You think it's toys? Or maybe food products, like soup and seafood? Bad rip offs of collectible porcelain and art glass? None of those things are China's biggest export to the U.S.

China's biggest export is probably money.

It's simple. China sells things to America. America pays in dollars. China uses those dollars to buy Treasury bonds, basically "exporting" the dollars back to the U.S. Only Japan buys more U.S. Treasury bonds than China.

Treasury bonds are a cheap way for the U.S. Government to borrow money. Of course, we don't have to borrow money. We could raise taxes, instead. Or we could cut government programs. But until we decide to do one of those two things in America, our government is going to keep acting the same way most of its citizens do - it's going to borrow money so that it can spend more money than it actually has...

The policy implications of this seem lost on many in Congress who want to start a trade war of some sort with China. The simple question becomes, "Can we borrow money somewhere else at the same interest rates?" If the answer is "no," tightening up our trade policy with China could mean paying more to finance the deficit.

And it's not just government anymore. In December we ran a story about how China's sovereign wealth fund, China Investment Corp. (CIC), bought about a ten percent stake in Morgan Stanley, effectively bailing that company out of the damage done in the subprime mortgage lending crisis. Effectively, China's CIC loaned Morgan Stanley $5 billion.

So before you get too upset about all the (mostly good) stuff that China exports to America, consider that their biggest export to America is money, and think about where we'd get that money if the relationship between the two countries changed substantially.