Judd Gregg: There’s more to trade than trade

The deficit will be approximately $850 billion this year.

Next year, it will be $1 trillion. During the next decade, under the spending plans proposed by President Trump and endorsed by Congress, the deficit will each year exceed $1 trillion.

This is creating debt. And lots of it!

{mosads}As most Americans know, since they have credit cards, car loans or a home mortgage, running up one’s debt is only possible if someone is willing to lend you money.

This elemental point seems to have been lost on the Trump administration.

The largest single purchaser of our national debt, at least up until the last six months, has been China.

China made a simple but obvious calculation: buying America’s government debt made sense as long as the U.S. was the primary buyer of Chinese products.

With Trump’s decision to pursue an all-out trade war with China, the Chinese have concluded that buying America’s debt does not make all that much sense anymore.

In fact, China has been a net seller of our debt for the last four months.

In other words, the unilateral attack on trade by the president has made the largest funder of our excessive spending into a seller. 

Just at the time when our spending is about to explode, we are turning China into a competitor.

Rather than buying our debt and lowering our cost of borrowing, the Chinese are selling our debt which will most likely increase our cost of borrowing.

This outcome at this time in our borrowing splurge is a problem, especially as we head into the next decade.

It is very plausible that the increase in interest payments generated by not having China as one of the primary buyers of all this new debt will easily exceed any saving we might see through the president’s confrontational trade policy toward China.

This is only one of the problems with the president’s approach, which in essence amounts to poking a stick in our primary lender’s eye.

Neither the Chinese people nor their government are foolish or unsophisticated.

They have stated that one of their goals is to replace or at least equal our status as the leading economic global power.

As part of this quest, they have initiated their “Belt and Road” policy — an outright attempt to draw nations across Asia, the Middle East and Oceania into their sphere of influence through massive infrastructure investment.

An intended side-effect of the “Belt and Road” strategy is to have the yuan, the Chinese currency, replace the dollar as the currency of choice for world commerce.

Recently, for example, China did a purchase agreement for oil from Saudi Arabia that was set in yuan, not in dollars. This was a major commercial victory for the Chinese.

One of the most significant advantages we have in world trade is that the vast majority of exchanges between nations and international companies is done in dollars.

This not only gives us a unique status. It also gives us a massive advantage in our own trade activity.

If the dollar were to lose its status as the world currency, this would be a huge blow to our national economic wellbeing.

However, with his isolationist trade tirades, the president and the people around him are putting the status of the dollar at risk. They are opening the door to competition over which currency is used to denominate world commerce.

The Chinese see this. They are ready and eager to step through the door.

The president has a single-sided thought process on trade.

There is no question that getting the Chinese to stop stealing our intellectual property is a critical and appropriate goal.

But in pursuing this goal, little will be gained — and a great deal lost — if the Chinese are able to manipulate our debt and undermine the dollar as the world currency.

If the president honestly believes, as his actions seem to suggest, that changing the paradigm of world commerce is his primary goal, then he needs to address our deficits so we can borrow less.

The failure of this administration to even acknowledge the threat posed by our spiraling debt — and especially the unsustainability of the spending required to meet entitlements obligations — has massive direct consequences, and even more dramatic unintended ones.

We will never be the winner in a trade dispute if we need the nation we are targeting to support us by lending us money.

We will be the loser on trade if our policies are so myopic and isolationist that we drive the world away from using the dollar as the currency of commercial choice — all while running up so much debt that we require international support to keep it affordable.

The tunnel vision of this administration on these issues is not leading to a better day.

It is, rather, digging a deeper hole. And the Chinese will be more than content to fill that hole in on top of us.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.