Trump Spews Fake Economic News Regarding China and Russia in Move to Wage Total Hybrid War on Eastern Superpowers

Many in the United States fear that Donald Trump’s tariff driven trade war against China will produce the unintended consequences of China preparing the Yuan to float on the open market in a move that could see the Yuan becoming a more valuable currency than it is a present.  At such a time, the Yuan could move to a position where it is gradually headed in any case, and begin to take its role as a global reserve currency that could threaten the hegemony of the US Dollar. Eventually, the Yuan will likely both float and then eventually become the de-facto global reserve currency, as history dictates that the country with the largest and consequently most influential economy will automatically see its currency become the global reserve currency and the standard currency of trade.

In Shanghai, China’s financial capital, the severity of Donald Trump’s volatile posturing against China has led many to propose that the Yuan floats sooner rather than later. A recent editorial in the influential Global Times examines the pros and cons of a floating Yuan before concluding that the US would prefer a weaker Dollar in any case, especially since Trump wants to decrease his country’s reliance on Asian imports.

Oddly, Trump is now Tweeting his apparent dissatisfaction with what he believes are artificially deflated values of the Chinese Yuan and Russian Rouble vis-a-vis a Dollar which  Trump expects to rise due to increased US interest rates. What Trump neglected to say in respect of interest rates is that one of the reasons for the increase is a US attempt to lure more foreign investors towards US Treasury bonds following on from China’s decreased purchases of American debt and a possibly preparation for China to dump some of its US bonds, which would likely create a notable dip in the value of the US Dollar. According to Trump,“Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!”

A new and bizarre attack on Russia 

In respect of the Rouble, Russia’s currency markets have taken a hit this week due to the overall uncertainty regarding the geopolitical situation. However, even before the illegal US, UK, French missile strikes on Syria, the Rouble began to stabilise while new anti-Russian sanctions from the US have not seen the Rouble dip as badly as it did last week. In any case, the US has never labelled the Russian Federation as a currency manipulator. Therefore, the only conclusion one could reach is that Trump is acknowledging the wider economic war that the US is waging against both China and Russia, in spite of the Chinese and Russian currencies being in an incredibly different position in global markets.

In respect of the Yuan, far from being “devalued”, the Chinese currency continues its general trend of rising against the US Dollar, as the following chart tracking the Yuan against the Dollar makes clear.

Thus one sees Trump overreacting to a Rouble that barely impacts on US markets after it survived a difficult week, while Trump also fails to recognise that the Yuan’s overall trend is one of growing strength against the Dollar, something that one would have thought Trump wanted in order to make Chinese imports less attractive while attempting to boost US domestic production and US exports. Instead of celebrating ‘good news’, Trump is instead inventing fake news, albeit with a very real motive.

Where the Yuan is headed 

In respect of long term trends in the Yuan, the Chinese currency does remain pegged to the Dollar in the same way that prior to the creation of the Euro, the European Exchange Rate Mechanism pegged multiple European currencies to the Deutsche Mark. For China, western consumers and manufacturers who rely on Chinese products, this has been a win-win as it has kept Chinese products affordable vis-a-vis the Dollar, while it has allowed China’s companies to engage in successful transactions with the world’s formerly largest consumer base in the US. This has also made it attractive for China to purchase vast sums of US Treasury Bonds, which has helped inject much needed cash into a deficit strapped US economy.

The combination of China outpacing the US in terms of being the largest domestic consumer base, combined with the opening up of new developing markets in Asia, along with the recent US turn away from free trade to protectionist principles, has led China to take steps which are clearly preparations for a free floating Yuan.

Ever since 2015, China officially detached the Yuan from the Dollar and instead pegged the Yuan to the currency basket known as Special Drawing Rights (SDRs). This currency basket is an aggregate value of the Dollar, Japanese Yen, Euro, British Pound and beginning in 2016, also the Yuan.

On the 9th of March, the governor of the People’s Bank of China made the following announcement,

“In the process of internationalization of the yuan we have taken sufficient measures that from now on will allow the yuan to be used in trade and investment. Moreover, the yuan has been included in the SDR currency basket. The key procedures have already been carried out… As for the future role of the government or the Central Bank in the internationalization of the yuan, to my mind, it is still possible to do something to establish communication between domestic and international capital markets.

We cannot force anyone, decisions are made based on their own logic, that is why it is a gradual process. We will continue gradual internationalization of the yuan”.

In simple terminology this means that China is making preparations to float the Yuan on the open market, a decision that has almost certainly been sped up due to Donald Trump’s love of tariffs, which are designed to take away any remaining Chinese competitive advantage.

When the Yuan eventually floats, not only will it come to replace the Dollar as the international reserve currency, but it will also become the de-facto petro-currency, thus replacing the petro-Dollar that has been America’s de-facto currency stabilising mechanism ever since Richard Nixon took the US Dollar off the gold standard in 1971.

At such a time, China will almost certainly begin to sell off some of its US Treasury bonds in anticipation of a falling Dollar and rising Yuan. The result for the US will be a limitation of purchasing power among both consumers and businesses, as well as the bloated US public sector. This process will also lead to reduced US influence among energy producing nations whose transactions will begin to use the Yuan rather than Dollars.

Lessons from US-Japan relations 

At the same time, Chinese goods will likely still be more affordable than those made in the US, because as a more efficient producer, China can always do what Japan did in the 1980s and artificially lower the price of its goods in certain foreign markets (including the US) in order to make gains on overall volume and market share, rather than in terms of a dollar-for-dollar profit. One mustn’t forget that many in the US said about Japan what they currently say about China, even though the Japanese Yen was incredibly strong in the 1980s vis-a-vis the Dollar.

Thus, when China does float the Yuan and allow its value to skyrocket, the US might find itself regretting pushing China to this decision which is now all but inevitable in due course.

What it really means

In the 20th century, the term ‘total war’ was used to indicate a full mobilisation of society against an enemy state. In the 21st century, hybrid war has been used to denote a combination of military conflicts around the peripheries of a country’s spheres of interest, combined with agitation against a country’s territorial unity, along with economic warfare and a soft power ‘infowar’. Donald Trump has now combined the concepts of total war with hybrid war when it comes to the US position vis-a-vis the two eastern superpowers of China and Russia.

The world is witnessing a perfect storm of the US provoking Russia in Donbass, Syria, central Asia and on its European frontiers, while the US continues to provoke China in the South China Sea, Korean peninsula, Pakistan, Afghanistan, its disputed Indian frontiers and in the Horn of Africa. This has been combined with economic warfare against Russia in the form of never ending sanctions while with China the related phenomenon of ever increasing tariffs are being employed.  The soft power war against China and Russia continues to play on an hourly basis throughout the western mainstream media while now, both China and Russia are being accused of artificially manipulating their currencies in spite of the fact that a strong Yuan is getting stronger, while a Rouble that has been consistently far weaker than the Dollar in recent years has just survived a slump cased mainly by external geopolitical crises.

Conclusion 

However irrational and non-factual Trump’s latest statement seems, it cannot be dismissed as it is indicative against the total hybrid war that the US is already waging on multiple fronts. If Trump’s attitude is any indication of future US policies, this means that far from ebbing, the total hybrid war is only going to grow.

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