November 16, 2009Introduction: China has stepped up its purchases of U.S. Treasuries in recent years, making it the biggest foreign holder of U.S. debt. By many expert accounts, this has fueled a relationship of dependency between the United States and China, whereby China has lent to the United States to help fuel its export industry, while U.S. consumers in turn have demanded more exports and further access to cheap credit. This relationship attracted increasing scrutiny in the aftermath of the global financial crisis as the United States' massive stimulus outlays and loose monetary and fiscal policies fueled doubts about the U.S. economy and the value of U.S. debt. China's $586 billion in stimulus spending bolstered its weakening export industry and raised concerns about whether China will continue to buy U.S. debt. Meanwhile, Chinese officials have made calls to replace the dollar's role as an international reserve currency with the International Monetary Fund's Special Drawing Right, and trade tensions between the United States and China have grown over products such as tires and poultry. Some experts warn economic and political pressures could lead both countries to adopt more protectionist policies at a time when the global economic recovery remains fragile. FULL STORY
