More Big Picture, Dueling Tariff Narratives

As we noted yesterday, there are a remarkable number of moving parts in the jigsaw puzzle of geopolitics these days. It was complicated enough with the various Anglo-Zionist wars—on Russia, on China, on the Middle East—but now the picture is even more complicated with Trump’s tariff gambit. Again, as noted, Trumpian rhetoric typically misdirects from or obscures the real goals of Trumpian strategy and, especially, tries to obfuscate what are negotiable or even throw-away positions from real bottom line positions.

For example, during the past few days we’ve been watching developments in the Middle East situation, focusing on Trump’s demands for a deal with Iran. Having unilaterally withdrawn from the JCPOA during Trump 1.0 and realigned with a rogue nuclear state (Israel), Trump 2.0 sees the Anglo-Zionists upping their ante by demanding that Iran, in effect, surrender its sovereignty. But what we appear to be seeing is Trump jettisoning most of his demands and acceding to the Iran demand that any negotiations be restricted to issues of Iran’s nuclear program. What that looks like, as commenters have noted over the past few days, is a return to JCPOA—call it JCPOA 2.0 or JCPOA-Trump, to distinguish it from JCPOA-Obama. Call it what will, but I seem to hear quacking in the background. A key point here is that any such deal is likely being mediated—as in the past—by Russia and China, who are in Iran’s corner. Larry Johnson summarizes this view today (follow the link for more details):

Iran Prepping for Negotiations with the US; Russia and China Have Iran’s Back

I think Russia and China will encourage Iran to agree, again, to the JCPOA limitations, with the commitment that Russia and China will, along with the United States, guarantee compliance. Iran, for its part, will insist on the lifting of economic sanctions as well as an end to US attempts to subvert the Iranian government.

The major obstacle to reaching an agreement will be the Trump administration’s demand that Iran end all support for Hamas, Hezbollah and the Houthis. While I am pretty confident that Trump’s negotiators will try to bum-rush Iran into a hasty agreement, this week’s meeting with the Russians and the Chinese will give Iran the confidence that it has the backing of two great powers and will hold firm in protecting its national security interests.

The original JCPOA was a sound agreement and met Donald Trump’s demand for an end to Iran’s alleged nuclear weapons program. But Trump withdrew from the agreement and is now back at square one. Here is the question for you to debate: Will Trump, eager to get a diplomatic win in his column, essentially agree to JCPOA 2, or will he make demands that Iran cannot meet and leave himself with the option of attacking Iran, who now has the clear backing of Russia and China?

The important considerations here are the backing of Iran by Russia and China and the dicy nature of any military action against Iran—with economic as well as military ramifications around the world. This is all playing out against the background of the Trump Tariffs, oil price fluctuations, gold accumulation by many countries, etc.

CTH has a brief by worthwhile post today. Much of the post is taken up by a quote from Xinhua, China’s official government news agency. While Xinhua does breathe national pride and defiance, I take the overall tone of the statement to be largely conciliatory—China looking for an exit strategy from a conflict it doesn’t really want. Here’s CTH:

China Vows to “Fight to the End” in Economic War with America

Through a series of cumulative trade tariffs, President Trump has now placed Chinese imports into the USA in a position of 104% tariffs.

104%!

In response Beijing has devalued their currency and dumped treasuries, but no amount of subsidy, devaluation or use of their sovereign wealth fund is going to compensate for 104% taxes on Chinese products. Very soon all purchase orders from the USA for Chinese manufactured products will stop.

The Beijing dragon is looking at the future through a zero-sum position. Now, they vow to fight to the death.

However, as I said, the overall tone of the Xinhua statement does not suggest to me an interest in a death match. Hold that thought about currency devaluation and treasuries dumping—we’ll get back to that. But first, we’ll turn to a smart article at AmCon. The article is largely a response to some of the usual Russia haters who are warning against any attempt to peel Russia away from China—Russia, gasp!, may demand concessions! Of course, peeling Russia away from China is the centerpiece of Trump’s geopolitical strategy. The author makes a range of sensible observations, including the following, which need to be considered in light of emerging signs of American - Russian economic cooperation. He makes the realistic observation that Russia will almost certainly never be an ally, but a far larger area of cooperation can and should be found:

Splitting Russia From China Is Possible—and Vital

Moscow is inherently a pivot player between Beijing and Washington. Recognizing and acting on this reality sets the stage for a long-overdue strategic retrenchment ... Indeed, for Russia to act as more of a pivot player and less as China’s situational partner against the West would in itself be a major victory for the U.S. and Europe.

…

Rather, the realist claim should be this: There are inherent fault lines in the Russia–China relationship, the most important being Moscow’s concern with playing junior partner to an economically more powerful China. … [the war in Ukraine] has rendered the Russia–China relationship more lopsided than ever, with the Chinese market occupying a whopping 36.5 percent of Russia’s imports and 30.5 percent of its exports as of 2023 even as Russia only comprises roughly four percent of Chinese foreign commerce.

…

Working out a framework for Moscow to reenter Western commodities markets and financial institutions pending a negotiated settlement in Ukraine will cut into China’s growing economic leverage over Russia. It would also give Moscow a stake in stable, constructive relations with the West rather than a continued incentive to work with China to create and bolster alternatives to Western economic and political platforms. …

YMMV applies. I would caution that Russia will want more than renewed access to Western markets. Russia knows that it needs geopolitical concessions, as a security guarantee against the day that the Anglo-Zionists once again stabs Russia in the back. I offer the quote above as offering at least some insight into Trump’s maneuvering.

Finally, I’ll offer two somewhat lengthy and conflicting narratives on the Trump Tariffs and China’s reaction. The first is a heated post by a China supporter, the second takes a different approach and comes highly recommended by Danielle DiMartino-Booth.

Arnaud Bertrand @RnaudBertrand

This is batshit insane, no other way to call it.

We now have the first attempt by the White House—specifically by Steve Miran, the Chair of the Council of Economic Advisers—to justify the tariffs based on economic "theory", and it's without a doubt the most dishonest piece of economic reading that's I've ever had the misfortune to lay my eyes upon.

The gist of Miran's argument is to reposition the global reserve currency status of the dollar not as an exorbitant privilege (as erstwhile French President Valéry Giscard d'Estaing once characterized it), but as somehow a "burden" that the rest of the world needs to compensate the US for bearing.

As Miran explains it, having the dollar as a reserve currency "has caused persistent currency distortions and contributed, along with other countries’ unfair barriers to trade, to unsustainable trade deficits" which "have decimated our manufacturing sector."

Thus far, Miran is IMO correct. The abuse of the King Dollar regime did lead to the “unfair trade barriers,” as a defensive measure against US export of its inflation—at least in part. Trump’s demand for zero tariffs does need to be viewed in that context. This has been long term harmful both to the rest of the world but also to America as a society. This also needs to be connected to Trump and Hegseth bragging—I believe that’s the correct word—about the $1 Trillion dollar defense budget.

So he wants to give up the reserve currency status of the dollar, right? Wrong. He wants to have it both ways.

He says that America's "financial dominance cannot be taken for granted; and the Trump Administration is determined to preserve [it]" but this same financial dominance "comes at a cost" and "other nations" need to pay for it.

And he means this literally. He made a list of what exactly he means by "burden sharing" and one of the forms it can take is countries "simply writ[ing] checks to Treasury that help us finance global public goods."

Let's pause a moment here to contemplate the sheer insanity of this: the U.S. is literally suggesting that countries should mail checks to the US Treasury as tribute for the 'privilege' of maintaining the dollar as a global reserve currency, when it is this very reserve status of the dollar that is the cornerstone of US power.

It's the equivalent of Samson asking everyone to pay him to keep his hair.

Because that's what Miran is conveniently not mentioning in his text. The reason Giscard d'Estaing called it an "exorbitant privilege" is that it allows the U.S. to quite literally have its way of life subsidized by the rest of the world.

Miran (and Trump) complain about the trade deficits, but they are the very manifestation of this subsidization: countries normally cannot run a permanent trade deficit because they'd one day face a balance of payments crisis.

It's like a private individual: you cannot indefinitely buy more from others than what you yourself earn. At some point you'll have to pay up. Unless, that is, you're the issuer of the currency everyone uses, in which case the normal rules of economic gravity are suspended.

While other nations must balance their books eventually, the dollar's reserve status gives America the unique ability to consume more than it produces perpetually, with the world eagerly accepting dollars that cost nothing to create in exchange for real goods and services. That's not a "burden", it very much is an "exorbitant privilege".

So yes, sure, because America can effectively buy most of what it needs from the rest of the world for "free" (by printing dollars), this situation doesn't exactly create incentives to do the hard work of manufacturing goods domestically. But framing this as other countries taking advantage of America rather than America taking advantage of its currency dominance is an astonishing inversion of reality.

...

Miran's piece is replete with other complete inversions of reality. For instance, he now blames China for the 2008 crash because "their holdings of U.S. mortgage debt helped fuel the housing bubble, forcing hundreds of billions of dollars of credit into the housing sector without regard as to whether the investments made sense."

Anyone with even a rudimentary knowledge of the 2008 financial crisis would have their breath taken away by such brazen revisionism. Not only is the crisis universally known to have been caused by US regulatory failures and the reckless securitization of subprime mortgages by Wall Street firms, but China in this instance literally saved U.S. markets from complete meltdown after Hank Paulson personally appealed to Beijing to continue purchasing US Treasury bonds during the height of the crisis, which they did.

To now blame them for the very crisis they helped mitigate and played no part in creating is beyond dishonest—it's gaslighting on a geopolitical scale.

All in all, it's clear what the US is trying to achieve here, they effectively want to have their cake and eat it. They want to keep the privilege and want the rest of the world to pay for the downsides that come with it.

Which means we're truly at a crossroad in history where nations must make an immensely consequential choice: acquiesce to this insane double tribute system or stand against it. There are very few precedents in world history for such a nakedly exploitative power play, but history is very clear on two things: submitting to extortion only invites more of it, and collective resistance is the only effective response.

As I read this next post, Kaminska is suggesting that China’s actions show it to be in a weak position. She also warns that trade wars can turn into hot wars.

Izabella Kaminska @izakaminska

In our Monday Blind Spot piece we noted that the CNY (onshore yuan)-CNH (offshore yuan) spread would be the thing to watch now.

This is the real high noon confrontation in global markets - at least if the real objective of Trump tariffs is breaking the PBOC [People’s Bank of China], and forcing a reckoning over financial repression.

Worth remembering that when Soros broke the Bank of England nobody considered the depletion of BoE reserves of hard currency as a show of strength or a sign that the GBP was winning. Yet for some reason this is the rationale applied to the PBOC’s USD drawdowns.

When CNH (offshore yuan) is trading at a discount to CNY (onshore) as is now, it often reflects capital outflow pressure or a market expectation of devaluation.

A rising CNY/CNH ratio (above 1) may imply that offshore actors are betting against the yuan, anticipating the PBOC will be forced to intervene or devalue.

If the PBOC were to start burning USD reserves to defend the yuan peg: You’d likely see USD/CNH dropping (i.e., CNH appreciating) as the PBOC sells USD and buys CNH.

If it happens, this will likely be spun by the CCP as a show of strength and a move to dump the dollar because the dollar is trash. I wouldn’t fall for this. Dumping the dollar to defend the yuan is a signal the government can’t afford to trash its credit standing in international markets. It will come to the Mar o Lago table for negotiations before it gets to its final USD billions.

If on the other hand they stop selling USD and let the yuan devalue, it’s a sign they’re happy to see their corps get squeezed and even default. They will try to go it alone, and the cold economic war may turn hot. (I suspect).

12:57 PM · Apr 8, 2025

Obviously, informed comments are welcome. Please be aware that I’m not arguing that the big picture history of post WW2 trade relations can be framed in strictly White Hat v. Black Hat terms.