Beijing Dreams
I’ve watched enough Jeffrey Sachs over the years to buy into the idea that China actually has a long range economic plan and that it’s better than ours. Then again, I’m always hesitant to wade too far into waters on that side of the planet because information is, let’s say… curated. That said, ahead of our esteemed leader’s visit to Beijing for a summit that will undoubtedly produce nothing, it’s worth reviewing what’s on the agenda.
First, it’s telling that Trump is visiting with our strongest international delegates. Tim Cook, Elon Musk and Larry Fink among other corporate execs. If that doesn’t signal what the United States is all about, I’m not sure what does. A CEO who just announced he’s retiring, a South African who tried to dismantle the U.S. government and doesn’t pay taxes and a hedge fund billionaire. That’s us now.
Most of the reporting will presumably be about optics. Trump and Xi haven’t been together in Trump’s second terms and since the onset of Trump’s global tariff war. It’s amazing how much has changed in the past few years. By the end of Trump’s first term, China was isolated from the rest of the world because of COVID. It was a scourge. Secretive and reckless, having produced the virus that shut down the planet. It became a worldwide imperative to bust up decades-old supply chains to reduce dependence upon China.
But Trump has a gift. A superpower that turns decades into months and weeks into minutes. His chaotic nature produces sea changes in behavior and alliances in the time it takes him to post to his stupid (and failing) social media site. (Sad!) So he has singlehandedly revived China’s reputation and soured ours and it only took a year back in the seat. Impressive.
In fact, most analyses suggest that Beijing very much has the upper hand as it has transformed quite a bit since Trump’s last visit. China has gone from tech follower to tech leader, or at least it seems they have pulled even with good old American ingenuity. Their EVs are reportedly better than ours and far less expensive. They have their own semiconductor chips and are putting them to use in AI products that show great promise. China continues to build infrastructure that blows away anything we’re even contemplating in the U.S. and they’re bringing that capability to parts of the world that we’ve turned our backs on. (Africa, Latin America.)
Then there’s the question of currency. Because China remains relatively walled off and its bond market is generally opaque, it doesn’t even compete with the U.S. Dollar in terms of use and availability. In relative terms, the Dollar crushes all would be competitors, including China. But all that might be changing from a technical perspective and pragmatic one.
On the technical side of global currencies, the rapid adoption of stablecoins to settle cross border transactions poses a genuine long-term threat to the U.S. Dollar. While we’re ahead in the race, it’s very much in the early stages. The Yuan doesn’t have to be the single pegged currency to a widely adopted stablecoin to turn up the heat on the U.S. Treasury. As part of the BRICS Unit, for example, it can play a forceful and stabilizing role along with gold.
A non-USD denominated stablecoin wouldn’t even be a consideration at this juncture, however, had the United States not weaponized the Dollar to begin with. Starting with the aggressive use of sanctions under prior administrations, the world began to sour on our position as the world’s reserve currency. But when Donald Trump expanded dollar sanctions, unleashed tariffs on the world and started a war with Iran that has already caused widespread damage to Asian economies, it might have accelerated the world’s timeline to move away from the Dollar.
China will not overtake the United States until it fully embraces a transparent currency and bond market. This much is certain. The rest of the world simply won’t go for it. But if you line up the moves that China has made since being admitted into the World Trade Organization it signals two important things. The first is patience. It’s such a hackneyed observation to suggest that the Chinese are patient. But sometimes stereotypes fit the bill. The second observation is there’s no question they’ve been laying the groundwork to ultimately become the global economic anchor. Chinese infrastructure can be found all over the world. And it’s now the largest creditor in the developing world, surpassing both the World Bank and the IMF.
In return, China has asked for little. They don’t ask to control the infrastructure projects they help finance and build. They will extend generous loan terms and even recalibrate them should they run into trouble. Anyone who doesn’t recognize the strategy hasn’t watched very many gangster films.
“Some day, and this day may never come, I’m going to ask a favor of you.”
There will come a time when China cleans its books and opens its bond market and currency to the world. And when that day comes, favors will be called in. That day may have been many, many years from now. But like I said, Trump has a time compressing superpower and in this way he’s the one that shouldn’t be underestimated.
