Last week the Pentagon announced a 6.4 billion dollar arms deal with Taiwan. The package includes 114 Patriot missiles, 60 Black Hawk helicopters and communications equipment for Taiwan's F-16 fighter fleet. Taiwan is purchasing the weapons in the hopes of boosting national security – against who? China.

Beijing claims that it owns Taiwan. It comes as no surprise that it does not want this weapons deal to go through. So how will China react to the sale? Will it take military action against Taiwan or the United States? No. Will it stop exporting Made in China goods? No. It has a more passive aggressive retaliation.

It could dump its holdings of US treasury notes (dollars).

China has $800 billion US treasury notes. On Monday February 8, 2010 the Chinese military asked their government to consider selling off US debt securities as punishment for the US-Taiwan arms deal. This is a form of economic warfare that could bring the US economy to its knees. If Beijing dumped those treasury notes it would most certainly drive down the already weakened US dollar, harm our weak economy, and drive up inflation and interest rates.

However, as one economist pointed out, the US and China are in a dance that neither partner can stop. If China dumped its US notes and harmed the US economy, then it would be economically harming its best customer. Also, if China tanked the US dollar by dumping many of its US notes, then it would devalue its remaining US notes; however, it appears the Bush and Obama administrations’ reckless spending policies are already doing a fine job of this. And the US needs China to continue exporting products to feed our insatiable appetite for inexpensive goods, and we need them to hold US debt incurred through costly government bailout programs.

So our dance card is full for the next 100 songs. That wouldn’t be so bad if each slot weren’t filled by the same partner - China. Dancing with the same partner over and over, and never really liking that partner in the first place, is getting a bit tedious.

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