China Can Hold Trump’s Trade War Hostage, by Tom Luongo

China may be able to defeat Trump’s trade tactics by devaluing its currency, the yuan. From Tom Luongo at

Calling Donald Trump a bull in a china shop would be a kindness. His approach to foreign affairs has been at times a refreshing stick in the eye to the global post-WWII institutional order. But, in recent months it has morphed into something more dangerous.

And his desire to solve the Gordian Knots of certain geopolitical problems, namely North Korea and Iran, have him lashing out in every direction possible, bullying the entire world into a Manichean corner. You are either against Iran or you will be removed from the global economy.

And that type of “diplomacy” plays well to an American electorate who feel, rightly or wrongly, that they have been abused by this system; that China’s rise has made us poor, that the EU, Mexico and Canada are taking advantage of us, that Russia is still the imperialist empire seeking to subvert our hard-working, decent American spirit.

That Iran is the definition of evil in the world and we are its savior.

It’s a good story, too bad it’s not true.

So, Trump has embarked on an epic, “Art of the Deal” style trade war that Russian President Vladimir Putin said recently at the St. Petersburg International Economic Forum (SPIEF), “…may lead to a systemic crisis, which the world has not seen yet.”

Putin is no dummy, nor is he an alarmist. When he speaks in these terms he is doing so having reached the limit of his patience. And when Putin speaks on these issues he’s also speaking for China.

Which brings me back around to the title of this article and why I feel China is the key to bleeding off the negative consequences to global trade, thus blunting Trump’s economic Sword of Damocles – tariffs, sanctions, fines and, ultimately, expulsion from the SWIFT international payment system.

The tool is Yuan devaluation and it is supported by China’s moves in the commodity futures markets. But, let’s start with the basic problem, debt.

The Debt Bomb

Trump, like every other aggressive U.S. president, is using the U.S. dollar’s primacy in global trade as a truncheon to bash any country that defies its edicts for global order. After a decade of zero-bound interest rates there are trillions in dollar-denominated debt out there issued by foreign companies.

To continue reading: China Can Hold Trump’s Trade War Hostage

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