Instead of trading for US products, China has chosen to trade their dollars for US Treasury debt in place of computers, natural resources, airplanes, etc. Thus our trade deficit, as normally defined, was necessary for our national debt to accumulated in the manner it has.
Either they'll have to find another use for the dollars, keep buy questionable US Treasury bonds, find another country to dump there products in or stagnate (just like Japan).
For all of China's talk, they're also in a bad spot.
RD
True enough; however, who suffers worse if that debt is downgraded? Who suffers worse if the debtor starts to default and/or repudiate? China, obviously, takes a big hit, but is there a scenario under which the Chinese Communist Party might consider the hit to be worth the results?
“For all of China’s talk, they’re also in a bad spot.”
All things are relative. Essentially the Chinese gave us their goods, as they had probably figured out that we’d never pay them back.
When they come to terms with that, they’ll write us off (i.e., no more trade priced in dollars) and then look to the 800,000,000 or so people that they have in their own country that could use the same products, and perhaps even pay them in hard currency. They’ll also be able to trade with most countries around the world, as their currency will have value.
The only question left for us is whether we keep our nuke deterrent intact as we collapse (as Russia did when they collapsed). If we manage to do that, we may be left alone until we can (hopefully) get liberals out of the way and start the long, slow, rebuilding process.