Chinese reliance on American consumption is fading. If the trend continues, China may join the ranks of other nations dumping dollars.

Conventional economic thinking says America and China are two intertwined economies, so mutually dependent that one could not economically survive without support from the other. However, if economic analyst Dr. Julian D.W. Phillips is correct, this symbiotic relationship is becoming one-sided: While the U.S. dollar remains critically reliant on Chinese support, China may no longer be so dependant on the U.S. consumer.

Over the past several years, much of China’s economic growth has been fueled by massive exports to the U.S. Americans happily accepted this situation since inexpensive Chinese imports allowed consumers to buy more things. Over time, however, America has become addicted to cheap foreign goods, each year purchasing increasing amounts from its low-cost trade partners. Because of lower wages, higher savings rates and other issues, Chinese consumers do not import nearly as many American-made products. Consequently, the trade relationship between China and the U.S. grew very lopsided.

Today, America has a trade deficit running at an annualized pace of $784 billion—of which approximately $230 billion is due to trade with China alone.

Normally when a country has such a gargantuan trade imbalance, market forces act to rebalance the situation—one of the consequences being currency devaluation. This has not happened to the U.S. dollar, largely for one reason: The Chinese decided to not let the dollar fall. Instead they chose to take their exporting profits and use them to prop up the value of the dollar. This way, Americans could continue to purchase more Chinese-made goods.

Thus, conventional wisdom said that the U.S. and China had become so intertwined that they could not do without each other. If China stopped supporting the dollar, Americans could not afford to purchase as many Chinese goods. If Americans did not purchase Chinese goods, the Chinese economy would collapse.

However, this symbiotic relationship is changing. Domestic demand within China, and the rest of Asia, is growing, as is trade with other nations besides the United States. That means China and Asia are becoming significantly less dependent on U.S. consumption.

Investment bank Goldman Sachs reports that Chinese importers are keeping a growing proportion of their imports for China’s domestic market. China’s imports of materials for domestic use are now approximately equal to its imports that are re-exported. Five years ago, imports for domestic use were only about half of those for re-export. “So strong domestic demand in China sucks in more imports,” says Dr. Phillips. Within Asia, “Since 2001 the increase in emerging Asia’s trade surplus has added less than 1 percent a year on average to the region’s average growth rate of almost 7 percent.” Therefore, “the bulk of Asia’s growth has been domestically driven. … This suggests that Asian consumers can help sustain fairly robust gdp growth in Asia even if America’s economy takes a dive.”

China and Asia are becoming less dependent on trade with the U.S. China’s exports to America have fallen significantly—in 1999, they were 34 percent of China’s exports; today that figure is 25 percent (when adjusted for Hong Kong re-exports). Additionally, the European Union replaced the U.S. as China’s top trading partner in 2005. Similarly, the fraction of Asia’s exports to the U.S. has fallen from 25 percent to 20 percent over the past five years.

Phillips’ report concludes: “In summary, if America suffers a slump, the economies of China and the rest of Asia would slow, but they are unlikely to be derailed. … [T]he East has moved from dependence on the West to independence from the West, already!”

This means the days of massive dollar support from China and Asia may soon be a thing of the past. Certainly their incentive to support the dollar is steadily disappearing.

Will China become the next dollar dumper? If it does, it will not be alone. Russia’s central bank, Sweden’s Riksbank, the Central Bank of the United Arab Emirates, Qatar Central Bank and the Central Bank of Syria have all announced intentions this year to diversify their reserves away from the greenback.

The U.S. dollar looks like it could be in serious trouble.