NEW YORK: Is it risky for a big borrower to offend its largest lender? China, which is the subject of increasing protectionist pressures in the United States, is not only the largest contributor to the large American trade deficit. It is also the largest lender to the United States.
Last year, when the U.S. Treasury debt increased by $184 billion, almost half of that amount - $87 billion, or 47 percent of the total - was provided by lenders in China, according to U.S. government statistics.
With other foreigners buying large amounts of Treasury debt and the U.S. Federal Reserve buying nearly a fifth of the newly issued bonds, only 4 percent of the money came from American investors and institutions.
U.S. banks were net sellers of Treasuries, as were individual Americans.
With variations, the same trends have persisted since 2002, when the U.S. government again began adding to the national debt, after a brief period of paying debt down.
For the five-year period, foreigners picked up two-thirds of the $1.5 trillion in additional national debt, with China taking about a third of the foreign total. The Federal Reserve, which is part of the government but treated as if it were not, took about a sixth of the debt, and Americans took the rest.
In that way, the Bush administration debt has been very different from that of the Reagan administration, which from 1981 to 1988 added $1.35 trillion.
Then the Fed took a smaller share, about 8 percent, and foreigners bought only a sixth of the debt. The rest was purchased by Americans, and when defenders of the national debt told worriers that it was "just money we owe to ourselves," they had a point.
China now has the money to buy bonds because of the large and rising trade surplus it runs with the world, and particularly with the United States. By American figures, China's surplus in bilateral trade of goods last year was almost $233 billion. By China's measurement, it was $144 billion. Either way, it was very large.
Although protectionist tendencies in the United States do not break perfectly along party lines, some Democrats have been more vocal in urging action against what they see as unfair trade from China, and the change in control of Congress may have played a role in the Bush administration's decision to take two trade disputes to the World Trade Organization and to impose countervailing duties in a third.
For China, a trade war with a major buyer of its goods would present clear risks, and it is far from clear that it would benefit if it took, or even threatened, financial retaliation.
A Chinese decision to sell large amounts of Treasuries - or even to stop buying - could drive the dollar down sharply. It would also be likely to raise interest rates in this country, perhaps slowing the economy and reducing demand for Chinese products. Few think China will take such risks.
Nonetheless, the Bush administration does find itself dependent on foreigners, most particularly China, to keep financing U.S. government spending.