Opinion: Why Beijing is cheering on the U.S. debt ceiling fight
The U.S. Capitol Building is seen on January 19, 2023 in Washington, DC.
Anna Moneymaker | Getty Images
The contours of divided government in Washington are now clear: The main point of contention is the looming debt ceiling deadline, and the main area of agreement is addressing systemic competition with Communist China.
While they can seem like different issues, they are closely related.
Continued brinksmanship and extremism over the debt ceiling is only serving to undercut a key element of U.S. strength, as we call into question our very own financial and economic leadership.
When we say that we are in a “systemic competition” with the Chinese Communist Party, it means that this competition is not just of military power or diplomatic influence, but also economic, financial, and technological strengths.
On one side is a U.S.-led system; on the other, is Beijing’s, better-suited for authoritarian rule. Each element of a nation’s policy toolbox, be it military hardware or financial influence, is critical to this competition — and demonstrating to the world towards which side it is better to align.
Policymakers in both parties recognize this competition’s magnitude.
The 365-65 vote creating the House Select Committee on the Strategic Competition Between the U.S. and the Chinese Communist Party demonstrates this. Therefore, as the both sides in Washington seek to outdo each other on a tough-on-China approach, radicals on the debt ceiling are counterproductively undermining fundamental drivers of U.S. strength — the dominance of the U.S. dollar, U.S. financial institutions, and Wall Street.
The Chinese leadership understands that it still operates in a U.S. dollar-denominated world, and it will still take years to replace U.S. dollars, financial institutions, and other elements of the economy.
The quick response by the U.S., Europe, Japan, and other major democracies to punish Russia’s Ukraine invasion demonstrated to Beijing the consequences it could face in a showdown over Taiwan or other conflict with the U.S. and allies.
At the same time, Moscow’s ability still to maneuver around sanctions and the decidedly mixed response from India, Brazil, South Africa, and other developing “Global South” countries suggests an opening for an alternative to American leadership, be it political, military, or economic.
History also demonstrates how the loss of financial influence quickly diminishes geopolitical strength.
The prominence of the British Empire grew not just from the Royal Navy but also the City of London. The British Pound was synonymous with British power. Empire and financial influence waned, and for Britain —even with the economic disruptions that ensued — it was an ally in the U.S. rising to power.
It will not be an easy transition for the world if U.S. financial leadership collapses.
Therefore, it is very dangerous for policymakers to play games with the debt ceiling.
Yes, we acknowledge that our nation faces severe fiscal challenges in our debt, deficits, and unfunded programs. Resolving those deeper and more intractable challenges requires a thoughtful, bipartisan solution, as many will likely feel the pain.
The current approach of holding our economy and U.S. financial leadership hostage is not the solution.
A paramedic does not demand an exercise and fitness plan before resuscitating a heart attack patient.
Further suggesting absurd solutions like minting coins or altogether ignoring the debt ceiling suggest that we are fundamentally unserious about our profligacy. The damage of default is far worse, but damage is already being done to our economic and financial position.
Washington can demonstrate a more responsible and serious approach by embracing where past plans have sought to find compromise on the spending cuts and tax hikes that will be required for any real plan to address debt and deficits.
Political rhetoric and spending gimmicks employed by both sides will not solve the burden we are leaving future generations of Americans.
We write here about the geopolitical costs of default, but make no mistake, every American household would feel the pain.
Greg Valliere, chief U.S. policy strategist at AGF Investments, writes, “hard-line House Republicans, who are already suspicious of [House Speaker Kevin] McCarthy, will reject any deal that has some spending increases. If only a half-dozen Republicans refuse to raise the debt ceiling, that could kill the bill and intensify fears of a debt default.”
Our policymakers need to address our debt problems in a serious manner.
There are many strengths that the U.S. still has in this competition, and we still attract the best and brightest from around the world. Undermining that because of political extremes and economic pipe dreams only serves our competitors’ interests.
Dan Mahaffee manages the Center for the Study of the Presidency and Congress’s policy programs, and serves as corporate secretary to the 35-member board of trustees. Michael Farr is a CNBC contributor and president of the Washington, D.C. investment advisory firm, Farr, Miller, & Washington.