Is The US-China Relationship Now Fraying By The Day?

dalai lama

The news this evening is that China is furious with the US over a planned meeting with the Dalai Lama.

Even though it hasn’t been in the news much, the Tibet issue hasn’t gone away. And while this issue has come up from time to time in the past, the scenario was less sensitive and precarious.

There’s reason to believe that relations between the two countries are at a low point or, if you will, low considering how important the US-Sino relationship is to the global economy (and especially the citizens of the respective nations).

Here’s a quick rundown of the state of play >

US is issuing massive amounts of debt and China is expected to be a huge buyer of that debt.

But already China has been showing signs of slowing its purchases.

See the full story on China dumping the dollar here.

Not only that, there are growing reports that a liquidation of non-backed fixed-income assets is to be commenced.

Among China's non US-backed holdings is California debt. Given that states crisis, any sale could be disastrous.

One reason for this is diversification. Like any other investor, China doesn't want to be too tied to one party.

China also wants to spend its money on resources to fuel its growth for years to come.

After the US spent hundreds of billions prosecuting the war in Iraq, China is spending its money to ensure that it gets plenty of the oil that comes out of the region.

And there may also be an elemant of retaliation for snubs like this Dalai Lama thing, and Arms sales to Taiwan.

After a Boeing arms sale to Taiwan, China threatened 'unprecedented' actions.

Beyond that, the relationship is fraying on major political issues. China purposely undermined Obama in Copenhagen in order to humiliate him.

For background, read this first-hand account of someone who watched waht China did in the room with Obama and representatives from Brazil and India.

Meanwhile Obama wants America to be an export powerhouse, but there's only room for so many net-exporters in this world.

After the election of Scott Brown, Obama went on the offenseive. At his State of the Union he promised to double America's exports to the rest of the world.

Independent economist Andy Xie says it will set the two countries on a collision course.

Bottom line: The relationship is frosty on many levels.

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