It was Nixon-era Secretary of the Treasury John Connally who famous says a group of European finance ministers that the dollar is our currency, but your problem. This seems even truer now than in 1971, thanks to Trump’s presidency. Under his rule, the dollar lost about 10% against the Japanese yen. And one of the first challenges for President-elect Joe Bidens will be to avoid a full dollar calculation.
The good news is that Janet Yellen, the scarred by battle former chairman of the Federal Reserve, should be on the case soon. As she takes on Connally’s former job, Yellen must work quickly to rebuild trust with the best financiers in the Americas, mostly in Asia. Four years of Trumpian mess has not been kind to Asian central banks holding more than $ 3.5 trillion in Treasury securities.
Asia has long been stuck with the dollar due to the lack of alternatives. The euro? Not with Europe moving from one debt crisis to another. The pound? Not with the fallout from Brexit clouding the future of the British. The yen? Not with the Japanese quickly Aging of the population collided with one of the largest globes the debt burden.
Yet the dollar is now watching its back as China steps up its economic game. And in the ultimate Trumpian irony, the trade war could end up making Beijing dream of internationalizing the yuan again.
Beijing is keen to end the dollar hegemony that gives Washington vast power and extremely low borrowing costs. It also wants to attract more foreign capital to accelerate its economic development.
China regularly catches up with the Americas $ 21 trillion of annual production. It has four times as many people and is now the first trading nation. Why price oil, steel and soybeans in dollars if China buys most of the commodities? This happened on the state-controlled oil giant Saudi Aramco, which may soon start floating bonds denominated in yuan instead of.
The real head start, however, could be Trumps’ chaotic reign.
By leaving the trans-Pacific partnership, the Paris climate agreement and the Iran nuclear deal, and tearing up trade pacts, Trump has turned the United States into an untrustworthy partner. So did his cowardly attempts to extort Japan, South Korea and other countries hosting US troops. Cheats the ploy to score in Washington a reduction in all sales of TikTok app made the worst kleptocrats of Asia blush.
The biggest damage could be financial mismanagement. Trump abandons long-standing strong dollar policy in Washington January 2018 has been a dark day for an export-dependent Asia. The cause-and-effect relationship between his epic Covid-19 failures and a national debt that is heading towards $ 28 trillion is indisputable.
Last year, The Post reported that Trump’s advisers, anxious to punish China again, had considered canceling part of the $ 1 trillion and more the United States owes the government of President Xi Jinpings. This is the substance of Venezuela, not an AAA rated Group of Seven country that believes itself to be the cradle of capitalism.
There are a myriad of reasons to criticize China. The Chinese Communist Party is not known for its transparency and accountability. Too much of China’s growth is driven by debt and credit. Rather than learning from Hong Kong’s laissez-faire, Xi seems determined to stifle it. And really, what about Alibabas Jack Ma? Although it resurfaced on Wednesday, the Poutine-esque The disappearance of China’s best-known innovator for more than two months has made Xis reformers talk for all the wrong reasons.
Yet outweighs grievance-driven efforts to strangle Chinese tech giants, meritorious or not, suffered from an amateur-hour execution that damaged Washington’s free market credentials.
In the final days of his presidency, Trump had to reconsider his plans to add mainland tech titans Alibaba, Baidu and Tencent to the long list of blacklisted companies. There is no doubt that Trump has received an ear from Wall Street donors who are unhappy with not being able to invest in the three entities, which have a combined market capitalization around. $ 1.4 trillion.
Bidens’ team will need to act quickly to restore confidence in American institutions. The mere presence of Yellen in a role Steven Mnuchin leaves in disarray will be a good start. So would Antony Blinken arriving at the State Department to clean up Mike Pompeos’ last minute geopolitical vandalism.
Biden also needs to develop his economic strength at home. Nothing Trump has done with tariffs, banning businesses, or cutting taxes has made the United States more innovative or more productive. The trade war did nothing to improve crumbling infrastructure or the education system.
The immediate priority, however, is to reassure Asian bankers who hold a mortgage in Washington that the Bidens dollar will not be their problem. The printing of the world’s reserve currency allows the United States to borrow at exceptionally low rates. Biden will need this privilege to fund the epic cleanup job Trump is leaving behind. Failure to act quickly on both of these tasks means a yuan dominated future and the people of Wall Street and Capitol Hill are giving up their Mandarin.
The most lasting economic legacy may be to trash the dollar in a way that allows China to fill the void. Oh the irony.
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