. debt default would mean lower Treasury prices, higher interest rates, a lower dollar value and increased volatility," said Marcus Noland, executive vice president and head of research at Peterson. Institute of International Economics.

"It could also be accompanied by a decline in U.S. stocks, increased stress in U.S. banks, and increased stress in housing."

It could also throw the interconnected global economy and financial markets into chaos.

China and Japan rely on the world's largest economies to support domestic businesses and jobs. The export sector is particularly important to China, but so are other pillars of the economy – such asproperty– stand still. Exports generate one-fifth of China's gross domestic product and employ about 180 million people.

Despite heightened geopolitical tensions, the United States remains China's largest trading partner. It is also the second largest in Japan. In 2022, Sino-US trade will happenmake a record$691 billion. from Japanexport to the United States10% increase in 2022.

"If the U.S. economy slows, the effects will spread through trade, for example causing China's exports to the U.S. to fall and causing a global slowdown," Noland said.

great concern

Bank of Japan Governor Kazuo Ueda expressed concern on Friday, warning that a U.S. default would destabilize various markets and have serious consequences for the global economy.

“The BOJ will seek to maintain market stability in line with its commitment to respond flexibly to economic, price and financial developments,” he told parliament.Reuters.

People pass electronic boards with closing data of the Tokyo Stock Exchange on a street in Tokyo, May 22, 2023. CreditKazuhiro Nogi/AFP/Getty Images Japan's long-suffering stock market is back. This explosion may have "staying power".

So far, Beijing has been relatively quiet on the matter. The U.S. State Department said on Tuesday it wanted the U.S. to "implement responsible fiscal and monetary policies" and avoid "transferring risk" to the world.

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This was reported by China's state news agency XinhuaColumnThe "symbiotic relationship" between countries in the US bond market was highlighted earlier this month.

"If the U.S. defaults on its debt, it will not only damage the reputation of the U.S., but also bring real economic losses to China," it said.

Tokyo and Beijing can only wait and hope for the best.

Capri said rushing to sell U.S. debt would be "self-defeating" because it would significantly boost the value of the yen or yuan against the dollar, causing the cost of their exports to "fly away."

long-term benefit?

In the longer term, some analysts may say a possible U.S. default could prompt China to accelerate efforts to create a global financial system that is less reliant on the U.S. dollar.

The Chinese government has reached agreements with Russia, Saudi Arabia, Brazil and France to increase the use of the yuan in international trade and investment. A Russian lawmaker said last year that the BRICS countries, namely China, Russia, India, Brazil and South Africa, were considering a common currency for cross-border trade.

"This will certainly be a catalyst for China's continued drive to internationalize the renminbi and for Beijing to redouble its efforts to include its trading partners in the recently announced BRIC Currency Initiative," Capri said.

However, China faces some serious hurdles, such as the controls it imposes on the amount of money flowing into and out of its economy. Analysts say Beijing has shown little willingness to fully integrate into global financial markets.

Derek Scissors, a senior fellow at the American Enterprise Institute, said: "A strong push to de-dollarize will ... lead to more volatility in yuan trading."

The latest data from international payment system SWIFT shows that the yuan's share Global trade finance grew 4.5% in March, while the dollar gained 83.7%.

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"There is still a long way to go before there is a credible alternative to the dollar," Lipsky and Meng said.

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FAQs

Is the US banning chip exports to China? ›

In October, the United States banned Chinese companies from buying advanced chips and chipmaking equipment without a license. It also restricted the ability of American citizens to provide support for the development or production of chips at certain facilities in China.

Why was the US unhappy with Japan? ›

The United States was particularly unhappy with Japan's increasingly belligerent attitude toward China. The Japanese government believed that the only way to solve its economic and demographic problems was to expand into its neighbor's territory and take over its import market.

Does Japan trade more with the US or China? ›

China is the largest trading partner to Japan, South Korea, Vietnam, and Taiwan.

Why doesn t Japan and China get along? ›

Since the end of World War II, Sino-Japanese relations are still mired with geopolitical disagreements. The enmity between these two countries emanated from the history of the Japanese war and the imperialism and maritime disputes in the East China Sea.

Why can't the US get chips for cars? ›

"OEMs stepped out of line and the manufacturers that make chips reallocated that factory space to much more profitable, much more in-demand chips for iPhones and PlayStations and other things," he added. Now that auto sales are red-hot again, chipmakers can't meet demand because their capacity has been spoken for.

Can the US make microchips? ›

In 1990, the U.S. made 37 percent of the world's chips. Thirty years later, that number has cratered to 12 percent. While the country might design some of the most advanced chips in the world, almost all the manufacturing takes place in foreign countries.

When did Japan and US become enemies? ›

Therefore they were stunned when the unthinkable happened and Japanese planes bombed the U.S. fleet at Pearl Harbor on December 7, 1941. The following day, the United States declared war on Japan, and it soon entered into a military alliance with China.

Why is Japan not allowed to have a military? ›

Article 9 of the Japanese Constitution (日本国憲法第9条, Nihon koku kenpō dai kyū-jō) is a clause in the national Constitution of Japan outlawing war as a means to settle international disputes involving the state. The Constitution came into effect on 3 May 1947, following the surrender of Japan in the World War II.

Is Japan allies with Russia? ›

Since Japan and Russia had become allies by convenience, Japan sold back to Russia a number of former Russian ships, which Japan had captured during the Russo-Japanese War.

Who is China's largest customer? ›

United States

Who is USA's biggest trading partner? ›

Year-to-Date Total Trade
RankCountryTotal Trade
---Total, All Countries303.6
---Total, Top 15 Countries226.5
1China51.4
2Canada44.9
13 more rows

What does the US rely on China for? ›

Not only does China supply a tremendous amount of our consumer and commercial goods, medical supplies, pharmaceuticals, and vital raw materials, but it also controls a huge share of the world's shipping fleet and commercial shipbuilding capabilities.

Will China ever forgive Japan? ›

After 60 years there is still no prospect of a true reconciliation between China and Japan. The recent visit by Junichiro Koizumi, Japan's prime minister, to a war shrine in central Tokyo was condemned by the Chinese.

Is Mexico allies with Japan? ›

Japan and Mexico have a tradition of friendly relations; the contacts between them date back to 1609.

Who are China's allies? ›

China entered into diplomatic relations with Malaysia, Thailand, the Philippines, Bangladesh and Maldives in Southeast Asia and South Asia, seven countries including Iran, Turkey and Kuwait in West Asia and the Middle East and five countries in South Pacific such as Fiji and Papua New Guinea.

Why can't America make semiconductors? ›

The US national, state, and local governments have created tax and regulatory policy that makes investing in new manufacturing capacity for semiconductors incredibly difficult. It takes mountains of money and many years to even get through the process of permitting and approval to being a project in the US.

Will car prices drop in 2023? ›

As you can see, several factors contribute to the decrease in car prices by 2023. From decreased demand and increased competition among automakers to technological advances, buyers will have plenty of options when it comes time to purchase a new vehicle this year — and at an affordable price!

How many microchips are in a car? ›

According to estimates, the average modern car has between 1,400 and 1,500 semiconductor chips. Some have as many as 3,000. These chips are used to control everything from emissions systems to driver assist systems, making them an essential part of vehicle production.

What country has the most advanced microchips? ›

What Country Produces the Most Semiconductors?
  • Japan. One of the world's most technologically advanced countries, the island nation of Japan is home to more than 100 semiconductor fabrication plants, most of which are owned by Japanese, American, or Taiwanese firms. ...
  • United States. ...
  • China.

What can replace microchips? ›

There are several alternatives to silicon-based chips, including: Gallium Nitride (GaN) chips: GaN has higher electron mobility compared to silicon, allowing for faster switching speed and higher power efficiency.

What percentage of microchips are made in the US? ›

While only “about 10% to 14% of chips sold [globally] come from US manufacturing facilities,” according to Columbia Business School professor Dan Wang, the United States does have other strengths.

What happens if China and US go to war? ›

A successful Chinese invasion of Taiwan would punch a hole in the U.S. and allied chain of defenses in the region, seriously undermining America's strategic position in the Western Pacific, and would probably cut off U.S. access to world-leading semiconductors and other critical components manufactured in Taiwan.

Why does Japan love America? ›

American culture in Japan has become increasingly popular over the years. Japan has embraced brands, snacks and attractions, but originally the love for American culture came from Hollywood. A major insight into America is through westernized movies that provide a looking glass into what daily life would be.

Who are America's closest allies? ›

Nearest. If Britain is America's closest ally, Canada is America's nearest. Sharing a peaceful, open border stretching 5,525 miles (including the Canada-Alaska border), the United States and Canada are deeply integrated on matters ranging from trade and culture, to defense and intelligence.

Who has the strongest military in the world? ›

1. United States Of America. US Military has the biggest defence budget in the world. They are known for their most powerful Air Force on the planet, named as United States Air Force (USAF).

Is Germany banned from having an army? ›

Does Germany have military restrictions? Yes, Germany is allowed to establish armed forces for solely defense but is limited to the German Army, German Soldiers, German Navy, and German Air force. It is also not allowed to have biological, chemical, or nuclear weapons.

Why is Germany allowed an army but not Japan? ›

Japan is forbidden by its own Constitution from having an “ army”, but it is allowed to have a “self defence force”. Global firepower ranks Germany's ARMY ( armed forces actually) as the world's 9th best military. Japan's non-army is rated the 7th best military in the world.

Who is the closest ally of Japan? ›

LONE ALLY. For the past seven decades, Japan, which gave up the right to wage war after its defeat in World War Two, has relied on the United States for protection. In return for its promise to defend the country, the U.S. gets bases that allow it to maintain a major military presence in East Asia.

Who is Japan not allies with? ›

Japan maintains diplomatic relations with every United Nations member state except for North Korea, in addition to UN observer states Holy See, as well as Kosovo, Cook Islands and Niue.

Does Japan support Russia or USA? ›

First, Japan is firmly allied with the United States in the Cold War against communism. Second, Japan relies on American military strength and limits its own defense forces to a minimum. Third, Japan emphasizes economic diplomacy in its world affairs.

Which country does the US export the most to? ›

Exports The top exports of United States are Refined Petroleum ($83.3B), Petroleum Gas ($70.9B), Crude Petroleum ($67.6B), Cars ($55.4B), and Integrated Circuits ($51.3B), exporting mostly to Canada ($259B), Mexico ($247B), China ($151B), Japan ($71.8B), and South Korea ($66.4B).

How much do we owe China? ›

Top Foreign Holders of U.S. Debt
RankCountryU.S. Treasury Holdings
1🇯🇵 Japan$1,076B
2🇨🇳 China$867B
3🇬🇧 United Kingdom$655B
4🇧🇪 Belgium$354B
6 more rows
Mar 24, 2023

What is China's main export to the US? ›

China Is a Major Source of U.S. Imports of Textile Products

In 2021, the U.S. imports of $50.3 billion of Textile products constituted 32.6% of the total U.S. imports of those commodities.

Who trades the most in the world? ›

For most economies in the world, their leading export and import trading partner in terms of value is either the European Union or China, and to a certain degree, the United States and Russia.

Which country dominates world trade? ›

Who dominates global trade? It is well recognised that China has become the world's largest trading nation. Less appreciated is the effect this has had in displacing the United States from its traditional dominance as a trading partner for other countries around the world.

Does the United States owe money to China? ›

Japan and China have been the largest foreign holders of US debt for the last two decades. Japan and China held almost 50% of all foreign-owned US debt between 2004 and 2006. However, this has declined over time, and as of 2022 they controlled approximately 25% of foreign-owned debt.

What does China buy from USA? ›

Aircraft, soybeans, motor vehicles and microchips are top U.S. exports to China. Since 2001, the share of these exports going to China has increased sharply. Soybeans and motor vehicles are targets of recent Chinese tariffs.

How much of US medication comes from China? ›

What we know: A study of US pharmaceutical production estimates that 54 percent of APIs used to manufacture finished pharmaceutical goods consumed in the United States are produced here; only 6 percent are sourced from China. Only 7 percent of total US API imports come from China.

What would happen if China surrendered to Japan? ›

If China had surrendered in 1938, Japan would have controlled China for a generation or more. Japan's forces might have turned toward the USSR, Southeast Asia, or even British India. The European and Asian wars might never have come together as they did after Pearl Harbor in 1941.

Why did the Japanese want China? ›

Seeking raw materials to fuel its growing industries, Japan invaded the Chinese province of Manchuria in 1931. By 1937 Japan controlled large sections of China, and war crimes against the Chinese became commonplace.

Why is Japan moving out of China? ›

Companies from Japan, the United States and other nations are accelerating their moves to shift production out of China, to lessen the risk of disruption in their supply chains due to abrupt changes in Chinese government policy and turmoil following the spread of COVID-19.

Is Japan an ally for the United States? ›

Bilateral Relationship

Japan and the United States are strong allies sharing fundamental values and strategic interests, with the Japan-U.S. Security Arrangements at the core.

What countries does Japan have relationships with? ›

Japan has diplomatic relations with nearly all independent nations and has been an active member of the United Nations since 1956. Japanese foreign policy has aimed to promote peace and prosperity for the Japanese people by working closely with the West and supporting the United Nations.

Is Japan a U.S. ally or partner? ›

Japan, a U.S. treaty ally since 1951, is a constructive U.S. partner in several foreign policy areas, particularly security and trade. Shared security goals include meeting the challenge of an increasingly powerful China and countering threats from North Korea.

Is China an ally of the US or Russia? ›

Although they have no formal alliance, the two countries do have an informal agreement to coordinate diplomatic and economic moves, and build up an alliance against the United States.

Which country is closest friend of China? ›

Pakistan has a long and strong relationship with China. The long-standing ties between the two countries have been mutually beneficial. A close identity of views and mutual interests remain the centre-point of bilateral ties.

Are Russia and China friends? ›

China and Russia are each other's biggest neighbor and comprehensive strategic partner of coordination. We are both major countries in the world and permanent members of the UN Security Council. Both countries uphold an independent foreign policy and see our relationship as a high priority in our diplomacy.

Which China's biggest chipmaker is sanctioned by the US? ›

The Trump administration in 2020 banned companies from supplying Huawei with custom chips using American software or hardware. This virtually wiped out Huawei's once-dominant position in the world's handset market.

How does the US block China from getting microchips made abroad? ›

The U.S. Department of Commerce can use a regulation called the “foreign direct product rule,” to restrict the use of these American-manufactured tools for making certain chips.

What is causing the chip shortage in China? ›

The combination of high domestic demand and an extremely constricted supply of semiconductors has created a bustling underground market for microchips in China, where secondhand or out-of-date chips can fetch 500 times their original cost.

Who supplies chips to China? ›

China's two largest chip manufacturers, the state-backed Semiconductor Manufacturing International Corporation, or SMIC, and Hua Hong Semiconductor have each announced billions of dollars this year to expand production into mature chips, according to public announcements.

What percent of US microchips are made in Taiwan? ›

Taiwan produces over 60% of the world's semiconductors and over 90% of the most advanced ones. Most are manufactured by a single company, Taiwan Semiconductor Manufacturing Corporation (TSMC). Until now, the most advanced have been made only in Taiwan. Listen to this story.

What country is the largest manufacturer of microchips? ›

China. One of the world's primary manufacturing hubs, China is another country in the process of expanding its semiconductor manufacturing capacity. China is the world's largest market for semiconductors, thanks in part to its massive manufacturing sector.

What percentage of US semiconductors are made in China? ›

Today, 75 percent of semiconductor manufacturing occurs in China and East Asia.

Is China more advanced than the US? ›

By 2020, this had grown by approximately four-fifths to 139.2 percent. In other words, China's gross innovation capabilities (e.g., R&D expenditures, venture capital (VC) investments, advanced-industry output, patent output, etc.) are now almost 40 percent greater than those of the United States.

Where does the US get its semiconductor chips from? ›

But today, 75 percent of production takes place in East Asia. Ninety percent of the most advanced chips are made in Taiwan.

Are there any car manufacturers not affected by the chip shortage? ›

Jeep and Nissan are just a few automakers who were least affected by the car chip shortage. Here's a look at the others that dodged the crisis.

Is China Stockpiling a chip? ›

The stockpiling is in anticipation of even tighter export rules coming into force.

Which country has a chip shortage? ›

In 2021, the pandemic's impact on the manufacture of semiconductors in South Korea and Taiwan was cited as a cause for the shortage, with constrained supply impacting industries as broad as console gaming and the automotive industry.

What is the most advanced chip in the world? ›

(RTTNews) - Samsung Electronics Co. has started the mass production of 3-nanometer or nm chips, which is considered as the most advanced chip in the world.

Who is the largest chip manufacturer in China? ›

Semiconductor Manufacturing International Corporation (SMIC) is a partially state-owned publicly listed Chinese pure-play semiconductor foundry company. It is the largest contract chip maker in mainland China and 5th largest globally, with a market share of 5.3% in 2Q21.

Who is the largest chip maker in China? ›

SMIC Is China's most important chipmaking company and seen as a key hope to Beijing's ambitions to boost its domestic semiconductor industry and catch up with rivals like Taiwan's TSMC and South Korea's Samsung . However, the company's technology is still years behind those leading companies.

Videos

1. U.S. Dollar on Brink of Extinction? China’s De-dollarization Agenda Is Creating a Global Shift
(Stansberry Research)
2. Griffin Lecture 2022: Deborah Brautigam on "China, the U.S., and Global Debt: Why Cooperate?"
(UMN China Center)
3. Pizza delivery guy gets insulted, Internet gets revenge
(CNN)
4. Book talk with CNN's Peter Bergen
(The Aspen Institute)
5. How US Media Brainwashes Americans to Hate China
(Cyrus Janssen)
6. The end of a superpower - The collapse of the Soviet Union | DW Documentary
(DW Documentary)

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