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Is This Really A Good Time For A New Trade War?

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On Thursday President Donald Trump risked sparking a new trade war by introducing a plan to slap tariffs on foreign aluminum and steel producers.

From an Austrian Economics perspective tariffs and trade wars are never a good thing economically. Yet along with the current context of what’s happening with U.S. debt and dollar, it’s hard to imagine a less ideal time to engage in such a policy.

Let’s take a quick review of critical events of the past few months.

January 10, 2018 – Bloomberg publishes an article suggesting Chinese officials are considering reducing or halting their U.S. treasury purchases. The article mentions:

“The officials recommended that the nation closely watch factors such as the outlook for supply of U.S. government debt, along with political developments including trade disputes between the world’s two biggest economies when deciding whether to cut some Treasury holdings.”

January 16, 2018 – Chinese rating agency (Dagong Global Credit Rating) downgrades the U.S. credit rating.

January 20-22, 2018: U.S. government actually gets shutdown “after a failure to pass legislation to fund government operations and agencies.”

February 7, 2018: After again being on the verge of reaching the debt ceiling limit, Congress passes a spending deal that increases the budget and pushes the debt ceiling limit back again to March of 2019.

March 1, 2018: Trump proposes tariff plan.

All while China continues its implementation of the PetroYuan and Iran is banning the use of U.S. dollars in trade. This is why you see people trading dollars for cryptos.

The U.S. treasury is heavily indebted to China, and dependent upon them to finance U.S. government spending. Yet it’s almost as if each U.S. policy action is designed to see how much further they can antagonize their largest creditor.

Keep in mind that China has also been on a massive gold and silver buying spree over the past few years, and the clues are easy enough to piece together.

The U.S. seems intent on borrowing and printing until the system eventually breaks. There remain no signs of any sort of exit plan or reversal, and especially with the volatile action in the crypto space, it seems like the rest of the world has finally begun to notice.

Now in the face of all that’s happening, the U.S. is risking initiating new trade wars. It’s a stunning piece of policy, especially with interest rates rising and the stock and real estate markets responding harshly.

It’s incredible that this late in the game the U.S. government refuses to acknowledge the true nature of its fiscal situation. But this is why you’ve heard so much about precious metals and cryptos in recent years, and that’s unlikely to stop any time soon.

We are watching the decay of the dollar empire. And the latest policy from the U.S. decision makers indicates that they plan only to continue to hasten the speed of its demise.

 

-Chris Marcus

March 2, 2018

 

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