Chen Jiulin, Chen Baiying
Federal Reserve Chairman Powell recently stated that although inflation in the United States has decreased, it is still significantly above the long-term target of 2%, and the Federal Reserve will still retain the option of further interest rate hikes. Since the start of this interest rate hike cycle in March last year, the Federal Reserve has raised the target range of the federal funds rate from near zero to between 5.25% and 5.5%. The high interest rate policy of the United States has led to capital outflows, high inflation and even the risk of debt default in many countries and regions, as well as the soaring cost of treasury bond of the United States itself. And in the sustained high interest rates of the US dollar, there are also some passwords for the words and actions of the US both domestically and internationally, including trends towards China.
The logic and pattern of interest rate hikes in the US dollar is mainly to attract global funds to flow back to the United States with high interest rates, while the US Treasury Department supports the US economy by increasing deficits and issuing US bonds. This can be understood as using high interest rates to suppress inflation while overdrawing to stabilize the economy. Other countries are either forced to follow the United States to retain foreign investment through high interest rates, but the economy may suffer as a result; Either lower interest rates to stabilize the economy, but foreign investment may flow out as a result. This is what the market calls the "dollar tide", and it is also a common practice for the United States to "harvest" the world.
Many scholars have reminded the public to pay attention to the US debt problem at key nodes such as the closing of the US government. However, from the perspective of the US Treasury Department, the issue of the US total debt is not a top priority. After the relevant debt matures, the US government is known for its consistent operation of raising the debt ceiling again and borrowing new debt to repay old debt. In the eyes of the US fiscal elite, one of the truly pressing issues is high interest rates. Because compared to the size of the debt, the increase in US bond risk caused by high interest rates will be more directly transmitted to the economic level. At present, the total amount of US treasury bond has exceeded 33 trillion US dollars. The yield of 10-year US treasury bond recently rose to a 16 year high of 5%, leading to the staggering borrowing costs of the US government. If the Biden administration wants to continue maintaining high welfare and other measures to attract votes, this data is expected to continue to climb. With the continued expansion of debt scale and the continuous high operation of superimposed interest rates, the flexibility and sustainability of the US fiscal system will inevitably be continuously weakened.
High interest rates are a double-edged sword, suppressing inflation while also harming economic vitality. The international financial crisis that spread from the United States to the world in 2008 was related to the frequent interest rate hikes by the United States in the previous two years. From June 2004 to July 2006, the United States raised interest rates 17 times in a row, raising the benchmark interest rate to 5.25%, laying the groundwork for the 2008 subprime mortgage crisis. Since March this year, there have been widespread concerns about whether the wave of intense interest rate hikes in the United States will have serious consequences.
The main purpose of this wave of interest rate increase in the United States is to curb inflation. Although some achievements have been made temporarily, with OPEC+oil production reduction, the continuation of the Russia-Ukraine conflict, and the so-called "de sinicization" operation in the United States and the West, the United States may face two major problems: either inflation before the interest rate increase is resurgent, or the economy is in stagnation. For US President Biden, who will go all out to run for re-election next year, these issues will be the focus of being suppressed by Republican opponents. It is in this context that the Biden administration, on the one hand, continues to play the "China card" and increases its pressure on China in areas such as economy, trade, and technology; On the other hand, they also attempted to engage in dialogue and communication with China, in order to gain China's "support" for the US economy.
This fact further proves the bankruptcy of operations such as "decoupling and chain breaking" by the United States towards China. In recent years, the United States has attempted to use coercion and inducement to move some high-end manufacturing industry chains and supply chains out of China and to India and some Southeast Asian countries. But over the years, more and more business entities, including multinational corporations, as well as many observers, have become more aware that China will remain an irreplaceable global hub for a considerable period of time, whether in terms of industrial chain integrity, market size, or labor quality. This determines that the United States, under enormous domestic economic and financial pressure, has to change its path to a circuitous path, increasingly shouting slogans such as not seeking "decoupling" or even not fighting "the new Cold War", and instead seeking to temporarily resolve the internal and external difficulties caused by the ineffective suppression of China through increased communication.
The past 40 years of history, as well as the current and future situation, have determined the deep integration and inseparable relationship between China and the United States. Even though China and the United States have indeed reached the stage of "competition and cooperation" as some scholars have called it, where there is inevitably competition between the two sides and even the United States' arbitrary suppression of China, the United States often has to intermittently adopt a posture of relaxation and cooperation during this process. This game will be a lasting battle, and the ultimate competition between the two sides is who can better develop and build their own country, and who can more effectively improve the living standards of their own people. (The authors are the Deputy Director of the Beijing Federation of Overseas Chinese Think Tank and the Master of Management from Xi'an Jiaotong Liverpool University) ▲