Donald Trump's all-out trade war has a singular source of ammunition, even as China is pushing to make the RMB a global currency on par.
PARIS— Making the American dollar the only global reserve currency, thus undermining the euro and Europe's monetary strategy, while preventing China's dream of financial power through the renminbi RMB ... Is this what President Donald Trump really meant by "Make America Great Again"?
It is understandable that the U.S. president wants more growth and employment at home, aiming to reinforce his nation's technological superiority and to widen the gap with his competitors, in particular China. He wants to amplify the benefits of having the dollar as the only global reserve currency: boosting GDP, extending the lead in the knowledge (and information) economy, as well as the power of language, law and military dominance, which is now expanded into space. This is how the Trumpian agenda is being built.
But the actual purpose of a reserve currency is as a protection against economic crises and wars. Yet we are told we have now had 70 years of relative peace, which holds today for an apparent balance of power in a tripolar world (U.S., Europe, China). It's all an illusion!
China's strategy after years of hidden diplomatic expansion, thanks to entry into the WTO, is becoming proactive. The New Silk Road investment strategy is as political as it is business-oriented, to strengthen alliances in Asia and integrate Africa, which will have an impact on United Nations votes. Add to this the race for rare metals, essential to new technologies, plus military investments and advances (China is the second largest military investor in the world).
The Chinese economy has one of the world's major currencies: the RMB still trails in influence behind the dollar, euro and yen, but is ahead of the British pound. China thus intends to develop trade without going through the dollar, avoiding U.S. threats and sanctions.
Playing the customs card is easy.
This is the moment Donald Trump chose to ignite the conflict on the grounds of fighting trade imbalances, and reducing them with China, Germany, Mexico, Turkey and Canada. These "usual suspects' are now under pressure for alleged crimes of trade surplus. Playing the customs card is easy for him: it allows him to bypass Congress by increasing customs duties.
Donald Trump meeting with Xi Jinping in Beijing in 2017 — Photo: TPG/ZUMA
The great advantage of this American war to rebalance trade is that his competitors can't win. China exports four times more to the United States than it imports in American products ($510 billion against $130 billion in 2017). If, for example, the United States increases its import taxes to 20%, the additional cost it pays is $100 billion. But this would imply, on the Chinese side, duties of 80% on American imports to reach the same $100 billion. It is impossible for China to take such a risk.
This war via customs duties will slow down the opposing economies more than the American economy, which has relatively fewer imports. But as it takes time to materialize in "others," stock markets play their catalytic role.
Concern about Chinese, Russian and Turkish growth is precipitating currency declines. With its ultimate goal of turning the RMB into a truly global currency, the Chinese central bank cannot let it decline too far. It is thus forced to support the economy through deliberate indebtedness, whereas it wanted to reduce its debt. As a result, China is weakening financially.
This is even more true for Russia, which has no choice but to lower the ruble (and produce more oil). The Turkish lira, too, is plunging, with its companies indebted in U.S. dollars. From one country to the next, emerging currencies are falling (South Africa, India — so all the BRICS), as well as the euro. With concern spreading in indebted countries, long-term rates are rising everywhere (in Italy, for example).
In short, only the dollar is rising. This is proof that the dollar is the singular world currency of choice. Even better, U.S. long-term rates are falling to 2.9%, as much as inflation (which is rising), while the budget deficit is going to explode with its projects for major, peaceful and military works. Thus we have a global currency: It is the one the world wants, the best for lending more and cheaper money.