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US-China ‘trade’ war, if not ended soon, may spill over to ‘finance’

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“On the international monetary front, the key problem was the acute dollar shortage in post-war Europe …

In the effort to reconstruct a viable Western Europe, the United States conceded degrees of protection and discrimination in trade that were incompatible with its original blueprint …”

Ian Clark, a Fellow of the British Academy and a renowned professor on international politics, explains how Pax Americana (US’ hegemony) took its root by adopting both monetary and trade strategies to assist its European allies (2011: p.132).

Clark points out that, on one hand, “(President) Nixon’s action in delinking the dollar from gold in 1971” made the U.S. much easier to issue USD so as to provide the necessary liquidity for Europe’s post-war growth, and on the other, the Marshall Plan allowed the European states not to comply with Adam Smith’s free market doctrine, thus intervening by discretion into all economic sectors ranging from labor, raw materials, to manufacturing and finance (2011: p.128-135).

Does it sound similar to China’s 30-year magical growth? Of course, the US did not offer a Marshall Plan to China. Deng Xiaoping had his own plan for China and although the Chinese economy is much more ‘open’ than before, it is characterized by various state interventions at different levels in different sectors (e.g. the state-owned enterprises SOEs).

Simultaneously, lots of Chinese private companies and SOEs raised USD or Hong Kong dollar (HKD which is convertible into USD at a pegged rate of 7.8 to 1) money capital from the stock markets. In other words, through stock listing, China gains the necessary liquidity. The evidence is that China has been one of the major holders of the US Treasury bonds since the early 2000s.

The growth of post-Mao China is to a meaningfully extent similar to the post-war Europe’s, namely, free trade with the world and abundant monetary liquidity.

Now, President Trump is closing the door on trade. If it is still not enough to hit China hard, the next measure is probably to put control over finance.

Although fund houses like Goldman Sachs and investors like Warren Buffett are out of the White House’s control, something could happen behind the scene. The coming indicator is Alibaba’s second listing plan for USD20 billion in Hong Kong, after its USD25 billion 2014 listing on NYSE. Whether it could succeed is something we must watch closely for understanding how the US-China fight may go on.

The opinions expressed are those of the author, and not necessarily those of China Daily Mail.

Tony Simon

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