Analysis from China Understander: In the shadow of Putin’s war, Xi is forging a new monetary alliance
Russian President Putin has announced that in future all oil and gas transactions with the People’s Republic will be settled in Chinese yuan. China has been working for a while to make its currency the number one reserve currency in the world, ousting the US dollar.
In retrospect, the four years of Donald Trump’s presidency cost the United States more than a century of world supremacy. One of the first campaign announcements that the New York businessman put into action after entering the White House in 2017 was to withdraw from the TTP free trade agreement.
The Trans-Pacific Partnership, which would become the world‘s largest free trade area and bridge the US and Asia, was a key focus of Barack Obama’s presidency. He called it the “pivot to Asia,” which for him would become the linchpin of world affairs in the 21st century. Trump undid everything that had to do with Obama on principle.
The free trade agreement came anyway, even without the United States, and in 2021 the People’s Republic of China finally decided to consider joining the circle. Free trade agreements are a hallmark of the age of globalization. They enable the participating countries to trade duty-free and thus more exports.
Middle class in the USA massively eroded
In the respective importing countries, consumers benefit from lower prices. At least that’s what the textbook says. However, jobs are also migrating from the more expensive to the cheaper countries because production there can be cheaper after the removal of trade and customs barriers. It is estimated that the USA lost around 3.7 million jobs to the People’s Republic in this way between 2001 and 2020.
The only way to counter such a job loss is to invest money in schools, universities and training opportunities. This has not happened in the USA, where the school budget is funded by local taxes. The wealthy can send their children to good schools. The children of the poor remain poor because they have no chance of escaping poverty through education. One of the reasons why Donald Trump’s “America First” rhetoric about bringing “jobs back from China” to the United States caught on was because the country’s middle class has been massively eroded since the beginning of the century because the cost of education from kindergarten onwards is exorbitant .
About the guest author
Alexander Görlach is Honorary Professor of Ethics at Leuphana University in Lüneburg and Senior Fellow at the Carnegie Council for Ethics in International Affairs in New York. After stints in Taiwan and Hong Kong, he has focused on the rise of China and what it means for East Asian democracies in particular. From 2009 to 2015, Alexander Görlach was also the publisher and editor-in-chief of the debate magazine The European, which he founded. Today he is a columnist and author for various media. He lives in New York and Berlin.
Front against China is getting harder and harder in the USA
Under Joe Biden, the tariffs that Donald Trump slapped on Chinese products remained in place. It remains to be seen whether this is always due to the conviction of the incumbent President, because both parties, the Republicans and the Democrats, want to be “tough on China“. The front towards the People’s Republic is getting harder and harder and, despite all the justified criticism of the Beijing dictatorship, a decoupling of the western from the Chinese hemisphere is being pushed ahead, which could hit Europe particularly hard.
In the “old world”, the Ukraine war, instigated by Kremlin dictator Vladimir Putin, has forced countries to break free from dependence on Russian gas and oil. But the shockwave and cost of the war would be nothing compared to what might be feared if the US required its European allies to fully decouple from China as well.
In the chip industry, this decoupling is already in full swing. In the future, products may no longer be exported to China if components from the USA are installed in the machines for chip production. On the one hand, this makes sense because the People’s Republic could use these chips for its war machine (Beijing has just announced a 7.2 percent increase in its military spending in 2023).
The Netherlands have already taken the step with the US and are decoupling, which can also mean financial losses. German companies like VW and BASF, which can no longer survive without the Chinese market, are already building a kind of second group in China that will have little to do with what is produced in the free world. This is the disadvantage of such a decoupling strategy.
Europe shouldn’t just rely on America
EU Commission President Ursula von der Leyen has therefore now announced that she will travel to China with French President Emmanuel Macron. It is rumored from Brussels that although China is not perfect today, it might be needed in the future. In political Berlin, the memory of the 2008 financial crisis may not have completely faded when Beijing Investment package of 460 billion euros for roads and infrastructure, which was extremely convenient for the German export economy.
China helped Germany, but under Donald Trump the relationship between Berlin and Washington was icy. The US will be re-elected next year and both Donald Trump and his potential challenger Ron DeSantis are adopting protectionist and isolationist tones. Brussels, Berlin and Paris should therefore not only rely on America.
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Red Alert: How China‘s aggressive foreign policy in the Pacific is leading to a global war
The People’s Republic is the winner of this development. Not only that she wants to join the TPP. Beijing understood how to rally around countries disappointed in the US and its allies. In addition to all the countries of Central Asia, India, which is nominally the largest democracy in the world, is also represented in the Shanghai Cooperation Organization. Turkey is one of the dialogue partners. Beijing is holding status talks with Tehran. Russia is also a member.
China is working to become the number one reserve currency
During Xi Jinping’s visit to Moscow last week, ruler Putin announced that he intends to conduct all future oil and gas transactions with the People’s Republic in Chinese yuan. China has been working for some time to make its currency the number one reserve currency in the world, ousting the US dollar. As a result, dictatorships and war criminals could no longer be hit by US sanctions. The Russian economy is suffering from the sanctions imposed for the invasion of Ukraine. But she would be even worse off without the drip of the Chinese yuan Russia is hanging on to.
Oil trading, Saudi Arabia’s most important partner here is now Beijing, could also be handled via the yuan and in China. So far, the black gold has only been traded on stock exchanges in America and Great Britain. In this way, Riyadh could distance itself further from the USA and possibly also threaten the free world in the event of a conflict, which could ultimately mean higher prices in Germany.
With BRICS admission, half of the world’s population would be represented
In the globalized world, everything is interconnected, which means forging alliances that make sense beyond the day. In Brussels and Paris, a new way of thinking is emerging that one shouldn’t decouple oneself with Washington for better or for worse from the People’s Republic. China is thinking beyond that day: the importance of the diplomatic coup that Beijing succeeded in bringing arch-enemies Iran and Saudi Arabia back into diplomatic contact cannot be underestimated.
All conflicts in the region, from Syria to Yemen, are directly or indirectly related to the feud between the Shiite theocracy of Iran and the Sunni Arab world. The People’s Republic, which shares neither the region’s religious heritage nor the historical baggage of the colonial masters of yore, can be seen as a prelude to the admission of both countries to the BRICS group of emerging states. Half of the world‘s population would then be represented there, excluding the United States of America.