Misunderstanding the United States and China's relationship. According to Capp, many Americans don't understand how the Chinese manufacturing industry functions. Again, take the iPad as an example. Many of the parts aren't made in China—only the final assembly takes place on Chinese soil.
Signature's Gong says Americans have a false idea about how much of their income is being spent on products that come from China. According to a 2011 report from the Federal Reserve of San Francisco, products made in China only for 2.7 percent of American consumption expenditures. "Most Americans spend most of our money on services like healthcare, education, and transportation, all of which [are] made in the United States," he says.
Both Capp and Gong agree that the biggest misinterpretation of the United States and China's relationship concerns the trade deficit and Chinese holdings of U.S. debt. Currently, the United States owes China $285 billion. At the same time, China holds $1.15 trillion in U.S. bonds.
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Many are concerned that the large trade deficit gives China an advantage over the United States, should the nation demand repayment. The Chinese could also flood the bond market with U.S. treasuries, dramatically shrinking the value of the dollar.
But Gong says neither is likely to happen, since China needs U.S. money to continue to grow. At the same time, the Chinese do want to be paid eventually; sinking the value of the dollar is senseless, according to Gong.
Says Gong: "If we go into a currency war, it would create big problems for both countries."