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Tuesday, October 15, 2024

CHINA AND THE FOREIGN MEDIA CHINA POST #529

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GOOD MORNING FROM LONDON

15 SEPTEMBER 2024.  

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MY NAME IS GRAHAM PERRY. I FIRST VISITED CHINA IN 1965 AND HAVE MAINTAINED AN INTEREST IN ITS DEVELOPMENT. THE APPROACH IS MORE CHINA-FRIENDLY THAN THE TRADITIONAL WESTMINSTER APPROACH. I AM A MEMBER OF THE LABOUR PARTY BUT THIS COLUMN IS NOT PARTY POLITICAL.

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#1   TRUMP STRUGGLES TO MAINTAIN SUPREMACY OF US$. A BIG POWER SHIFT APPROACHES

        FINANCIAL TIMES

#2  BUILD BRIDGES NOT WALLS

      PEARLS AND IRRITATIONS

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#1   TRUMP STRUGGLES TO MAINTAIN SUPREMACY OF US$. A BIG POWER SHIFT APPROACHES

        FINANCIAL TIMES

“Donald Trump is escalating his threats to increase tariffs on imports if he wins a second term in the White House, reviving fears of renewed trade wars that hit the global economy during his presidency.

The Republican candidate, seeking to win blue-collar votes in swing states pivotal to November’s presidential election, has doubled down on his protectionist rhetoric, delivering blunt warnings of tariffs to US trading partners including the EU.

On Saturday, Trump went further, promising tariffs of 100 per cent on imports from countries that were moving away from using the dollar — a threat that could engulf many developing economies too. “I’ll say, ‘you leave the dollar, you’re not doing business with the United States. Because we’re going to put a 100 per cent tariff on your goods,’” he said at a rally in Wisconsin. If we lost the dollar as the world currency, I think that would be the equivalent of losing a war,” he told The Economic Club of New York on Thursday.

Trump is reviving his “America first” economic agenda as he battles Democratic candidate Kamala Harris for the White House, and has vowed to impose a tariff of up to 20 per cent on all imported goods.

I’m talking about taxing . . . foreign nations at levels that they’re not used to, but they’ll get used to it very quickly, The EU uses the rules to help their companies and hurt American companies.

Trump has not offered more details of his plans to slap tariffs on countries leaving the dollar. But it could hit several large G20 developing economies — including China, India, Brazil and South Africa — or even countries using the euro to trade. Trump has proposed 60 per cent tariffs on goods imported from China, and has said Chinese cars reaching the US through Mexico should face tariffs of 100 per cent. Trump last week expressed a preference for tariffs as a tool for international relations over sanctions, saying the latter “kills your dollar and it kills everything the dollar represents”.

But economists warn 100 per cent tariffs could backfire. “The dollar’s global role has stemmed from the fact that countries voluntarily choose to use it for a whole range of international transactions,” Brad Setser, a fellow at the Council on Foreign Relations and a former Treasury official, wrote on X.”. 

GRAHAM PERRY COMMENTS;-

Carla Norrlöf is Senior Fellow at the Atlantic Council’s GeoEconomics Center and testified in 2023 to the US House Committee on Financial Services Subcommittee on Financial Institutions and Monetary Policy. She said the following on preserving the US dollar’s status as a global reserve currency.

The extent of US dollar dominance and its preservation has become a principal theater for the great power struggle between the United States, China, and Russia—placing the future of liberal international order in the balance. The dollar is the only truly global currency in the world, and is widely used for transactions, pricing, settlement, and investment by governments and private actors outside the United States. These roles offer the United States economic, political, and social privileges. Economically, Americans benefit from the ease and convenience of transacting in dollars, from seigniorage, monetary flexibility, and safe-haven benefits in times crisis. Politically, the dollar offers the United States a non-military instrument of coercion with which to police international order. Socially, the United States gains status and prestige. Preserving the dollar’s status as the global currency is therefore in the United States’ interest, and potentially in other countries’ interest.

Dollar dominance refers to the disproportionate use of dollars in the world economy, a condition which has prevailed during the entire postwar era. The absolute dominance of the dollar is unlikely to change in decades to come, though the dollar’s relative dominance has receded from peak levels. Even though the dollar remains dominant, a relative weakening of the dollar’s status is considered a harbinger of the long-term power shift to the East, hastening the onset of a multipolar order in which the United States is less capable and less influential.”

The issue in doubt is for how many years can the dominance of the US Dollar remain. We hear much about military build up, weapons development, and the focus on China and the Far East as a Theatre of War. But there is another stage with another battle. Just as questions are raised about the challenge to US military power so questions are raised about the growing challenge to the supremacy of the US Dollar.

The Dollar has been dominant  as a reserve currency because the US economy has, until recently, dominated international trade. It has been innovative, entrepreneurial, and faster-growing than nearly all its advanced-economy counterparts. It has been politically stable with the Rule of Law guaranteed by the until-recently independent Supreme Court.

The Dollar is a unit of account, a medium of exchange and a store of value, with nearly 60 per cent of global reserves in dollars. Other currencies are contenders especially China’s RMB. China is huge. It is building out an international payments infrastructure free of the dollar (CIPS), is a leader in creating a digital central bank currency, and over a quarter of China’s trade is now settled in RMB.

The battle lines are being drawn. Change is underway and a period of turbulence as the US dominated system is put to the test. The old World order is being challenged. The US has always misunderstood the dynamic of China – even today almost 50 years on from the Cultural Revolution the West in general and the US in particular cannot get to grips with the changes that have taken place in China. Their mindset is flawed. The West thought it understood China because it emerged from the shadows of the old USSR but Beijing today and Moscow yesterday share an allegiance to Marx and Engels but share little else. Recalling the Soviet experiment does little to assist the West in understanding the essence of China today.

And hearing Trump’s triumphant swagger quoted above we are reminded us that the outcome will be confrontation and not dialogue.

 

#2  GLOBAL WHEAT TRADE – BUILD BRIDGES OR WALLS

PEARLS AND IRRITATIONS

“The global wheat trade is undergoing a transformation, shaped by geopolitical shifts, strategic investments, and historical legacies. Central to this evolution is China’s Belt and Road Initiative and its expected impact on traditional trade relationships, including those with Australia.

The Australia-China wheat trade has deep roots, tracing back to the 1960s when Australia supplied grain to China during a famine, despite objections from the United States. This act of goodwill, facilitated by Xi Zhongxun, father of China’s current President Xi Jinping, established a durable trade partnership. 

However, rising geopolitical tensions — particularly Australia’s refusal to engage with the BRI and its commitment to the AUKUS security pact — have strained this relationship. The assumption that China will continue to purchase Australian wheat unconditionally is a strategic misstep.

The Belt and Road Initiative and grain trade

BRI, a sweeping infrastructure development strategy, is redrawing the map of global grain trade. By strengthening agricultural cooperation with countries along the ancient Silk Road, particularly in Central Asia, China is reducing its dependence on traditional suppliers like Australia.

The development of the Sino-Russian Land Grain Corridor exemplifies this shift. This infrastructure project, designed to transport Russian wheat to China via rail, not only bolsters China’s food security, but also elevates Russia’s position as a key player in the global wheat market, displacing traditional exporters like Australia.

The proposed BRICS grain exchange introduces another complication for Australia. By uniting some of the world’s largest grain buyers and exporters, this exchange could shift trade towards BRICS members, reducing reliance on Western suppliers like Australia.

Moreover, the BRICS grain exchange plans to facilitate transactions using blockchain technology and national currencies, bypassing the US dollar. This innovation could have far-reaching consequences:

– Reduced market visibility: As BRICS nations increasingly trade within their bloc, non-BRICS countries like Australia may lose critical insights into global grain markets, making it harder to gauge supply, demand, and prices.

– Fragmented price discovery: Blockchain transactions conducted in national currencies could fracture global price discovery. Prices set within the BRICS exchange might diverge from those on Western platforms, complicating risk management and hedging for Australian exporters.

– Shifting power dynamics: By enabling trade in local currencies, the BRICS exchange may further weaken Western financial dominance. Traditional grain trading hubs like Chicago and London — and, by extension, Australia — could see their influence wane.

The strategic dilemma

Australia stands at a crossroads. Its decision to abstain from the BRI and deepen security ties with the US through AUKUS would not have gone unnoticed by China. Early signs of weakening Chinese demand, seen in the cancellation of Australian wheat shipments earlier this year, signal the realignments in trade that lie ahead.

While Australia has been a major beneficiary of China’s growing wheat demand, relying on this position is unwise. China’s increasing agricultural collaboration with Russia and other BRICS partners risks relegating Australia to a supplier of last resort.

For Australia, survival in this shifting landscape requires a nuanced approach. While maintaining its security alliances, Australia must find avenues to re-engage with China and the BRI. A continued lack of engagement risks the collapse of a trade relationship that has been mutually beneficial for decades. 

Diversifying export markets is also crucial. Exploring opportunities in emerging markets across Asia, Africa, and the Middle East, and investing in value-added processing could shield Australia from the fallout of a deteriorating relationship with China. Focusing specifically on Southeast Asia, where wheat demand is growing, and sub-Saharan Africa, where food security remains an issue, would be pragmatic steps.

Additionally, Australian policymakers must prepare for the implications of the BRICS grain exchange and blockchain settlement. Developing new strategies for price discovery, risk management, and hedging in an increasingly de-dollarised world will be critical. Monitoring developments in the BRICS exchange, even as an observer, could provide valuable insights into shifting market dynamics.

Conclusion

The changing landscape of the global wheat trade, driven by the BRI, the BRICS grain exchange, and shifting geopolitical tides, presents both challenges and opportunities for Australia. The notion that China has no alternatives, but to continue purchasing Australian wheat may prove to be mistaken.

As the world’s grain trading patterns evolve, Australia must adapt its strategies to ensure the long-term viability of its wheat exports. This will require a pragmatic approach that balances security concerns with economic imperatives and recognises the complex interdependencies that characterise the modern global economy.

The historical ties that have underpinned the Australia-China wheat trade, symbolised by the legacy of Xi Zhongxun, should serve as a reminder of the value of constructive engagement and mutual understanding. In an increasingly interconnected world, where blockchain technology is reshaping the very foundations of trade, the path to prosperity lies in building bridges, not walls.”

GRAHAM PERRY COMMENTS;-

In a nutshell when it comes to China, the West has two options. It can build Bridges or it can build Walls. It can take a path of construction and progress and mutual benefit or it can take the path of conflict and confrontation and stagnation. Both options are on offer – which will the UK choose?

If Downing Street follows the White House, the decision is made. The UK’s approach to China will be faltering, partial and conflict driven. The White House has a strategy – it is to contain China. Does the UK have to follow?

The US has been the Top Dog since 1945. It has had a long run. It has seen off the old USSR and its strategy today is to see off China. The US has been the world’s biggest Imperialism. It has dominated world affairs since the end of World War II. It is the biggest economy with the biggest military. The US wants this state of affairs to continue – that is how things are viewed from Washington. It is not a surprise. The US enjoys its supremacy. It has grown accustomed to its role, to its behaviour, indeed its swagger. It does not want to leave. It does not want to vacate the stage. It wants the US to reject the logic of history and to remain the dominant power in a fast changing world.

History is not on America’s side. Imperialisms come and go. And the time is approaching when the US has to go or at the very least make significant adjustments. Its place will not be filled by China. In a phrase China wants to replace the unitary world dominated by the US with a multi-polar world dominated by the rising power of Indonesia, Nigeria, Argentine, Saudi Arabia, Mexico and Turkey alongside the existing power of the US, China, Russia, Japan, and Australia. A new world pattern of power is underway but the US resists the logic of history and tensions bubble under the surface of daily international exchanges.

So is the world preparing for War or preparing for Peace? This is the big question dominating Washington, London, Brussels, Tokyo, Canberra – and Beijing.

China prepares for War but hopes for Peace. But China is not in control. The initiative today lies with the US – the biggest military power in the world with more than 800 bases dotted all over the globe. It is for the US to set the pace and the agenda and the sequence of events. The rest of the world has a choice. It can build Walls or it can build Bridges.

The moment in time is fast approaching when decisions have to be made. President Harris or President Trump have key decisions to make when either of them enters the White House. They can press ahead with a confrontation with China. They can plan for conflict and war and substantial loss of life. They have an alternative. They can back off. They can take a step back and think creatively and positively about China’s concept of a multi-polar world.

There will be conflict in Washington. West Point will not like it. The US Military-Industrial complex (the words of former President Eisenhower in 1958) will not like it and the US Chiefs of Staff will not like it. Professors Allison and Meersheimer will like it. CNN will like it and sections of both the Democrat and Republican parties will like it and the White House quivering at the prospect of international conflagration will like it. War is quite possible. Peace is also quite possible.

Staring down the barrel of a gun forces key parties to decide whether to Build Bridges or Build Walls. Every party has a choice. There is always an option between Peace and War and the final decision will be the outcome of fevered exchanges within the US and within the US, Europe, Tokyo and Canberra alliance and with Beijing. It is not too dramatic to put these issues on the table. They will become the #1 topic. Countries do not spend the millions and millions of hard earned military might without hesitating about whether to press the button. Films like Fail Safe and Dr Strangelove are quickly recalled. Fiction can become Fact in seconds.

So back to the Political In-Tray. To Build Bridges or to Build Walls?

Can the key powers go Head-to-Head and avoid conflict?

Much depends on the power structure within Washington and Beijing. China will lean towards offering the US a face saver. China does not want to beat the US or humiliate the US. It knows it has to live with the US. Its priority will be to save Washington from its own reckless ways. War can happen but it is more likely that Peace will prevail.

GRAHAM PERRY

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