China Wants to ‘Ditch the Dollar’ as Trade Tensions Intensify With U.S.

This action highlights China’s strategy to diversify its financial portfolio away from American assets amidst ongoing trade tensions between the two nations.

This significant transaction forms part of the broader pattern of China reducing its exposure to US financial instruments.

This financial maneuver comes at a time when relations between the world’s two largest economies might deteriorate further, influenced by the United States’ latest policy adjustments under the current administration.

Former President Donald Trump has indicated potential aggressive fiscal policies towards China, stating he might impose a levy of more than 60% on Chinese goods if re-elected. This political stance could significantly influence China’s future economic decisions.

The candidates seem to be able to agree on one thing: The trade deficit with China must be addressed and this will likely result in further tensions between the two powerhouse nations.

He also suggested that “China’s selling of US securities could speed up as US-China trade war resumes” especially if Trump returns as president.

This shift indicates a strategic adjustment in China’s reserve management policies.

She said, “This suggests that gold purchases by some central banks may have been driven by concerns about sanctions risk.”

This financial strategy aligns with broader geopolitical shifts and ongoing uncertainties in global trade relations.

This diversification reflects its cautious approach towards maintaining economic stability amid fluctuating global dynamics.

The divestment from US securities and the increased acquisition of gold could have far-reaching effects on international financial markets and investment strategies.

These actions may influence other nations’ financial strategies and affect global economic stability.

Chinese financial expert Yo Yongding explained that the move was seen as “a blatant breach of…trust” and proof of the United States’ “willingness to stop playing by the rules.”

As both nations navigate through their respective financial and political landscapes, the decisions made today will undoubtedly impact their bilateral interactions for years to come.

Recently, China has been playing its economic strategy close to the vest, canceling a traditional press conference this year that had many international observers and analysts scratching their heads. This press conference was one of the most widely followed Chinese events in the world and had been a 30-year tradition.

“This signifies a strategic shift to a ‘diversified, procedural and standardised’ information-sharing approach. It implies the Chinese government is exploring new communication methods for economic policies, despite criticisms of reduced transparency,” wrote Yuan Zhang of UC Berkeley.

Ganzhou, a city in China that is about the size of the state of Alaska, is at the heart of the effort to use mineral exchanges to increase the use of their currency- the renminbi. With a stronger renminbi, China can have more control over global markets.

“China is a developing country with a great number of population. The average annual income in our country is 30,000 yuan, but there are 600 million people with merely a monthly income of 1,000 yuan. In a medium-sized city, [an income of] 1,000 yuan is probably difficult to rent a place to live,” said Keqiang.

The crisis began in 2022 when China’s population started falling off dramatically. It is predicted that their population will continue to fall to 1.3 billion by 2050 if the current rate continues.

In 2023 alone the country’s population dropped by 2 million, largely due to a collapse in birth rate. Conversely, Japan’s population and fertility rate continues to soar.

In 2023, China claimed its economy grew by 5.2%, however, some economic analysts doubt this figure.

During this period of growth, China took out heavy investments to continue expanding, and now that economic growth has slowed, it may be unable to pay some of its debts.

“The 2024 challenge for the Chinese economy will not be GDP growth — that will likely be above 4.5%,” said Derek Scissors, senior fellow at the American Enterprise Institute. “The challenge will be that the only direction from there is down.”

This “middle-income trap” occurs when a nation quickly grows out of poverty only to become “trapped” in that economic state, being unable to reach a higher income level needed to stabilize.

GDP growth numbers for decades averaged around 10.5% growth every year. However, after 2011, this rate of growth has been slowing down tremendously.

China’s government kept borrowing and borrowing to pay for expensive infrastructure upgrades to ensure its economy could continue to grow.

A Reuters report found that the share of companies with healthy levels of debt has been falling dramatically in recent years. “Healthy debt” companies fell by 31.7% between 2008 and 2016.

In May, Biden escalated the trade war with China by quadrupling tariffs on Chinese electric vehicles.

“China opposes the unilateral imposition of tariffs which violate (World Trade Organization) rules, and will take all necessary actions to protect its legitimate rights,” said Chinese foreign ministry spokesperson Wang Wenbin.

If the U.S. dollar were to be replaced by another currency as the world standard it would have great impacts on competitiveness and trade. Most notably, inflation would skyrocket domestically as import costs would rise.