**Biden Warns China of ‘Consequences’ if It Aids Russia in Ukraine War**
**The New York Times, March 18, 2022**
**by David E. Sanger and Edward Wong**
**President Biden warned President Xi Jinping of China on Friday of “implications and consequences” if Beijing decides to give material aid to Russia to support its war in Ukraine, the White House said....U.S. officials have warned that Mr. Putin is hoping to secure economic help, military hardware and rations for troops from China. ...**
**In its public messages, the White House is implying that the United States could impose what are called “secondary sanctions” on China, the world’s second-largest economy. Of course, unlike Russia, China’s size and economic reach mean penalties against it could reverberate in a much bigger way across the global economy, and various governments and companies could lobby heavily against such sanctions....** [end quote]
**White House Says Biden Warned China’s Xi of Consequences if Beijing Supports Russia on Ukraine**
**U.S. president tried to suggest the stakes for China during a nearly two-hour-long videoconference**
**by Alex Leary and Lingling Wei, The Wall Street Journal, March 18, 2022**
**Beijing has now settled on a clearer strategy: It won’t oppose Russia, and it will support Ukraine—what is described in China as “benevolent neutrality.”**
**The stance reflects Mr. Xi’s effort to stick to his strategic focus on making common cause with Russia to undermine the U.S.-led West, while trying to still present China as a responsible world leader....**
**China has denied U.S. assertions that Russia has sought its help, either through providing military equipment or economic assistance. ...** [end quote]
It’s not clear to me whether the U.S. statements that Russia has requested material aid from China is based on actual intelligence (denied by both Russia and China) or a pre-emptive fabrication meant to warn both R&C against trying such a thing.
The Macroeconomic blowback in the U.S. from major sanctions against China would be immediate and intense. The slight increase in gas prices from sanctions on Russia would be a pittance compared with sanctions against China.
Sanctions against China could include freezing their USD accounts, refusing to pay interest on their giant book of U.S. Treasuries and freezing trade with China. These would result in higher interest rates, much higher inflation and shortages of consumer goods.
China owns $1.06 Trillion of U.S. Treasury debt. U.S. goods and services trade with China totaled an estimated $615.2 billion in 2020. Exports were $164.9 billion; imports were $450.4 billion. The U.S. goods and services trade deficit with China was $285.5 billion in 2020.
If the U.S. stopped paying interest on U.S. Treasury debt (as suggested by a boneheaded former politician) the U.S. debt would lose its AAA rating and trust all over the world. Currently, foreign buyers hold $7.66 Trillion of U.S. Treasury debt which would immediately lose value along with $20.9 trillion held by domestic owners. Interest rates on future debt would immediately rise, eating a larger fraction of the federal budget. All other interest rates, including mortgages, consumer and commercial debt, etc. would also rise in tandem.
The prices of consumer goods would skyrocket if trade from China was cut off. It would cause a recession reminiscent of the Embargo Act of 1807 imposed by President Thomas Jefferson, a classic case of cutting off one’s nose to spite one’s face.
I am against the invasion of Ukraine by Russia as much as the next person, but the U.S. must be careful to act in a reasoned way. We must not cause World War 3. We must not take actions that would seriously damage the U.S. Macro economy.
**Realism Must Guide Our Reaction to Russia’s Invasion**
**By Tanner Greer, The New York Times, March 18, 2022**
**This is not a simple problem. Our desire to punish Mr. Putin for the evil he has unleashed in Ukraine must be carefully balanced against the lives that will be lost the longer this war lasts, the real risks of military escalation, the long-term security needs of Europe and the second-order effects a new iron curtain might have on other parts of American foreign policy — such as U.S. security commitments in East Asia and the health of the dollar as the world’s reserve currency. To meet this challenge, we must keep our policy firmly rooted in the “logic of consequence.” Americans living generations from now will be grateful that in this moment of crisis, our policy was guided by careful calculation instead of emotional reaction.** [end quote]
As investors, we are like seagulls flying along a cliff face in a hurricane. The Macroeconomic and investing consequences of decisions taken in the next few weeks could be extreme.