By embracing Peter Navarro’s xenophobic “Death by China” hysteria and staging Vice President Pence’s articulated “Death to China” speech last week, the Trump administration has officially labelled China as America’s new public enemy and lifted the curtain on a new cold war.
All the unscrupulous accusations have one aim: to isolate and halt China’s rise. Why would the US want to do this?
It’s not about the trade deficit and access to the Chinese market, nor has it got anything to do with the US’s failure to engage China, as Pence put it. It is about China’s challenge to the dollar hegemony.
For decades the US government has financed her huge expenditures and numerous wars all over the world by issuing treasury bonds, ad hoc, whenever it has to pay a bill.
The reason the US can do this – print money, in layman’s terms – is because of the dollar’s status as a world reserve currency. However, according to the International Monetary Fund the dollar’s share of currency reserves has shrunk for five consecutive quarters as the greenback weakened. In the first quarter of 2018 it had dropped to a fresh four-year low, while the euro, yuan and sterling’s shares of reserves increased.
During his 14 months in office Trump has added about $1.2 trillion to the national debt he inherited, making it a massive total of $21 trillion. But who would want to buy the $1.2 trillion new bonds from a debt ridden American government? The two largest foreign bondholders, China and Japan, have not increased their portfolio. Russia has dumped 90 per cent of its US debt holding, for obvious reasons. The only buyers now are mostly American institutional and individual investors, directly and indirectly, through bond funds, pension funds and other ways.
To Trump, China is the culprit because the yuan has increasingly become an alternative to the petrodollar. Russia, Iran and Venezuela are already selling their energy to China in yuan. Even Saudi Arabia, a staunch America ally, is now persuaded by China to accept yuan instead of dollars. In other words, the global demand for greenbacks has fallen, and the demand for US treasury bonds will follow suit.
In the past, countries like Iraq and Libya who attempted to replace the petrodollar were destroyed by the US. Trump must have realised that the US is unable to finance or win an outright war against China, and the only way is to damage the Chinese economy via tariffs and economic sanctions.
Among the many Trump’s daily tweets, it was interesting to read the following on June 20, 2018: “The United States should not be penalises because we are doing so well..... Debt coming due and we are raising interest. Why?”
From Trump Inc to USA Inc, Trump is acquainted with debt more than any past US presidents. He knows that the US can only service its debt by printing more money, and he can continue do that when China is not out there to challenge the dollar hegemony.