More on Taiwan, China and the balance of trade

On Monday I linked to Steve Soto's observation that the U.S. is unlikely to have any effect on the brewing Taiwan-China situation. Yesterday Tom Friedman echoed:

The excessive tax cuts for the rich, combined with a total lack of discipline on spending by the Bush team and its Republican-run Congress, have helped China become the second-largest holder of U.S. debt, with a little under $200 billion worth. No, I don't think China will start dumping its T-bills on a whim. But don't tell me that as China buys up more and more of our debt - and that is the only way we can finance the tax holiday the Bush team wants to make permanent - it won't limit our room to maneuver with Beijing, should it take aggressive steps toward Taiwan. What China might do with all its U.S. T-bills in the event of a clash over Taiwan is a total wild card that we have put in Beijing's hands.

The conventional wisdom, as voiced by Dick Cheney, is that deficits don't matter. I sense imminent refutation, though such logic-based concepts have become increasingly quaint.