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China Has An Idea
China has an idea.
Staring down an intractable economic quagmire and facing the rather daunting prospect of seeing a wrench (tariffs) tossed in the country's only still-working growth engine (exports), the Party in Beijing's considering a stealth currency devaluation.
Let me stop there and point out the obvious: The fact that I'm talking about it, and that you're reading about it, ahead of time, means it's not very stealthy. And that, in turn, means Donald Trump's going to anticipate it and tr
How can Trump retaliate outside of even higher tariffs or a ban on imports from China?
1) Try to limit their access to the international banking system? Would other nations all join in? This would not be as easy a sell as when it was a measure to thwart Russia’s “Special Military Operation” against Ukraine. But maybe that would help him weaken the dollar as other nations accelerate their gradual precautionaty reductions of their USD reserves.
2) Threaten to suspend payments or default on US Governmant bonds held by China? It was reported that he raised that idea in his first term. Would Scott Bessent have enough clout with DJT to disuade him? Hopefully he would since that might “discourage” foreign buying of US debt driving updomestic interest rates. Hehehe – the “solution” to that would be MMT !!
3) Capital movement controls?
Perhaps the buyers of Bitcoins and gold are not no stupid. *
The obvious course of cranking up import tariffs even higher may be a “winnable” game of chicken. As you noted above, the PRC does not want to trigger more capital outflows by weakening the Renminbi too far too fast. (Triggering even more demand for Bitcoin and gold from Chinese lucky enough to have savings?)
It’s not a strategy without risks as many US companies still rely on critical inputs from Chinese manufacturers, as was made evident during the Covid supply chain crisis.
This stuff sure is complicated and full of nuance, isn’t it? Luckily, these are things that Trump excels at.
You are totally right on the direction, but you are way off on the amount 9.00 is more like it. AND thie could run away like Thailand in 1997. Say 25? The strategy is appropriate for the first few months – maybe? Critical to the domestic Chinese consumer, they need inflationto buy things like houses.
With TRUMP macro is a lot of fun: “fight, fight, fight.” But remember Trump’s team is a bunch of Keystone Cops – TRUMP almost always loses in the end. As of January 20, the end is coming.