CHINA VS. USA - A TWO-PRONGED Counterattack? [Thomas Polin & Denis Lian]

Is China planning a double-barreled Big Bang for the American Empire?

The CPC leadership is normally cautious and strongly attached to stability as well as win-win outcomes. But such an approach towards the US and its vassals has only drawn ever more vicious and underhanded attacks in the past few years.

Two fronts seem to be opening up, pointing to drama down the road. The first is that China may be behind an unfolding spike in the price of steel and rare earths (plus other strategic commodities). The country is the world’s dominant producer of both steel (55%) and rare earths (80%) -- as well as the biggest consumer of many other commodities.

As the post below explains, Beijing is no longer willing to supply the Western economies with relatively inexpensive steel and rare earths, largely because of the Empire’s relentless hostility. The likely result is inflation, even high inflation, in the COVID-damaged Western economies, now propped up largely by the endless printing of fiat currencies. In recent months, Western financial markets have already been spooked by incipient signs of inflation.

The second front involves fiat currencies themselves. Already, China has started refusing payment in dollars, euros, pounds etc. for some goods and hard assets it produces. If Beijing wished to pressure the Empire, strategists say, it could expand its demands for settlement in RMB or in real assets China needs.

COVID looks likely to hamper the recovery of the global economy for some time. Consumer goods and other essentials will be in ever-greater demand. As the world’s paramount manufacturer, China will be well placed to dictate the terms of trade … including what it would take as payment for its goods. The feeling is growing in Beijing that continuing to exchange its hard assets for paper money would be an unpalatable course, especially in the face of a prolonged pandemic and Western antagonism.

By requiring payment in RMB (or hard assets), China would not just pay the Empire back for its sustained assaults. The move would also speed up internationalization of the Chinese currency -- as well as its emergence as a rival to the greenback and euro. Together with rising inflation, such a step would significantly weaken the dollar.

Wouldn’t it rebound on China’s own economy? To an extent, but likely far less than it would hurt the Western economies. The “internal circulation” prong of the Beijing’s new development strategy focuses precisely on domestic consumption as the driver of growth. The 1.4-billion-strong internal market is a formidable asset China alone possesses. And for the reasons cited above, the country will be in a strong position on the external trade front as well.

Will China pull the trigger? Watch this space.

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Post by Denis Lian:

Global steel prices have tripled recently and US share prices have almost doubled in tandem. This is a phenomenon that has not happened in the past two decades, so what is the reason behind it?

An apparent contributing factor is that Australia has sharply raised iron ore prices, however the actual reason is that China has slashed subsidies to curb demand for iron ore, scaled back domestic steel production and ultimately reduced exports of steel.

Since China is the world's largest steel producer, with 55% of the global capacity, prices of steel will inevitably soar as China cuts production and curbs exports. India, the second-largest steel producer, is severely caught up in this geopolitical and economic battle but their nations steel industry finds itself hard pressed to weather such a storm. 

This is clearly counter intuitive. Why is China cutting capacity and curbing exports at a time when global steel demand is tight? Why not take the opportunity to expand production and make a good profit?

The answer is simple. China is using the cuts in steel production and exports to drive up inflation (which could very easily lead to hyperinflation) in order to crack down on economic recovery plans in the United States and the Western world.

In the past, abundant global demand of low-cost Chinese steel products have helped the world economy curb high prices and avoid triggering global inflation. Even when the US repeatedly gorged themselves in quantitative easing (QE), printing large quantities of money indiscriminately, they could still enjoy low interest rates in spite of a weaker dollar and still keep inflation safely in its box. 

For over 40 yrs, China's factories effectively subsidised the US and the Western world’s economic development, at great environmental cost to its own people and land. Now China is no longer willing to do the bidding of the west. 

It’s curb in steel supply will send far reaching shockwaves to the global supply chain which will drive up inflation in the US and Europe. Now the West is going to get a taste of China's long term sacrifice but it’s a searing pain the people of the US and Europe are ill suited to bear once their currency weakens and the prices of all goods are services go through the roof.

When the price of steel, the backbone of the global economy, and all key raw materials like rare earth start to skyrocket (all these key commodities are controlled by China), what would become of Biden's trillion-dollar US infrastructure plan? Let’s see if the Fed can still keep interest rates low, because even QE will not save them this time round.

Inflation will lead to higher interest rates, European and American stock and bond markets will inevitably collapse, the global economic order will be a complete mess, the US will try it’s best to unite the G7 coalition against China, but they will ultimately all be washed away like a sand castle collapsing on the incoming tide.