China's Trump Card

Cryptocurrency and its Game-Changing Role in Sino-US Trade

Raymond Yeung

• Publisher: Wiley
• Year: 2020
• Print ISBN: 9781119699125
• eBook ISBN: 9781119699156
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Discover the impact of blockchain on the trade relationship between the world's two largest economies

China's Trump Card: Cryptocurrency and its Game-Changing Role in Sino-US Trade grapples with the fascinating issue of the effect of digital currencies on world trade and the relationship between China and the United States in particular. Full of forward-looking insights, solid data analysis, extensive collection of relevant literature and incisive observations, author Raymond Yeung compellingly argues that cryptocurrencies will have a significant role to play in harmonizing geopolitical power struggles.

Covering all the subjects required for a full understanding of the future of the Sino-US trade relationship, China's Trump Card discusses:

• The looming risks of de-dollarization in the wake of de-globalization
• The pressing need to construct a new currency standard superior to the fiat money regime in response to the global imbalance
• China's diversification of its offshore portfolios to include alternative investments
• The implications of Facebook's plan to create a blockchain-based digital currency
• The fact that blockchain offers a fungible asset class option for China's reserves investment, which can be relatively independent of political considerations

This book is perfect forbusiness leaders, investors, financial analysts, policymakers, economists, fintech developersand others who have a stake in the outcome of the blossoming trade disputes between the United States and China.

Chapter 1
An Unconventional Trade Feud

1.1 Thanos and Trump

Beware readers, spoiler alert ahead.

“I thought by eliminating half of life, the other half would thrive … with the stones you've collected for me, create a new one teeming with life that knows not what it has lost but only what it has been given. A grateful universe…. I am inevitable.”

Thanos, Avengers: Endgame.

On June 20, 2018, I came across an interesting headline, “Avengers star Josh Brolin explains how Trump is similar to his ‘Infinity War’ villain Thanos,” on an online business magazine.¹ In his interview with Stephen Colbert, Brolin hilariously read Trump's tweet in Thanos's tone. The Hollywood star, whose character erased half of the galaxy's population to fulfill his own political belief, said Trump's public policies were akin to what Thanos did in the Marvel trilogy. His own planet, Titan, ran out of resources due to overpopulation. In response, Thanos thought the resource imbalance problem facing the universe could be addressed through massacring half of the creatures. He was addressing an economic problem. He tried to search for an equilibrium, and he called it “balance.” “When I'm done, half of humanity will still exist. Perfectly balanced, as all things should be.”

What was Thanos's plan? The Avengers villain offered “a peaceful way” to finish people's lives painlessly and indiscriminately. He collected six Infinity Stones, snapped his fingers, and turned many superheroes into ashes—a very sad ending, surprising the audience that walked out of the cinema. Handling the Infinity Stones was not an easy task. The gems were full of gamma rays. Anyone who held the stones needed a strong will to do so. Thanos believed he was the chosen one to fulfill his “destiny.” He said, “I'm the only one who knows that. At least I'm the only who has the will to act on it.” He even sacrificed his beloved daughter Gamora in exchange for the soul stone. “The hardest choice requires the strongest will.” Do Thanos's words sound like a president who claimed he was the designated one to lead his country to greatness again?

Donald Trump thought flagging a trade war could restore the trade balance of the US. He could order his administration to severely penalize China. Lifting import tariff rates from 0% to 25% on Chinese goods in a flash caught the world off guard. Half a million factory workers were affected. China was labeled a currency manipulator even though every-one knew the country actually wanted a stronger rather than weaker currency. Trump's trade measures hurt many American companies and US consumers. But he did not care. He had a strong will like Thanos and he decisively went his own way. “We reject globalism and embrace the doctrine of patriotism,” he said, delivering his second address to the United Nations in November 2018.²

At the same time, there are still believers in free trade. Germany, Canada, Mexico, Korea, Japan, and other countries have risen to prosperity in the past few decades. They prefer globalization of some sort. The G20 Summit in Hamburg 2017 issued a heroic declaration to defend the prevailing international arrangement: “Globalization and technological change have contributed significantly to driving economic growth and raising living standards across the globe. However, the gains from globalization have not been shared widely enough. By bringing together developed and emerging market economies, the G20 is determined to shape globalization to benefit all people. Most importantly, we need to better enable our people to seize its opportunities.”³

China was the top winner in globalization. In 1979, the Middle Kingdom decided to open up, fueling the world with a massive supply of labor. After 40 years of strong growth, the country became the production line for the world, receiving orders from the US, Japan, and Europe. Its ability for mass production was unchallengeable. The quality and technological content of Chinese products improved rapidly in the past few years. It began to develop its own brand. China became a prime target of Trump's new trade policy.

Meanwhile, China was also faced with many structural economic issues, namely a notably aging population and debt pileup. President Xi Jinping saw the urgency to upgrade the economy. He wanted China to become a tech-driven economy by the middle of this century. His “China Dream” was seen as a threat to the Western-centric world. Xi vowed to bring prosperity to Eurasia via his Belt and Road campaign. He played as a champion for globalization. He wanted more countries to use the renminbi (RMB). Perhaps Trump thought if he didn't stop China now, it would be too late. Maybe the trade war was meant to safeguard the global dominance of the US. Whatever his initial motivation, the battle has begun. A new economic order is evolving.

This chapter reviews the causes, the impact, and the outlook of the trade war. In Section 1.2, I discuss several possible reasons for the trade war. Trump's policy stance clearly showed a discontent with globalization. All the disputes he created with other countries pointed to a rising era of unilateralism and neo-nationalism. Since China represented almost two-thirds of the US total trade imbalance, treating China harshly was tactical. The US was frustrated with China's track record of intellectual property rights and forced technology transfer. This seemed to offer a legitimate reason for the US to act. However, underlying the trade tension appeared to be a rivalry between the China Dream and America First. China threat theory has become increasingly popular under the current political climate.⁴ In a nutshell, the trade war is not an issue of trade imbalance.

Section 1.3 identifies the features of this conflict. Compared with other trade disputes, this US–China trade war is unconventional. An import tariff only serves as an appetizer but is not the main course itself. The US administration clearly understands how globalization works and decides to attack the global supply chains. Prohibiting US companies from business transactions with some Chinese companies can paralyze their production line. China can also retaliate by limiting the supply of rare earth. The tit-for-tat actions of both countries are strategic, calculative, and in...

Table of contents

• Cover
• Table of Contents
• Acknowledgments
• About the Author
• Preface
• Chapter 1: An Unconventional Trade Feud
• Chapter 2: Trade Imbalances and the Greenback
• Chapter 3: Deglobalization Prompts De-Dollarization
• Chapter 4: China–US Financial Decoupling
• Chapter 5: A Race on the Digital Turf
• Chapter 6: Cryptocurrency and the People's Money
• Chapter 7: Foreign Reserves Go Digital
• Chapter 8: The Endgame
• Bibliography
• Index
• End User License Agreement