In college, I flunked Econ 101 twice before I passed it. I was a pretty good student in my area of interest (history/political science), but Econ, which was a core requirement, stood in my way. Finally, I got through it and graduated. Third time's the charm.

Having told you that, I realize that my take on this matter may be ill-informed, simplistic, and naive. And perhaps flat wrong. Follow my thoughts on this at your own peril.

What I would like to offer is a thought for discussion, possibly resulting in an education for myself. I admit, I have a bit of a self-serving motive here. So here's my question: What would happen if the US government threatened to default on all of its debt to China should Beijing attack Taiwan? Would it be an effective deterrent, or would it be economic hara-kiri? I sincerely don't know. Maybe here, I will find out. There is no shortage of intelligent people here at RedState. I might learn something.

So, the US debt to China is approximately one trillion dollars. This is largely due to Treasury Notes issued by our government, which the Chinese have bought up. I am not sure how much American private companies owe to Chinese companies, but I suspect it's quite a lot. If the US government absorbed/forgave all private debt to China and then defaulted on its own debt to China, that might be a pretty big pile of dollars that Beijing could kiss goodbye should they attack Taiwan. And it might deter them from doing just that. As a natural consequence of this goes the presumption that we would no longer trade with China. We're their biggest customer, and losing the US market is also going to be a kick to their stomach.

Now, many economists consider this a terrible idea because they say it would savage our ability to borrow from other countries in the future. If America is just going to default on its fiduciary obligations, we're certainly not going to loan them any money. And since we currently owe the world around 31 trillion dollars, and we run our government on borrowed money, jeopardizing our ability to get loans may be suicidal. And I get that. However, this would have to be done by making it clear to the rest of the world that a default on Chinese debt is economic warfare used only against China. Everybody else will continue to get their payments. Getting this message across is vital.

Money has no intrinsic value on its own. It never has. In another universe, gold might well be considered as lead. Broccoli could be the means of exchange instead. It all depends on what value people assign to it; therefore, money has an intangible component to it. Look at cryptocurrency as proof.

So, making the case beforehand to the world that American debt to China is an economic lever to be used if Beijing attacks Taiwan is crucial. But it is not going to change the financial arrangements that we have with other countries. Our payment schedules to them will remain intact. And to make that case, this argument has to be weighed against something else. That would be a shooting war.

I am not confident that the US would win one of those with China. I could go deeply into the reasons for that, but basically, it comes down to numbers and logistics. Taiwan is way the hell over there from here, and yet you can skip a rock from coastal China to Taipei. Furthermore, I think we would be swamped by everything they would throw at us. We have never seemed to learn the same lesson the Germans did at the hand of the Soviets. Quantity always trumps Quality. And it would really be bad if we lost aircraft carriers forced to operate in a choke point, not to mention upping the risk of nuclear war.

So, the possible damage done to ourselves economically has to be pitted against the losses we could incur through an actual hot war. I am not sure we would do very well in one of those, given our current state of affairs in the military. Using a big economic stick might be worth consideration instead. We might deter China from overrunning Taiwan, a strong US ally and producer of all the computer chips our country relies on, but it could wreck our financial credibility with the rest of the planet. I guess it all depends on how effectively the argument above is made. 

It will also kill cheap prices at Wal-Mart and Costco, but maybe we could live with that for a while. I have no doubt that other countries will ramp up to step into the role as producers of inexpensive goods for American buying habits. There is no shortage of capitalists in the world. Maybe we would go back to manufacturing our own stuff as well.

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Now, to be honest, I really don't know if a trillion dollar loss will make a dent in the Chinese economy, but the lack of trade certainly will. So if the former is a lever powerful enough to hurt them, then maybe we could try something else first. Few people realize this, but Beijing owes us just about as much money as we owe them. Surprised? I was. It seems that when Communist China accepted recognition by the US as The One True China, it assumed the debt of the previous Nationalist Chinese government, which we then considered to be The Only China. This was 70 years ago, and they are still paying that down, although lately, they've been missing installments. And this debt to us and other western countries is actually something of a motivator to the Chinese government. For example, Britain was able to leverage their status as a creditor to get favorable terms vis-a-vis the conditions of the Hong Kong transfer back in1999. Perhaps waving such a carrot in their face will have some effect on their actions against Taiwan.

Or perhaps not. They seem to want it pretty badly, and they seem to be very interested in expanding their influence around the world. They are establishing bases in Latin America and giving out cheap loans to everyone in the Pacific Rim. But if Taiwan goes, then Japan becomes vulnerable because island nations always depend on shipping to survive, and the Chinese have had no problem harassing and intimidating everybody's vessels operating in that part of the world.

So, I'm thinking that economic warfare might be possible and useful to deter China from overrunning Taiwan because the alternatives might be worse.

If they attack and we do nothing, our word to allies around the world is worthless. We might as well not have any.

If they attack and we enter a shooting war, we might well lose a lot of people, military stuff, and ultimately the conflict. And there would be a lot of negative fallout from that.

If we threaten to default and end trade with China, it might deter them from invading Taiwan.

If it doesn't and we do carry through with the threat, it might temporarily cripple our economy as well as those of many other nations. But the operative word here is "temporarily." I think we would bounce back from that more quickly than if we lost a big war. And it also might come to pass that new producers would take China's place and that many of those countries would start trading with us instead of them.

I don't know, but I think it's worth having the discussion. Sooner or later, China will make a move, and Taiwan will no longer be Taiwan. The PLA will simply overrun them. I'm not sure why they haven't already.