The U.S. role has been to buy increasing quantities of Chinese-made consumer goods, amassing the largest trade deficit ever seen between two countries: $202 billion last year.

Most analysts say that deficit will grow even larger this year, despite a slowing in February to $13.8 billion from $17 billion in January, largely because of the cessation of work in China during the Lunar New Year.
China has kept up its share of the economic compact by accumulating a gigantic treasure chest of U.S. dollars from its export sales and reinvesting most of those dollars in U.S. Treasuries and corporate bonds.

The recycling of dollars, though less visible and less publicized than the trade deficit, is just as essential in the economic relationship because it provides U.S. consumers and businesses with the credit they need to keep on buying Chinese and other goods.
Though China is bad-mouthed regularly in Washington by politicians chafing over the mounting trade deficits, the mutually dependent trade relations are credited with helping to keep the world economy afloat and enabling it to recover from the 2001 recession. Lately, it has inspired an economic boom in Asia.

"U.S. imports have contributed to the growth of output and employment in many countries around the world," said Harvard economist Martin Feldstein, detailing in a Foreign Affairs article how rapid rates of consumption growth in the United States have been fed by a steep decline in U.S. savings and an increasing reliance on inflows of credit from China and other foreign governments to finance purchases.

China recently surpassed Japan to become the largest holder of dollar reserves, with a war chest of $833 billion. Most of that is thought to be invested in U.S. instruments. Altogether, Japan, Russia, China and other Asian countries hold two-thirds of the world's dollar reserves, which they have amassed through years of large trade surpluses with the United States.

While former Federal Reserve Chairman Alan Greenspan predicted that the cycle of U.S. trade deficits and debt to the world would end when foreign creditors lose interest in purchasing U.S. debt and other assets, Mr. Feldstein thinks it will end when U.S. consumers start saving again. And that could be any time.

"In the long term, a substantial rise in household saving will have a positive effect on the U.S. economy," he wrote in the Foreign Affairs article. "But the initial effects will pose problems for the United States and its trading partners. If these effects are not managed well, the result could be declines in output and employment and a corresponding rise in U.S. protectionism."

Mr. Feldstein is particularly concerned about the reliability of money flows from outside the United States, as it is not clear whether and when China and other Asian governments will decide to stop financing U.S. deficits. It is particularly dangerous, he said, for U.S. businesses to be dependent on potentially fickle foreign financiers for investments to create growth and jobs in the United States.

John Chambers, chairman of Standard & Poor's sovereign rating committee, also is predicting a "painful" global economic adjustment when Asian countries stop building up U.S. currency reserves.