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China’s economic war against the United States has entered a new and deadlier phase. After gutting U.S. manufacturing under the guise of “free” trade, China is co-opting America’s high-tech dominance by wooing tech giants, like Apple and Google.
Meanwhile, China expands its reach by building out its Belt and Road Initiative (also known as One Belt, One Road), aimed at linking all of Eurasia and Africa together under Chinese-dominated trading routes. As this has occurred, Beijing has taken aim at the very heart of America’s global dominance: the U.S. dollar.
Herein lies the most significant threat to the American-led world order since its inception following the end of World War II. And, unlike previous threats to that order, China’s attempt to kill King Dollar just might work.
Durable Disorder and the 100-Year Marathon
Sean McFate makes the case that we are living in an era of “durable disorder” in his new book, The New Rules of War: Victory in the Age of Durable Disorder. McFate also asserts that China is likely already at war with the United States—it’s just that Washington can’t comprehend the style of shadow warfare that Beijing is waging.
In his 2015 book, The Hundred Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower, Michael Pillsbury of the Hudson Institute claims the Chinese Communist Party has identified 2049 as the final year of its shadow war against the United States (which began the moment that Mao defeated the nationalists in the Chinese Civil War in 1949). By 2049, Beijing expects not only to have become an equal power to the United States, but to have displaced the United States as the world’s ba, or hegemon.
Military power is only an ancillary component of China’s grand strategy of displacement and eventual world domination. This is especially shocking, as Washington pours more and more money (that it doesn’t have) into its defense establishment—thinking that a larger military budget will deter upstart rivals such as China from challenging the United States.
For all the money Washington has poured into the Pentagon, however, Beijing remains undeterred. The United States spent $1.5 trillion over 10 years on the F-35 fighter and builds Ford-class supercarriers at a cost of $13 billion each. Meantime, Beijing spends a fraction of that on initiatives aimed at displacing the dollar as the world’s reserve currency and replacing it with China’s renminbi.
Check Your “Exorbitant Privilege”
Since 1945, the U.S. dollar has reigned as the world’s reserve currency mainly because oil has been traded in dollars. Former French President Valéry Giscard d’Estaing enviously referred to the dollar’s hegemony as an “exorbitant privilege.” Since then, various countries ranging from rivals, like China and Russia; to “allies,” such as France, have yearned for a multipolar financial system not grounded in the dollar. Such a reality would ensure that the American “hyperpower” was permanently weakened and restrained.
Should the U.S. dollar cease to be the world’s reserve currency then Washington not only would have to reform its absurd spending policies virtually overnight (fat chance of that happening), but America would be on the proverbial hook to quickly repay its vast international debt—which is almost impossible.
With a debt-to-GDP ratio of 100 percent, there is no realistic way for the United States to pay down its debt should those foreign powers demand it. In essence, it would lead to the end of the American world order and it would cause utter chaos in the U.S. socio-economic and political system as America struggled to repay its onerous debt.
Given this reality, Beijing does not need to wage a world war or to defeat the United States in combat. Instead, Beijing only needs to win the economic war it has been fighting against the United States for decades and continue strategically to invest in its One Belt, One Road initiative, advancing its economic interests at America’s expense. Meanwhile, America chases its tail in the Middle East or vainly expands a military that already costs us $787 billion a year.
The final, decisive battle in China’s ongoing economic war against the United States will be when the petro-yuan, not the petrodollar, reigns supreme.
The move had significant backing in places like Saudi Arabia and France. Russia, which has been squeezed hard by American sanctions since the illegal annexation of Crimea in 2014, supported the move to allow for oil to be traded on the petro-yuan as well.
Other American rivals, including Iran and Venezuela, have long desired to trade oil in currencies other than the dollar, so as to avoid U.S. sanctions. As the global power center shifts away from the West and toward Asia, coupled with Washington’s unpopular foreign policy, the end of King Dollar approaches. As the dollar goes, so goes one of America’s greatest advantages in geopolitics.
Many elites in Washington have scoffed at the ability of China to push the U.S. dollar from its hegemonic position. But these are the same people who missed the threat that China posed to America’s working-class when they enticed American manufacturing firms to leave the United States 30 years ago and move to China. From that moment on, China’s rapid rise from backwater agrarian country to a major world power was made possible.
Many global commodities traders are taking the Chinese effort more seriously—particularly those at multinational commodity firms, such as Glencore. Yes, the Chinese effort remains small and restrained. But this is precisely how other significant Chinese efforts to displace the United States have started. What’s more, just as with those other Chinese efforts, foreign powers that are increasingly incensed with the United States have expressed interest in the Chinese initiative. Inevitably many more powers will bandwagon with China.
With Friends Like These…
For example, the United States continues threatening to pass the No Oil Producing and Exporting Cartels (NOPEC) Act, which aims to remove sovereign immunity from U.S. antitrust laws. Should NOPEC become law, the OPEC states—notably Saudi Arabia—would be open to massive lawsuits because their efforts to curb oil output in order to raise prices violate U.S. antitrust laws. In response to the most recent attempt to pass the NOPEC bill, Riyadh threatened to stop trading oil in U.S. dollars entirely.
While it is unlikely that NOPEC will become law anytime soon—or that Saudi Arabia would be able to switch overnight from relying on King Dollar—the mere fact that Riyadh issued such a threat implies one thing: America’s dollar hegemony is waning even among allies.
The most likely beneficiary of the Saudi threat, of course, would be China.
Therefore, Washington must address its egregious spending problem. This dire turn of circumstances also should inspire American leaders to devise a more restrained foreign policy that enticed others to join with us, rather than stand against us. And, rather than lambasting the search for alternative energy, such as the development of both nuclear fission and fusion technology, American policymakers should engage in a new Manhattan Project to allow for America, rather than another state, to pioneer what could be the nuclear energy revolution (thereby negating the entire basis of a petro-currency).
Losing the petrodollar to China would be the coup de grace that Beijing has been seeking against the United States since 1949. Sean McFate believes that there will only be two types of states in this age of durable disorder: those who exploit the chaos for their benefit and those who are exploited. China is exploiting the chaos through its mastery of guile. Meanwhile, according to McFate, the United States is rapidly becoming an exploited nation because of its “ossified” strategic culture.
Once King Dollar is dead, the U.S.-led world order is truly gone, and China wins—without ever having fired a shot.
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