Economic Warfare: China & the United States

A book, "The China Dream", written by a senior Chinese Army officer, Liu Mingfu, who is a professor at their National Defense University, has recently been published.  This is the second book recently published by senior Chinese Army officers on China's relationship with the United States, as Colonel Dai Xu also published a book in which he argues that China is surrounded by countries largely influenced by the United States.  Senior Colonel Liu Mingfu argues that China will become the number 1 economic power in the world within the next few years and this will involve economic warfare with the United States which could escalate into military warfare in ten to twenty years.

While the Chinese Army has been upset over military sales to the Taiwan government and the reception of the Dalai Lama by President Obama to the extent the Chinese Army has suggested China should start selling US debt, the Chinese government does have significant global economic power which is growing.  Economic warfare is not new.  The CIA has had an active economic warfare operation from almost the beginning of its existence.

A 2007 paper published by the United States Army School of Advanced Military Studies very conservatively predicted China would become the number 1 economic power by 2025 and argues that America's economic assets must be utilized in economic warfare strategy.  It quotes extensively from the 2002 book "Unrestricted Warfare: China's Master Plan to Destroy America" written by Chinese Army Colonels Qiao Liang and Wang Xiangsui.  Unrestricted Warfare concentrated on economic warfare, the use of trade, and the effect of revaluation and devaluation of currency and its effect on target countries.

While the United States needs China to buy US treasuries, China does not publish a breakdown of its foreign asset holdings and there has been recent controversy whether Japan has displaced China as the largest holder of US debt.  This could easily be just a temporary re-balancing of China's central bank's foreign investments and currency holdings.  There has been some speculation that China may be buying IMF gold, but this does make a lot of sense unless China is using the carry trade on the US dollar to divest itself of US dollars as one can presently obtain more value by buying gold with the euro.

The United States has repeatedly indicated China needs to appreciate the value of the renminbi which is tightly pegged by the Chinese government to the US dollar.  The United States has also predicated its economic recovery on export growth and has advocated an unrealistic doubling of exports within five years.  This can only be done at the expense of other countries, such as China.

We have seen oil used by the Arab countries in the 1970's as a form of limited economic warfare.  While it has been obvious from 2007 to the present that oil futures prices are driven by speculators with futures contracts far exceeding actual delivery, to the point where oil prices make the refining of oil unprofitable in the United States despite a staggering over supply of oil.  In James Norman's book, "The Oil Card", he argues that oil could be used as economic warfare against China by keeping the price high.  The problem with keeping oil prices high is that it significantly impairs economic recovery in the United States and globally.

In 2009, the Pentagon held a war game which involved economic warfare only among five teams: China, Russia, United States, East Asia, and All Others.  China won.  The United States was second.

Print Page