Currency Wars Erupt, We Have Reached the Point of No Return
President Trump has imposed numerous tariffs on Chinese goods entering the United States. The first was $50 billion worth of tariffs, to which China swiftly responded in kind, imposing $50 billion worth of their own tariffs on American imports such as soybeans and small aircrafts.
As expected, President Trump would not let this stand, and he is now discussing an additional $100 billion worth of tariffs on Chinese goods. This action would, of course, be answered with a likewise response from China.
As we can already see, these actions will have a ripple effect through not only the Chinese and US economies, but the entirety of the West, as these countries are two of the largest importers / exporters in the world.
These increased hostilities show no sign of abating and are likely to increase from this point out. Neither side is willing to back down and show weakness. As a result, stock markets have corrected sharply, proving that they too prescribe to my assumption.
President Trump has vowed to "Make America Great Again", a term that means many things. One involves returning jobs to American shores that were once exported to China.
I believe this is exactly what Trump is attempting to do: force businesses into a position which makes it unprofitable for them to operate in certain overseas locations—such as China and other low wage countries—that benefit from massive trade surpluses at the expense of the American government and the blue collar American working class as a whole.
This, however, does not come without downsides. It will lead to much higher prices in the cost of goods, as higher wages and working standards will force companies to raise their prices. The hope is that these price increases are offset by higher wages and reduced unemployment. A gamble, but one President Trump appears to be more than willing to take.
China, on the other hand, is not stupid, and they have vowed to fight American tariffs to the very end, no matter the cost. This is incredibly scary, especially since they have the ability to "nuke" the US dollar via the massive currency reserves they possess, essentially destabilizing the dollar overnight if they so wish.
I personally believe that China is taking such a hard line response to these actions simply because they know their survival depends on it. The American economic engine keeps their economy running at highly inflated levels, and if trade were to be cut off, the ramifications would destabilize their economy and result in a possible toppling of their communist government. A scenario they cannot afford to see unfold.
Regardless of whether or not cooler heads prevail in the short term, I believe the genie has been let out of the bottle, never to return as long as President Trump is in power.
The Currency Wars are here. Get used to it and take the appropriate action to protect yourselves.
Increased volatility is here to stay.
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