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U.S. Decoupling From China Forces Others To Decouple From U.S.
The U.S. is decoupling itself from China. The effects of that process hurt all global economies. To avoid damage other countries have no choice but to decouple themselves from the U.S.
Today's Washington Post front page leads with a highly misleading headline:
The headline above the article is also wrong:
Trump retaliates in trade war by escalating tariffs on Chinese imports and demanding companies cut ties with China
It was China, not Trump, which retaliated. Trump reacted to that with a tweet-storm and by intensifying the trade war he started. The piece under the misleading headline even says that:
President Trump demanded U.S. companies stop doing business with China and announced he would raise the rate of tariffs on Beijing Friday, capping one of the most extraordinary days in the long-running U.S.-China trade war.
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The day began with Beijing’s announcement that it would impose new tariffs on $75 billion in goods, including reinstated levies on auto products, starting this fall. It came to a close Friday afternoon with Trump tweeting that he would raise the rate of existing and planned tariffs on China by 5 percentage points.
Beijing’s tariff retaliation was delivered with strategic timing, hours before an important address by Powell, and as Trump prepared to depart for the G-7 meeting in Biarritz.
After Trump's move the stock markets had a sad. Trade wars are, at least in the short term, bad for commerce. The U.S. and the global economy are still teetering along, but will soon be in recession.
The Trump administration is fine with that. (As is Dilbert creator Scott Adams (vid).)
U.S. grand strategy is to prevent other powers from becoming equals to itself or to even surpass it. China, with a population four times larger than the U.S., is the country ready to do just that. It has already built itself into an economic powerhouse and it is also steadily increasing its military might.
China is thus a U.S. 'enemy' even though Trump avoided, until yesterday, to use that term.
Over the last 20+ years the U.S. has imported more and more goods from China and elsewhere and has diminished its own manufacturing capabilities. It is difficult to wage war against another country when one depends on that country's production capacities. The U.S. must first decouple itself from China before it can launch the real war. Trump's trade war with China is intended to achieve that. As Peter Lee wrote when the trade negotiations with China failed:
The decoupling strategy of the US China hawks is proceeding as planned. And economic pain is a feature, not a bug.
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Failure of trade negotiations was pretty much baked in, thanks to [Trump's trade negotiator] Lightizer's maximalist demands.
And that was fine with the China hawks.
Because their ultimate goal was to decouple the US & PRC economies, weaken the PRC, and make it more vulnerable to domestic destabilization and global rollback.
If decoupling shaved a few points off global GDP, hurt American businesses, or pushed the world into recession, well that's the price o' freedom.
Or at least the cost of IndoPACOM being able to win the d*ck measuring contest in East Asia, which is what this is really all about.
Trump does not want a new trade deal with China. He wants to decouple the U.S. economy from the future enemy. Trade wars tend to hurt all involved economies. While the decoupling process is ongoing the U.S. will likely suffer a recession.
Trump is afraid that a downturn in the U.S. could lower his re-election chances. That is why he wants to use the Federal Reserve Bank to douse the economy with more money without regard for the long term consequences. That is the reason why the first part of his tweet storm yesterday was directed at Fed chief Jay Powell:
In his order for U.S. companies to withdraw from China, some close to the administration saw the president embracing the calls for an economic decoupling made by the hawks inside his administration.
The evidence of the shift may have been most apparent in a 14-word tweet in which Trump appeared to call Xi an “enemy.”
“My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” he said in a Tweet posted after Powell gave a speech in Jackson Hole that contained implicit criticism of Trump’s trade policies and their impact on the U.S. and global economies.
Jay Powell does not want to lower the Fed interest rate. He does not want to increase bond buying, i.e. quantitative easing. Interest rates are already too low and to further decrease them has its own danger. The last time the Fed ran a too-low interest rate policy it caused the 2008 crash and a global depression.
Expect Trump to fire Powell should he not be willing to follow his command. The U.S. will push up its markets no matter what.
From Powell's perspective there is an additional danger in lowering U.S. interest rates. When the U.S. runs insane economic and monetary policies U.S. allies will also want decouple themselves – not from China but from the U.S. The 2008 experience demonstrated that the U.S. dollar as the global reserve and main trade currency is dangerous for all who use it. Currently any hiccup in the U.S. economy leads to large scale recessions elsewhere.
That is why even long term U.S. ally Britain warns of such danger and is looking for a way out:
Bank of England Governor Mark Carney took aim at the U.S. dollar's "destabilising" role in the world economy on Friday and said central banks might need to join together to create their own replacement reserve currency.
The dollar's dominance of the global financial system increased the risks of a liquidity trap of ultra-low interest rates and weak growth, Carney told central bankers from around the world gathered in Jackson Hole, Wyoming, in the United States.
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Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes in the banking system.
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China's yuan represented the most likely candidate to become a reserve currency to match the dollar, but it still had a long way to go before it was ready.
The best solution would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.
Carney speaks of a "new Synthetic Hegemonic Currency (SHC)" which, in a purely electronic form, could be created by a contract between the central banks of most or all countries. It would replace the dollar as the main trade currency and lower the risk for other economies to get infected by U.S. sicknesses (and manipulations).
Carney did not elaborate further but it is an interesting concept. The devil will be, as always, in the details. Will one be able to pay one's taxes in that currency? How will the value of each sovereign currency in relation to SHC be determined?
That the U.S. dollar is used as a global reserve currency under the Bretton Woods system is, in the words of the former French Minister of Finance Valéry Giscard d'Estaing, an "exorbitant privilege". If it wants to keep that privilege it will have to go back to sane economic and monetary policies. Otherwise the global economy will have no choice but to decouple from it.
Decoupling from the USD is tantamount to decoupling from oxygen because the air quality is substandard. Seventy years of dollarization has put us all on a drunken boat. The world is now that boat. So how do we debark without getting blown up or putting a foot into the void? Because the gangplank is wired with explosives. So I share the anxiety. However I also see the contours of an oblique escape route that has a hundred reasons to fail.
“Today’s Washington Post front page leads with a highly misleading headline”
Since when have neo-liberal fountainheads the WaPo or the NYT carried water for a Trump narrative? This would be a marked departure. Is that what’s being implied here? I’m suspicious already.
“It was China, not Trump, which retaliated. Trump reacted to that with a tweet-storm and by intensifying the trade war he started.”
No one from the beholden American political class would have picked this fight as they initiate nothing. Yes, Trump started it alright. Economic populism ONLY runs contrary to the interests of the Dem Party, Republican RINOs, the US Chamber of Commerce, I’ll borrow the Conservative Treehouse’s recent list: “The EU, Asia, World Bank, International Monetary Fund, China, Russia, U.S. Chamber of Commerce, Iran, U.S. Congress, Wall Street, the Big Club, Lobbyists, Hollywood, Corporate Media (foreign and domestic), and the ankle-biters in Never Trump.”
What vested power interest the world over DOESN’T feel antagonized by Trump?
I reject the histrionic language of trade war. It fans needless flames. If we dial back the language, this is, one level at least, a vendor-supplier dispute. Consider how ludicrous this ‘trade war’ -and the ensuing rhetoric (thank you, media flame-fanners)- has been from the get-go:
Walmart announces it ‘will not cave’ to the demands of its single-largest customer. (Customer also happens to be the largest manufacturer of paper products which Walmart insists on purchasing from an alternate supplier.)
Customer says ‘No sweat. I’ll shop at Target’
Walmart: ‘this is war!’
I dunno. Assailing the most developed demand market in the world (when you yourself have not traversed the middle income trap), seems the height of CCP hubris –or tin-earedness. Deng turns over in his little grave. Who is this Xi, this bull in a china shop? What a grave misreading of relative strength and propitiousness.
“Trump does not want a new trade deal with China. He wants to decouple the U.S. economy from the future enemy. Trade wars tend to hurt all involved economies. While the decoupling process is ongoing the U.S. will likely suffer a recession.”
Of course there is a hegemonic subtext woven into the trade dispute. Where does realpolitik power retention end and ‘mere trade’ begin? That’s a fascinating question. The demarcation is undoubtedly blurred. Maybe they’re indifferentiable. However this is an asymmetric trade dispute. Trump doesn’t need a deal. China does.
“Trump is afraid that a downturn in the U.S. could lower his re-election chances. That is why he wants to use the Federal Reserve Bank to douse the economy with more money without regard for the long term consequences. That is the reason why the first part of his tweet storm yesterday was directed at Fed chief Jay Powell”
There is $15 trillion of negative interest govt bonds sloshing around the world today. So the US is to be held to the gentlemen standard of positive rates and not seek free money like everyone else? We can’t disparage the hegemon on one hand while insisting it behave with hegemonic Big Brotherhood on the other. You can’t give credit away. It’s like the world has given up on productive outlets. Things have become so apathetic that no one even cares about discovering prices anymore. A blizzard of dollars will do that to you.
“Jay Powell does not want to lower the Fed interest rate. He does not want to increase bond buying, i.e. quantitative easing. Interest rates are already too low and to further decrease them has its own danger. The last time the Fed ran a too-low interest rate policy it caused the 2008 crash and a global depression.”
Powell wants to retain in his holster at least 200 basis points of nominal discount rate so that he can cut rates into a recession. It’s about as high-falutingly econometric as all that. At the zero-bound, you can’t even LOOK like you’re doing something. Today’s Central Banking is all about keeping up appearances with feigned responses. At 0% the Emperor runs out of clothes and excuses.
“From Powell’s perspective there is an additional danger in lowering U.S. interest rates. When the U.S. runs insane economic and monetary policies U.S. allies will also want decouple themselves – not from China but from the U.S.”
This was written before the bilateral Japanese and British trade deals with the US. Merkel’s in there now trying to hash out a deal. I don’t think we’re looking at everyone piling into the Chinese sphere of influence. Maybe a bipolar world order at best –Anglo-Saxon coarseness vs. (a slowed, but still inevitable) Eurasian Century complete with social credit dystopianism. We peeps are always left with the most delectable choices! But if the markets today are any judge (carnage in Asia, Dow up 200 pts), the unipolar order is being prematurely eulogized. Imminent decoupling is more wishful than analytical. Wishful analysis is an oxymoron. Bad bad hegemon. Where’s the natural law that states an aging sclerotic empire is obliged to stand aside for an ascendant power? The former is obliged to run interference while the latter must strive for the brass ring. That’s the Darwinian way.
“U.S. grand strategy is to prevent other powers from becoming equals to itself or to even surpass it.”
Again, as opposed to which prior empire which gallantly stood aside for its usurper?
“The dollar’s dominance of the global financial system increased the risks of a liquidity trap of ultra-low interest rates and weak growth, Carney told central bankers from around the world gathered in Jackson Hole, Wyoming, in the United States.”
I’d say the world’s suffering two major dislocations: the Triffin Paradox (which continues to fuel the MIC) and the 1999 China WTO entry which unleashed a tsunami of global deflation without insisting on a co-terminously emergent sponge of Chinese domestic demand. For that historic ‘oversight’, the Clintons were handsomely compensated.
“The best solution would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.”
Keynes argued passionately for the bancor. He saw the imbalances looming ahead. He was outflanked. The dual and and paradoxical role of national currency and international reserve currency cannot be repeated. That’s assuming we survive the military beast minted by the prevailing dislocations.
“That the U.S. dollar is used as a global reserve currency under the Bretton Woods system is, in the words of the former French Minister of Finance Valéry Giscard d’Estaing, an “exorbitant privilege”.
It’s an exorbitant pox on all decent parties which has served to hollow out Middle America, bankroll (via petrodollar recycling) the MIC, enrich the bankers at the expense of the productive economy, steal the world’s prosperity, launch the Latin American debt crisis. Only the NY and London bankers won. Okay, and a few Arab sheiks. as a useful dupe. The so-called Arab Oil Embargo was launched by Kissinger et al to subjugate production to financialization evermore. Everybody’s oil bill went up 300% overnight.
In its own circuitous way Trumponomics is working first through trade normalization (which inevitably will erase structural deficits, which inevitably will unseat USD reserve currency status, which inevitably will defund the MIC). The real danger lies in the short term when the MIC decides it must shoot before it loses the loot. Thus we’re in a precarious period of defusement. Has anyone else notice Trump’s failure to press any triggers? He wanted to bring the troops back from Afghanistan & Syria and was REBUKED by bipartisan Senate vote of 68-23. Trump has no stomach for war. He’s a golf course builder with bone spurs for crying out loud.
He doesn’t run the MIC. That’s above his pay grade. He’s only a POTUS after all. He needs to stay alive to implement his concentric approach. Trump is strapped to the fuselage of an in-air missile. Dr. Strangelove comes to mind. But he’s gingerly trying to defuse it while he’s riding it. Any false moves and his own team will shoot him out of the sky. So he’s defusing it obliquely. By robbing it of its funding mechanism (i.e. via normalization of trade disparities). My ‘pinion only.-FSD
Posted by: FSD | Aug 26 2019 18:00 utc | 205
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