I think that the exporting nations who have built up large dollar-denominated positions in US sovereign paper have finally copped the clue that they’re never going to see fiscal sanity out of the US government.
In their quest to hold down US interest rates so that they could continue to export to the US, they bought a liability, not an asset in our debt.
Now that the government is, as you point out, borrowing about 50 cents of every dollar it spends, we’re rapidly approaching the end game, and these other nations are looking for a way out. Yes, they helped create the situation - they could have refused to buy US debt, and helped push US interest rates up to a point where we wouldn’t have gone into debt as deeply as we have. But they probably had a reasonable expectation that US political and financial leaders would understand that there’s a difference between merely taking advantage of a trade partner and purchasers of our debt, and deliberate abuse of them.
What we’re doing now is deliberate abuse of the Chinese and Japanese - and they’re pissed off in ways that Obama and this Congress clearly and plainly do not understand.
All this cranial flatulence from economists on the subject of free trade has come down to this: the imbalances in labor and material costs between the US and developing nations like China have resulted in huge currency and debt imbalances, which is where the costs to the US taxpayer and consumer have been stored up. As the US tries to bail our way out of this instability, ask yourself this: did the US consumer actually save any money, net:net, with free trade and “Always Low Prices!” at Walmart?
Or was the bill merely taken off their weekly shopping receipt, financed with sovereign debt and put onto their 1040 for decades to come?
With the 20/20 hindsight of experience, I would much prefer higher ongoing prices to the consumer and a balanced trade account and balanced current account than be in the position we are today. There was once a time I bought into the “free trade” dogma, but over the last 15 years of results, I’ve come to see that “free trade” has done nothing positive (net:net) for the US - it merely shifted the costs and liabilities around.
I just don't see a connection between a balanced trade account (via higher prices to the consumer) and a difference in the position we would be in today.
It's almost as if you're arguing that it's better that the consumer get stuck coming and going, instead of just getting stuck when going.