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you need the dollar is because of the balance of payments identityThis is just tautological with the trade surplus. Yes, the two go hand in hand.
My point is that "trade surplus" is always trotted out as if it is some vulnerability of China's - that if we stop giving them dollars and they stop giving us goods, this would create an unsolvable problem for China's economy.
But this is merely fanciful fiction borne from western thinking where we don't have the political will to take sustained direct action to subsidize domestic industry. But China isn't bound by this! Rather it is merely wishful thinking as if we hold power here.
Hence my focusing on whether China actually needs more dollars (ie is reliant on exporting to get those dollars), or whether they could make do with what they've already saved up in treasuries (and other USD investments) while being unable to export as much to the US. My gut says their economy and industry is now large enough that they could weather it just fine. We're still looking at them as if they are the little kid from the 90's (who would have indeed been hurt if we had never started the arrangement), and failing to see that they are all grown up. The pump has been primed.
> the US is the only nation willing and able to absorb these capital inflows... The results have been, in my opinion, highly destabilizing
In my opinion, the destabilizing results were not inevitable. Rather they were the result of deliberate policies that were kept outside of the Overton window by the entrenched interests who were benefiting from them.
Having others say "I'm willing to accept IOUs from you rather than requiring payment in cold hard cash" (aka having the world reserve currency) is an inherently lucrative position! The downsides can only come from how you react to having that ability - a spendthrift might write IOUs without limit and spend all their cash, making the position itself look like a vulnerability. Whereas a frugal person who wants to avoid that fate but isn't very creative might keep a stack of cash that 1:1 corresponds to IOUs they've issued.
The two deliberate policies of which I speak are 1. USD must always inflate (which precludes the frugal option) 2. the legislature/executive government is prevented from spending the newly created money on (most) deliberate constructive activities (like the industrial subsidies I was talking about above).
So most of the wealth we received from having the world reserve currency (represented in-system by newly created money) was simply given away by the Federal Reserve directly to banks (as low-interest loans) to blindly "invest". This resulted in the everything bubble - unproductive assets as a safe haven, intemperate investment in new industries, but failure to maintain the industries we had (since mature industries don't achieve outsized investment returns).
In a different world the legislature would have spent some of that wealth directly subsidizing domestic industry to maintain it, backed up with laws about not being able to move production lines out of the country. But of course this was not in the interest of the corpo class as it would have meant less money going into their own pockets. Hence it remaining on the fringes of the Overton window. (the one place it did actually happen was the defense industry, of course)
Now that the deindustrialization scam has run its course, the corpo class is on to the next thing - economic consolidation to further cement their position. They're channeling echos of what would have been prudent decisions back in the 90's, which makes grassroots voters think they are finally being listened to. But it's nonsensical to talk of closing the barn door after the horse is long gone, right? So in reality they're pushing upside-down bizarro revanchist economics (like framing strong currency itself as a problem!), to destroy the economy that we actually did develop. Then they can mop up and further centralize.