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This could clobber the US. trump's America First is widely recognized by our (former?) allies as America Alone. If the US dollar is bumped as currency of record in the financial world, it will be America LAST. https://finance.yahoo.com/news/dolla...144437776.html
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U.S. President Donald Trump’s trade war and America First protectionist policies could be helping to accelerate the end of the dollar’s (DX=F) reign as the world’s reserve currency, analysts warn.
Having already instituted worldwide tariffs on steel and aluminum and threatening more taxes on foreign products from China, the European Union and a host of other U.S. allies and rivals, the president is pushing foreign governments to reconsider holding dollars and U.S. Treasury reserves.
“Although the dollar will continue to be used in most trades, there is a possibility that participants in the global economy start to look at alternatives like pricing in euro or pricing in [Chinese] renminbi,” said Karl Schamotta, director of FX strategy and structured products at Cambridge Global Payments in Toronto.
Further, the dollar’s use as a funding currency means that nations that do business with one another must use dollars instead of their own currencies when purchasing commodities like oil. These nations have no control over the currency’s value, which has at times been volatile.
“There’s a disconnect there, increasingly so as the U.S. is less dominant in terms of the total economic pie in the world,” said John Hardy, head of FX strategy at Saxo Bank in Copenhagen.
Unless the parties agree to call off the game before the next cards are dealt, we will soon find out which player has the most chips. If Trump is a cool enough player to ignore whining by some American firms, he has the chips with which to win. Here’s why:
China’s exports to the United States come to almost 4 percent of its GDP, while U.S. exports to China equal only 0.7 percent of U.S. GDP. As consultants the Lindsey Group point out, “A tit-for-tat trade war has an impact on China that is six times that on America.”
The U.S. economy is in rude good health, while China is the throes of an effort to reduce the massive debt overhang that is beginning to stifle its growth. That creates “a strain on the top leadership as it tries to fend off a trade war with the U.S.,” Diana Cheyleva, chief economist with London-based Enodo Economics, told the New York Times.
China is having difficulty finding U.S. stuff to penalize. It has exempted LNG from tariffs because it desperately needs imports from the United States to fuel its economy. If it cancels orders now with Boeing, it will have a five-year wait to get on the books of Airbus. Tariffs on U.S. agricultural products drive up food costs in China.
Having already instituted worldwide tariffs on steel and aluminum and threatening more taxes on foreign products from China, the European Union and a host of other U.S. allies and rivals, the president is pushing foreign governments to reconsider holding dollars and U.S. Treasury reserves.
They can reconsider all they want, but the stark reality is there are no current alternatives to the US Dollar or US Treasury securities.
If the Euro was truly an alternative, then both countries and investors would have flocked to it years ago, but that never happened.
And the financial future of EU member-States is incredibly bleak, far worse than the US, because of the unfunded future financial obligations they have related to their social welfare programs.
When you look at the total wages/salaries of the average EU member-State, about 40% is taxed through payroll taxes, income taxes, and the value-added taxes on goods and services. That will have to increase to 55%-60% to cover the costs of future unfunded liabilities over the next 20-30 years.
The yuan is now being used in oil deals rather than petrodollars.
China has cancelled millions of dollars of contracts for American agricultural products and is diversifying its sources of same
Xi might not have the winning hand here, but he certainly has a lot of high cards.
More importantly is that I think China is willing to take FAR more pain then Trump or the US can. Witness that the Senate is already talking about taking away his power to impose tariffs at will.
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