The West Against the East

Understandably, we are thrilled to see the West, and especially America, exercise its financial power over Russia. As it happens, the Western financial behemoth is causing significant problems for the Russian economy. 

For now, this pressure seems to have done little more than caused Russia to ramp up its destruction of Ukraine. One would like to see more calls for negotiation, but that does not seem to be in the cards right now.

Of course, much of the world has remained on good diplomatic and commercial terms with Russia. We have pointed this out before, and will surely return to it again.

And we have also pointed out that when a country like Saudi Arabia decides that it might take payment for oil in Chinese currency, the yuan or the renminbi (RMB) the possibility exposes a fault line in Western financial hegemony.

Anyway, for today, via the Asia Times, I am happy to bring you a few words from China. Everyone is wondering what President Xi will say to President Biden today. And everyone understands that our enfeebled president will do little more than read off his cue cards. This will make dialogue impossible. 

Here, from one Chen Feng, is the bottom line, from the Chinese perspective. The salient point is that China is now the world’s manufacturer, and that this reality ought to be part of everyone’s calculation. Moreso when it can impact the reserve status of the U. S. dollar: 

China is the world’s manufacturer, and even a mass shift to RMB settlement for bilateral trade involving China would massively crowd out the circulation of the dollar, leading to a return of over-issued dollars and creating some over-issuance for the RMB. China could also greatly reduce its foreign exchange reserves and sell off a large amount of US debt to free up funds, all of which would create a perfect storm for the dollar.

Saudi Arabia’s shift also represents a critical point in the decline of US influence. Saudi Arabia’s acceptance of the yuan to buy oil is not yet pro-China, but giving up settlement in dollars is an unmistakable distancing from the United States. Add to this the fact that Biden called upon Saudi Arabia to increase oil production and lower oil prices, and Saudi Arabia did not even answer the phone. It is clear that the trend of alienation from the United States is even stronger.

Apparently, by using the dollar as a weapon in a war against Russia, the United States has undermined its reputation as an honest broken, someone who could be relied upon. For those like me who find this all a bit confusing, consider how much the condo markets in major American cities like New York and Miami are sustained by foreign investment. Obviously, foreigners are parking money in stable American assets because they do not trust their own governments. What will happen once they get wind of the possibility that American governments will arrogate to themselves the right to confiscate such assets.

Anyway, Chen Feng has a distinctly Chinese view of the hollowed out American economy, one that is running on fumes. That is, the economy is not producing wealth as much as it is shuffling paper and printing money:

The United States is fighting an economic war against China, but its shortcomings clash against its advantages.  The US economy is already very hollowed out and leveraged. American deindustrialization has passed the point of no return in many ways, and the ship of US prosperity during the last 30 years floats on Chinese water. The US technology and economy are still impressive, but it’s like a soccer striker who looks like he scores a lot of goals and is very polished without realizing that a great team depends on the midfield.

Economies require growth. They require manufacturing and production. In that America has been falling behind:

In the agricultural era, we have to “grow something” and in the industrial era, we have to “make something.” China is the world’s factory and has a stable midfield. The US striker and the Chinese midfielder teamed up together. The U.S. striker has to score goals. When the US team and the Chinese team play against each other, the US forward is powerful but suffers from a weak midfield, while the Chinese forward is a little weaker but is backed by a strong midfield. The outcome is still in suspense.

It is not impossible for the United States to rebuild manufacturing, but even if this is feasible it will take 20 years. Now it is simply too late. If the US were to fight an economic war with China now, it would only be economic suicide.

Sobering thought, even if a bit exaggerated.