America’s Cold War with China: Part 4 The Capital War

The face-off between the U.S. and Iran is sending seismic shockwaves through the Middle East. We don’t know how this conflict could play out. But one likely winner is China.

Iran’s terrorist ways have left it friendless in much of the developed world. But China doesn’t care. China will shake the hands of any dictator, as long as it advances their business or national interests.

And China’s Foreign Minister Wang Yi reportedly rushed to hold telephone conversations on Saturday with the foreign ministers of Iran, Russia and France — all fellow members of the U.N. Security Council — reiterating that China would not back U.S. military strikes on Iran.

But on the battlefield isn’t the only way that China wages war.

You know the “China Dream” I’ve been talking about lately? Well, here’s what billionaire investor Ray Dalio said just a few weeks ago …

There is a trade war, there is a technology war, there is a geopolitical war and there could be a capital war … How that is approached is going to determine our futures.

We’ve already looked at the first three. Today we’ll wrap up it all up by looking at the fourth “front” of the Sino-American cold war … The Capital War.

Dalio’s comments come amidst reports Donald Trump wants to significantly limit U.S. investment in Chinese firms by:

  • Delisting Chinese companies from U.S. stock exchanges
  • Curtailing government pension flows into Chinese investments
  • Limiting the inclusion of Chinese companies in U.S. indexes and funds.

The White House is reportedly discussing its plans with Senator Marco Rubio, one of Congress’ most outspoken critics of U.S. investment in China. Here’s what he told Bloomberg:

This administration deserves credit for their efforts to deal with the threat that the Chinese government and Communist Party poses to U.S. national and economic security, including how Beijing takes advantage of its access to U.S. capital markets for predatory purposes.

The “Capital War” is just another front in China’s 100-Year Marathon to overtake the U.S. as the next and final world superpower.

It comes down to three stages:

  1. Gain greater control over the U.S. economy …
  1. Monopolize natural resources, and …
  1. Replace the dollar as the global currency.

Stage 1: Control America’s Economy

This is China’s plan to undercut America on trade and steal her technology, which we talked about previously.

On top of that, Chinese companies get special subsidies, grants and loans doled out like candy … while sticking us with mafia-sized tariffs.

UC-Irvine Professor Peter Navarro explains it this way:

In 2001 we let China into our markets here in the United States and, since that time, we’ve shut down over 50,000 factories, lost 6 million manufacturing jobs … and got 25 million people in this country that can’t find a decent job, and we now owe $4 trillion to the world’s largest totalitarian nation.

That’s why Trump has engaged China in a full-blown trade war.

But it may be too little, too late — all thanks to the trillions of dollars we now owe them.

Stage 2: Hoard Resources

The second stage is frightening because of what China is doing with all the dollars they have in the bank.

China believes resource wars are inevitable. So, they’re stockpiling while denying assets to anyone else.

Consider one of the most important commodities of all … OIL.

In addition to exploring the South China Sea — which it claims as its own — China is using its $4.0 trillion in foreign reserves to buy up energy resources all over the globe.

And because China has no qualms about dealing with “pariah” nations off-limits to Western oil companies — like Iran, Venezuela and Sudan — they’re outflanking the U.S. almost everywhere.

Stage 3: Depose the Dollar

China makes no bones about its dream to demote the dollar as the “reserve” currency of global trade … and replace it with the Chinese yuan.

And it’s doing everything it can to make it happen.

In October 2015, the yuan became the fourth most-used currency for global payments, trailing only the dollar, the euro and the British pound … rising from 13th place in only three years.

When the International Monetary Fund (IMF) added it to its prestigious basket of important currencies later that year, it was a huge win for China.

Plus, they’re kicking the dollar to the curb by signing yuan trading agreements right and left.

In December 2011, for example, China head-locked America’s largest trading partner — Japan — into direct yen-yuan transactions. Since then, deals were made with the United Arab Emirates, Australia, Brazil, India and Russia, to name a few.

And now that both the U.N. and the IMF support a new reserve currency … it’s just a matter of time before the dollar is unseated from its privileged status.

Economist and global strategist Peter Schiff says the dollar’s collapse is inevitable, and the U.S. is speeding up the process:

The sanctions that we have been imposing around the world, this is simply giving the world yet another reason to look for an alternative to the US dollar.

That’s not to say that the dollar can’t continue to rally a while longer. One consequence of rising conflict is a rush of “fear” capital into dollar-based assets, driving its value up.

But that’s like the bow of the Titanic rising as the ship sinks.

Source: NPR / Photo Credit: AP

And here’s another harbinger of the dollar’s fate: Gold.

Many countries, including China, have sought to expand their gold reserves in recent months. The World Gold Council calculates that central banks worldwide bought up 374 tons of gold bullion in the first half of 2019.

That follows 2018, which marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971.

And the central bank gold-buying spree is likely to continue into 2020 as countries hedge against geopolitical risk … and diversify their reserves away from the dollar.

It’s true that China’s capital war is suffering a temporary setback with Donald Trump in the White House.

The trade war has caused money to leave China at a record pace. In fact, the Institute of International Finance estimates $131 billion left China in the first six months of 2019 through “hidden capital outflows.”

That’s bad for China, which needs to keep financial reserves high to maintain confidence in its markets. But China’s State Administration of Foreign Exchange pulls no punches: “We need to fight a critical battle.”

The pledge was an unusually strong one for the agency, deploying the sort of language more often used by Chinese generals.

Follow the central banks and buy gold, silver and other precious metals. And mining stocks are likely to outperform all other sectors in this cold war environment. For my top pick, join me in Wealth Megatrends.

All the best,

Sean

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