The real motive behind Trump’s trade war with China?
If there is a major reason behind the sudden, fierce trade attack against China by the Trump administration, it is not national security, as Trump claimed on March 8 when he announced the US would levy tariffs of $30 billion on steel and aluminium imports.
Neither is it about protecting US intellectual property rights on high-tech products (on March 20, the US imposed $60 billion in taxes on Chinese tech imports). Nor is the trade attack motivated by a desire to cut America’s huge trade deficit with China, which stood at $375 billion in 2017.
It is in fact about the imminent dollar crisis, the so-called de-dollarisation of world trade, catalysed by China’s official launch of yuan-denominated oil futures in Shanghai on March 26 last year.
After the collapse of the Bretton Woods system in the 1970s, the dollar emerged as a world reserve currency, and the free flow of abundant dollars became the source by which the US was able to finance its huge deficit of $14 trillion and the build up of its vast military presence all over the world.
Since a declining dollar is detrimental to the US economy, the US government will not tolerate actions by anyone that challenge the supreme status of its currency. In the mid-1980s, when Japan became a new economic power, the Reagan administration forced the revaluation of the yen – which subsequently led to Japan’s recession. Saddam Hussein of Iraq and Muammar Gaddafi of Libya met their fate after announcing that their countries would ditch the dollar as a petrol currency. In 2017, when Venezuela tried to shun the dollar and publish its oil prices in yuan, Donald Trump threatened US military intervention (in the name of saving the Venezuelan people from a harsh economy).
As a long-time businessman, Trump understands better than any other US president the danger that the dollar is facing, but there isn’t much that he can do to prevent the rise of the “Petroyuan”.
Military intervention is not an option since China’s military strength has grown substantially since the accidental(?) bombing in 1999 of the Chinese embassy in Belgrade by the Clinton administration. Funding a war is expensive. If the US can conquer more countries and turn on their oil taps, like they did in Iraq, there is no sense in staging an outright war with China.
The alternative is for the US to find ways to slow down China’s economy – with all sorts of allegations over trade as they are doing now, or by smear campaigns to attack the authoritarian Chinese government, or even by provoking a China-Taiwan war.
After signing a $1.3-trillion spending bill on March 23, the US Treasury is planning to sell about $294 billion of debt, the highest single amount since the 2008 financial crisis. As the money-printing machine starts rolling, someone out there has to finance the US government by buying the bonds. Will China continue to befriend America when Trump is threatening a $1-trillion tariff?
Yingwai Suchaovanich
