It is happening and it cannot be stopped. The Currency Wars that have been discussed at length by many precious metals experts for years are here and there is now no turning back.
As I have previously discussed, these wars have been ongoing for much of the last decade, if not longer, however, it has remained largely a "gentleman's" war and highly civilized, with neither side wishing to expose their hand too much.
Now, with the increased rhetoric coming from the Trump administration, things have turned red hot and shots are being fired back and forth, on an almost daily basis.
President Trump has imposed numerous tariffs on Chinese goods entering the United States. The first of which was $50 billion worth of tariffs, in which China swiftly responded in kind, imposing $50 billion worth of their own tariffs on American imports, imports such as soybeans and small aircraft's.
As expected, President Trump would not let this settle and is now discussing imposing an additional $100 billion worth of tariffs on Chinese goods. Of course, this will be answered with a likewise response from China, if these tariffs are indeed pushed through.
As we can already see, the ramifications of these actions are going to have a rippling effect through not only the Chinese and US economies, but the entirety of the West, as these countries are two of the largest importers / exporters in the world.
These increased hostilities show no sign of abating and are likely to increase from this point out. Neither side is willing to back down and show weakness and as a result stock markets have corrected sharply, proving that they too prescribe to my assumption.
President Trump, has vowed to "Make America Great Again", a term that means many things, one of which involves returning jobs that America exported to China, back to American shores.
I believe that this is exactly what Trump is attempting to do. He is attempting to force businesses into a position which makes it unprofitable for them to operate overseas, in certain locations such as China and other low wage countries that benefit from massive trade surpluses, at the expense of the American government and the blue collar American working class as a whole.
This however does not come with downsides, as this will lead to much higher prices in the cost of goods, as higher wages and working standards will force companies to raise their prices. The hope, is that these price increases are offset by higher wages and reduced unemployment. A gamble, but one that President Trump appears to be more than willing to take.
China on the other hand is not stupid and they have vowed to fight American tariffs and actions to the very end, no matter what the cost is. This is incredibly scary, especially since they possess the ability to "nuke" the US dollar, via the massive currency reserves that they possess, essentially destabilizing the dollar overnight if they so wish.
I personally believe that China is taking such a hard line response to these actions, simply because they know that their survival depends on it. The American economic engine keeps their economy running at highly inflated levels and if the trade was cut off, the ramifications would destabilize their economy and result in a possible toppling of their communist government. A scenario, they cannot afford to see unfold.
Regardless of whether or not cooler heads will avail in the short term, I believe that the genie has been let out of the bottle, never to return as long as President Trump is in power.
The Currency Wars are here. Get used to it and take the appropriate action to protect yourselves. Increased volatility is here to stay.
- As Originally Seen on the Sprott Money Blog
