For a long time, the United States and china have had vibrant commercial links because both economies are deeply connected. America imports many goods from the Asian nation, and this is good news for the Chinese because they have a big trade surplus with the US. China has assimilated much from Capitalism, it has developed its market economy, it gets foreign investment, and more. The most populated country in the world has become a key player in global issues. I have to add that not all is wonderful as Beijing and Washington have had a lot of misunderstandings and one of them is North Korea.
Washington considers Pyongyang a troublemaker, but China has sympathy for this small Asian nation. What would happen if America decides to apply more sanctions on the North Korean regime?
China is an ally of Pyongyang
It would be a very difficult situation if the United States tried to use the military force against North Korea because China and Russia would have a brutal reaction. America could try to put more sanctions on Pyongyang, however. If the United States increases the military maneuvers in the Korean Peninsula to intimidate North Korea, China could react. Beijing could devalue the national currency by 10 percent, and this would have a devastating effect on the currency markets. Can you imagine how big the new US trade deficit would be?
It could grow by 25 percent or more and the American economy would feel the consequences.
A domino effect
Nations like South Korea, Japan, Taiwan, and others would devalue their currencies too. These Asian countries export a lot, so, they would like to stay competitive against China. A domino effect would take place, and this would increase the political tension with the White House.
The US President would complain about it, and the financial markets would be shaken. America would impose some tariffs on Chinese goods as retaliation, but Beijing could devalue its currency again, and this would produce global chaos. The markets would plunge, and many currencies worldwide would lose their value.
Crisis
A currency devaluation and a financial collapse would destroy a lot of wealth, and this would be a powerful hit for the US manufacturing economy.
America would be flooded with cheap products from Japan, South Korea, and other Asian countries causing huge problems for local companies like GM, Ford, and others. If China decides to withdraw a part of the money it has invested in the United States, a big recession could take place. North Korea in itself is a weak nation, but America must not forget that it is backed by China. There must be an intelligent policy when dealing with them to avoid a deep crisis in the US.
