The US and China are in a trade war.
And wars need weapons.
And what better weapon to strike hard at the US imperialists...
than with your own currency!
Surely, nothing could go wrong!
Welcome back to China Uncensored.
I’m Chris Chappell.
Just when you thought the US-China trade war
was chugging along just fine already,
President Trump decided to up the ante.
The Trump administration has announced the US
will put tariffs on nearly
$300 billion dollars worth of Chinese imports—
pretty much everything that doesn’t have a tariff already.
Some of those tariffs are slated
to go into effect on September 1st, others—
as announced yesterday—
would go into effect on December 15th.
So in the face of this American superpower...
what can the poor, oppressed Chinese leaders do?
One answer could be... weaponize their currency!
Thanks to the enormous power of the Chinese Communist Party
over the government, the banks, and state-run industries,
it has a lot of control over the currency and how goods are priced.
The Chinese central bank has recently allowed the Chinese currency—
the yuan—to get weaker against the US dollar.
That means Chinese exports to the US are cheaper.
And that counteracts some of Trump’s tariffs
that make those same exports more expensive.
It balances out.
So in a way,
that’s like using the currency as a defensive weapon.
And a weaker yuan also hurts American companies
doing business inside China.
Those Chevys sold in Shanghai just got more expensive.
Why not buy a Chinese car instead?
So that’s China using currency as an offensive weapon,
to hurt US companies.
And it’s not just currency that can be a weapon.
In response to the latest tariffs,
the Chinese regime has already ordered state-run companies
to stop buying American crops, like soybeans.
That’s a weapon designed to hurt US farmers—
and with that, hurt Donald Trump’s voter base.
And if going after US farmers isn’t enough,
China’s producers of rare earth metals say
they’re ready to weaponize their supply stranglehold.
It’s a stranglehold because China controls
about 80% of the world’s rare earth metals.
That includes elements like yttrium and neodymium
that are essential for iPhones and other electronics.
Of course, if iPhones become too expensive,
you’ll have no choice but to buy alternatives,
like the Huawei P20 Pro!
It has all the features you crave in a knockoff iPhone,
with none of the security protections!
Of course, there’s a potential problem
with the Chinese Communist Party
weaponizing the Chinese currency and other parts of the economy:
The bigger the weapon, the bigger the recoil.
If the Communist Party restricts exports
of rare earth metals to the US,
US companies may simply increase their own production—
because local mining becomes more profitable when import prices go up.
In fact, that happened with Japan.
“China banned [rare earth] exports to Japan
after a 2010 territorial dispute,
which resulted in... a push by Japanese industry
to develop substitutes and alternatives,
ultimately hurting Chinese producers.”
And then last year,
Japan had a huge windfall,
discovering enough rare earth minerals to last 780 years.
Which is enough to allow my replacement,
the Sarcastibot 3000,
to continually poke fun at presitator Xi Jinping for centuries.
“He still wants that sweet, sweet honey.
Haha.
Anyway, there are more ways these economic weapons
could backfire for China.
For example, the Communist Party’s tactic
of going after American farmers to hurt Trump....
is not working very well.
It’s true, a lot of American farmers are hurting,
as China has stopped buying their products.
And I get it, the Communist Party naturally assume
the peasants will rise up against their oppressor.
The problem is, a lot of American farmers
don’t see Trump as the oppressor.
They’re sticking with him.
A lot of them see Trump as helping farmers
stand up to the real oppressor:
The Chinese Communist Party—
which is, after all,
the one actually *trying* to hurt American farmers.
This CNBC article cites a farmer from Illinois as saying,
“most farmers are more concerned about getting the situation solved
than pointing fingers.
But if they were to place blame,
most of it would be on China,
and the rest would be on previous presidents
who could have solved the trade imbalances more easily
15 or 20 years ago.”
And it also helps that Trump is using some of the money
the US is getting from Chinese tariffs to subsidize US farmers.
And as for the Chinese central bank allowing the Chinese yuan
to get weaker against the dollar...yes,
it helps Chinese exports,
but it also hurts Chinese companies—
companies that have borrowed US money.
See, “Dollar-denominated debt held by Chinese firms
is now more than 1.5 trillion dollars.”
That means that Chinese companies have *borrowed*
more than 1.5 trillion US dollars...
that have to be paid back in US dollars.
Why?
Because the US Federal Reserve
has kept interest rates at historic lows
since the 2008 financial crisis.
And Chinese companies that needed to borrow money
to make big investments—like real estate developers—
realized it would be cheaper to borrow *US dollars*
than to borrow Chinese yuan to pay for all that construction...
and those fancy real estate displays.
At the same time,
the Chinese financial sector
also took advantage of low US interest rates,
and borrowed cheap US dollars to invest in other things,
hoping to get a bigger return on investment.
As you can see in this chart from Axios,
Chinese borrowing has skyrocketed over the past decade.
But now that China’s currency is weaker,
it’s more expensive to pay back all that debt.
Let’s say, for example, you’re a Chinese real estate developer
and you borrowed money for construction.
You paid in yuan to borrow a billion US dollars.
But because the yuan is roughly 2% weaker now,
it’s 2% more expensive to pay it back.
And that extra amount you owe is the equivalent of $20 million dollars.
So for the Chinese economy overall
that borrowed 1.5 trillion dollars—
they now owe a collective 30 billion dollars
more than they did just two weeks ago.
30 billion dollars is a is a lot of money.
It makes my student loan lender seem like an angel.
An angel that’ll break my kneecaps if I don’t repay, but still.
And if the yuan keeps falling,
the higher cost of repaying US dollars
could get really bad for Chinese companies.
Now as I said, a weaker yuan
does help boost Chinese exports to the US—
but that’s a long-term prospect,
and exports probably won’t go up enough to compensate.
Especially because no one wants to buy their stupid love pandas!
So why does all this matter?
Because this debt problem could have
a domino effect on the Chinese economy—
like layoffs that lead to mass unemployment,
or a nationwide economic downturn if credit dries up.
Which is to say,
the Chinese Communist Party’s methods
at fighting back against the US tariffs
could end up more like this.
So what do you think?
Leave your comments below.
And now it’s time for me to answer a question from one of you,
a fan who supports China Uncensored
through the crowdfunding website Patreon.
Tuhao Nanook asks:
“Chris...
Are there any US industries benefiting from the tariffs?
Daddy needs a new Rolex.”
Good question, “Tuhao”.
Rolex, of course, is a Swiss company.
But now there’s a 10% tariff
on those knockoffs you buy in Chinatown.
But seriously,
a lot of US companies are benefiting from the trade tariffs.
The kinds of US companies that benefit
most are the ones that were being hurt by China
dumping products at unfairly low prices on the US market.
For example, steel makers and the lumber industry.
Chinese steel and lumber are now more expensive to import,
so those American companies can compete again.
For American companies that make
complicated things like electronics,
it’s harder to say.
Even if they manufacture in the US,
they may rely on components made in China
that are now more expensive.
So it’s a mixed bag.
But there are definitely some US manufacturers
who are able to get back in the game
and hire more American workers.
As for those US companies that went to China
hoping to make a profit...
some of them have lost that bet.
And I don’t feel too bad for them.
Thanks for your question.
And thank all of you for watching.
A lot of companies don’t want to advertise with a show like this,
that criticizes the Chinese Communist Party.
So we rely on your support to keep this show going.
Visit Patreon.com/ChinaUncensored
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Check it out now.
Once again, I’m Chris Chappell.
See you next time.
Wait!
Want to learn more?
This week, Matt, Shelley, and I did a podcast
with China expert and economist Christopher Balding.
He goes into a ton of fascinating detail about the trade war,
and the Trump administration’s larger strategy.
Click here to check it out.
Click now.