In the 80s, American President Ronald Reagan saw Russia as the great existential threat to the United States. He started an arms race that Russia cannot maintain due to its weak economic position. Russian income was Mermed For the fall in the price of oil, in a market flooded by the production of Saudi Arabia. Russia had to sign a disarmament agreement.
For Donald Trump, China is the existential enemy of the United States.
The last weeks have been dominated by the news around the new tariff policy promoted by Donald Trump, the strong falls in world bags, the almost collapse of the debt market and the possible impact in terms of inflation and lower world growth.
Very few holders has held the fact that The Chinese yuan is very close to its minimum of the last 18 years against the American dollar. This weak currency policy has been promoted by the Central Bank of China in the last two decades. It has been a weapon that has allowed a huge transfer of wealth from the West to China, achieving its status of super economic super power against the rest of the world.
The overvaluation of the dollar with its negative impact on the competitiveness of the United States and the aggressive trade policy marked by tariffs to commercial partners, seeking to correct commercial imbalances has been present in the two presidents of Trump. To this are added the challenges of an increasing public debt, with China as one of the main creditors through their purchases of American bonds, and the decisions of the Federal Reserve in terms of interest rates.
The status of the dollar as the main world reserve currency feeds its strength beyond the economic foundations, generating an overvaluation that has weighed a lot about the American manufacturing sector.
The effects have been felt in the real economy. An overvalued currency acts as a wind against exporting companies. It tends to increase imports and reduce exports, expanding the commercial deficit, displacing domestic production and weakening the industrial base of the country. American products can be of excellent quality, but by becoming other currencies they are more expensive than those of their foreign competitors.
In fact, even before the Trump era, the strengthening of the dollar in the late 90s and the beginning of the 2000s contributed to the loss of millions of industrial jobs in the US.
Unlike American traditional rhetoric in favor of a Strong dollarTrump ha broken molds when complaining openly that an excessively strong dollar was “hurting the competitiveness” of the US. Since 2018, its doctrine AMERICA Firstwas based on punitive tariffs against China, the European Union, Canada and Mexico in sectors such as steel and aluminum, seeking to renegotiate agreements. Importing the US industry would protect and reduce a commercial deficit that saw as a sign of economic weakness
But these levies can produce counterproductive effects such as the devaluation of foreign currencies and internal inflationary pressures. As is happening now, the announcement of tariffs gave rise to a devaluation of the Chinese currency of approximately 10% which re -stated imports. Tariffs increase imported consumer goods, raising costs for companies and prices for consumers. Additionally, reprisals from other countries (China imposing tariffs on soybeans, meat and other US products) Find US exports or reduce their volume. If to Trump’s commercial policy, we add its immigration policy, lower labor availability, we have a set of factors that contribute to a general price increase.
In a price increase scenario, the role of the Federal Reserve in its decisions regarding interest rates is essential. In 2019, the Fed made a series of type cuts against commercial tensions caused by tariffs. Low interest rates may allow several objectives to be achieved, stimulate internal consumption and growth, lower the cost of public debt and weaken the dollar to favor exports. Minor rates often boost credit and domestic investment, partly counteracting the contractive effect or uncertainty that tariffs could generate in companies.
A reduction of interest rates, in a scenario of inflationary pressures by tariffs, can cause such price increase to be maintained or enliven. On the other hand, there is a loss of competitiveness for higher costs and internal inflation that can force to pause the decreases of types (as has happened in 2024). The combination of high public debt and low fees ignites alerts on potential financial bubbles. If the Federal Reserve maintained artificially low rates, which has not done, to help with commercial policy, the government could borrow even cheaper, perhaps reducing incentives for fiscal discipline, as we often see in Europe.
A factor to not forget is the fact that the main investor in American bonds, which finances its fiscal deficit, is China. This country could threaten a massive sale of these bonds, causing a price drop and great instability, which would also damage China herself. Therefore, in the past, China has not resorted to this route, but to increase its tariffs on American products, as is doing right now.
The United States intends to isolate China, its true goal in this war of tariffs. With more than 75 countries willing to renegotiate rates, the world has taken sides, except Spain. Trump has started the de -escalation of tariffs with a 90 -day pause, except for China, who has responded with more tariffs and devaluation of its currency. China probably cannot renegotiate when you need strong economic growth, via exports, which allows you to maintain its social peace.
Strong dollar, tariffs, public debt and monetary policy form a difficult balance whose breakup can have unpredictable consequencesespecially for the United States itself. As in the 80s with Russia, it is a matter of ability to endure the envy.
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