Since the second half of 2021, the Federal Reserve has embarked on a frenzied interest rate hike, directly raising the federal funds rate, which was close to zero, to a range of 5.5%, marking the fastest and most significant rate hike in history.
Domestic experts unanimously believe that this round of U.S. dollar interest rate hikes is a symbolic event as the major power game enters the financial warfare phase.
Previously, the major power game had gone through trade frictions, technological blockades, and asset suppression, evolving from trade wars and technology wars to the level of financial warfare.
Despite the continuous escalation and overall deterioration of the "conflict," the tactical measures adopted by the two countries have not been aimed at zero-sum game dynamics, always leaving ample room for negotiation.
Although the atmosphere is tense, there is no intention of completely annihilating the opponent.
However, since the Biden administration took office, the other side of the ocean has escalated the "conflict" in all directions against us, gradually miring the major power game into a zero-sum struggle from which it cannot extricate itself.
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Next, I will first enumerate the "battles" of the major power game over the past six years, analyzing how the other side's game tactics have become external factors impacting our country's macroeconomic situation.
Secondly, I will focus on analyzing this round of financial warfare, mainly centered on the U.S. dollar interest rate hike cycle, and deduce the outcome based on objective facts and logical reasoning, and deeply discuss who wins and who loses from both the phenomenon and the essence.
Then, I will reveal the final economic confrontation in the major power game and comprehensively discuss the restraining effect of the upcoming U.S. dollar interest rate cut on our country's economic recovery, as well as its negative impact.
Since 2018, there have been trade frictions between the other side of the ocean and us.
At that time, the highest leader of the other side, Donald Trump, stated that we have long had a significant trade surplus with them, severely damaging their foreign trade interests, and thus initiated actions to investigate tariffs on a number of our export goods.
With our production and supply capabilities growing stronger, especially after the 2008 global financial crisis, we rapidly became the world's factory between 2008 and 2018, not only increasing our manufacturing export share with the other side of the ocean but also our product manufacturing and capacity output capabilities have been able to meet the effective demand of the entire planet.
However, at that time, the Trump-led federal cabinet, under the banner of prioritizing the other side of the ocean, took structurally disruptive actions against the previous global economic integration system: first, engaging in substantial decoupling with the most important supply area, namely us, in terms of trade and economy, and secondly, various "exits," including but not limited to ignoring defense agreements with NATO, and prioritizing interests over allies, disregarding the ally system built on democratic values, and even imposing trade sanctions on traditional allies like Europe, withdrawing from the Paris Climate Agreement and the Trans-Pacific Partnership (TPP).
In general, any foreign policy contrary to the interests of the working class in the other side of the ocean was adjusted accordingly.
These actions not only severely shook the credit foundation of the other side of the ocean in the world but also threatened the stability of the U.S. dollar hegemony, making people doubt: whether their working class wants the other side of the ocean to no longer bear the responsibility of maintaining the stable operation of the globalized system, thus feeling increasingly pessimistic about the prospects for global economic development.
Later, the Trump cabinet launched a sanction action to cut off chip supplies to China, using chip technology as the primary strategic measure for technological blockade, and implementing corresponding sanctions against us.
With the chip supply cut as a symbolic event, the geopolitical game between us and the other side of the ocean officially escalated from trade frictions to a comprehensive competition in the field of technology.
From 2019 to before the pandemic, along with social unrest in a southern city, there was a comprehensive suppression of China's main categories or core assets by Western forces, including but not limited to Chinese concept stocks listed in the U.S. stock market and mainland companies listed on the Hong Kong Stock Exchange, whose stock assets all faced a significant devaluation.
This phenomenon has continued to this day, with overseas Chinese concept stocks and Hong Kong stocks not showing any signs of improvement compared to the situation before 2019, but instead are in a continuous process of bottoming out.
In the third quarter of the same year, the Trump cabinet officially imposed tariffs on hundreds of industrial and consumer goods exported by China, with related tax rates increased by 10%-30%.
In 2020, the global public health crisis broke out, forcing the international manufacturing industry supply chain and the economic and trade division of labor cooperation system to be interrupted.
Countries have realized the importance of stable industrial supply chains and have put supply chain security ahead of economic development efficiency, thus accelerating the disintegration of the previous global economic integration order.
Although the epidemic lasted for three years, we successfully controlled the epidemic at the beginning of 2020 and set a historical high in the global market share of foreign trade exports in 2021.
Just as we thought this situation would continue, most overseas regions completely relaxed their epidemic control in 2022, and the global manufacturing industry supply chain gradually regained its vitality, promoting the formation of a new development trend in the international trade division of labor cooperation system.
However, at that time, we were going in the opposite direction of the epidemic development in overseas regions, and epidemic prevention and control measures were being strengthened across the country, especially the two months of lockdown in Shanghai, which directly or indirectly led to countless economic losses and increased the difficulty of our country's reintegration into the international economic and trade division of labor cooperation system.
On the other hand, after the Biden cabinet took office in 2021, it first launched a $4.5 trillion fiscal relief plan to repair the balance sheets of residents and enterprises.
Secondly, it started the process of U.S. dollar interest rate hikes in the second half of 2021, causing the global U.S. dollar fund liquidity to flow back to its own territory, and promoting the arrival of a new wave of technological paradigm revolutions such as artificial intelligence, quantum computing, and controlled nuclear fusion.
Subsequently, it repaired the disintegration of the globalization order and ally system caused by the previous cabinet, rejoined the Paris Climate Agreement, and strengthened comprehensive cooperation in military, economic, political, and cultural aspects with traditional allies such as NATO countries, the European Union, Japan, and South Korea.
Then, it established the Indo-Pacific Economic Framework (IPEF), actively attracting countries or regions such as Southeast Asia, India, Mexico, and Poland, implementing nearshore outsourcing or friendly outsourcing trade policies, and introduced the Inflation Reduction Plan and the Science and Chip Act to cope with the new situation of major power games, aiming to counter our country's global layout measures including the Belt and Road Initiative.
Next, the other side of the ocean launched a new technological blockade strategy against China, increasing efforts to reshape the global economic and trade integration order, the global manufacturing industry supply chain, and the international economic and trade cooperation division of labor system, and other global economic and trade and geopolitical patterns.
As for how the other side of the ocean's game tactics have become external factors impacting our country's macroeconomic situation, I think the main reasons are the following four points: First, long-term huge trade surpluses or deficits have led to an imbalance in the economic and trade development between the two sides, and any adjustment strategy to rebalance economic and trade development has its rationality, such as the long-term economic and trade deficit side launching trade friction strategies against the surplus side.
Second, as the current leader of the globalized order, the other side of the ocean pays attention to the fairness of the distribution of interests within the system and the maximization of its power discount.
As a deep participant and main builder, our rights and responsibilities within the current globalized system are not equal, which leads to us pursuing the maximization of interests, thereby damaging the fairness of the distribution of interests within the system.
Third, there are significant differences between major countries in terms of modern system management capabilities, and at the same time, it triggers the Thucydides trap and the Kindleberger trap.
Fourth, there are differences between major countries in terms of humanistic values, such as asymmetric competition with resource endowment characteristics, and the behavior of sovereign forces intervening and suppressing the main bodies of the globalized market.
In fact, the financial war centered on this round of U.S. dollar interest rate hikes has already been decided: the U.S. dollar interest rate hike flows back to its own territory, promoting the successful commercialization of emerging industries, and the interest rate cut opens the popularization of related industries in the globalized order; our country's major assets have been suppressed for a long time, and the sovereign currency exchange rate relies on consuming foreign reserves, fighting against the forces of long-term Treasury bonds, and restricting the sale of foreign exchange and other decisions to maintain stability.
From the phenomenon, the prices of U.S. stocks and real estate have increased, that is, the prices of major civilian assets have increased, the non-agricultural employment rate has continued to grow, and the core inflation rate has dropped to below 3%.
Although the issuance of U.S. Treasury bonds continues to rise, its yield has shown a downward trend, causing the actual market interest rate to be lower than the federal funds rate, which has led to an increase in the investment base of core high-quality assets; in addition, the other side of the ocean has long been the upstream core technology provider of the global industrial supply chain and the main destination for downstream all categories of consumer goods.
Although data related to industrial production such as manufacturing electricity consumption and the purchasing manager's index are not satisfactory, it cannot refute that its economy has strong resilience overall.
In contrast, the performance of Chinese stocks and real estate is not good, and the bond market also shows investment targets and operational risks after banks purchase sovereign bonds, such as the circulation of money in the market, the increase in personal housing loans, and other data reflecting the vitality of the civilian economy are getting worse and worse.
The development bonds of urban investment platforms, the operating bonds of real estate enterprises, the general bonds and special bonds of administrative departments, the credit expansion financing bonds of targeted quantitative easing, etc., have led to high debt in the three major sectors of society.
The social side is experiencing deflation, the broad money supply has reached a historical high, the deposit interest rate continues to fall, driving the continuous decline of various loan interest rates, coupled with the continuous rise of Treasury bond yields, leading to a significant decline in the investment return rate of various financial projects, various assets are shrinking, and the three major sectors of society are mired in the quagmire of balance sheet recession.In essence, due to the economic and trade competition that had already been underway among major powers, the U.S. dollar interest rate hike did not have a substantial negative impact on our country's economy.
There has always been a belief among many within our country that the proactive de-leveraging of the real estate market was an action taken to counteract the U.S. dollar interest rate hike, which was intended to burst our real estate asset bubble.
However, this is not the case.
Here, I would like to refute and correct the aforementioned views of my fellow citizens: First, our real estate market was already facing inherent risks of asset bubble expansion.
For example, the high turnover model of real estate developers was unsustainable, and local urban investment platforms encountered debt crises.
Second, the fluctuations in the real estate market trigger changes in the economic cycle.
The debt repayment pressure on all sectors of society gradually increases with cyclical depression, which is a very normal mean reversion phenomenon under the state of economic laws.
Third, due to capital controls, the U.S. dollar interest rate hike cannot burst our real estate bubble.
On the contrary, in the face of severe domestic demand deficiency, our measures of lowering interest rates and reserve requirements have led to a long-term downward trend in various interest rates, promoting the long-term depreciation of real estate asset values.
Now, facing the extremely gloomy global economic environment, the "black swan" event of U.S. dollar interest rate cuts may have a restraining negative effect on the comprehensive recovery of our country's economy, as well as a series of negative impacts.
I believe that the main factors that can have a restraining effect and produce negative impacts are the following four aspects: First, as I have mentioned in my previous articles, a recession in the U.S. economy or a U.S. dollar interest rate cut will not benefit our country's economy, but will instead have an adverse impact on the operation of our industrial capital overseas.
For example, it may initiate business competition such as acquisitions and mergers against our overseas assets through the liquidity of the U.S. dollar, while at that time our country, due to excessive government bond financing and industrial development, will have insufficient funds and strength to counteract, thus posing a great risk of allowing the other side of the ocean to succeed in its strategy.
Second, at least in the foreseeable future, my prediction is that within ten to twenty years, the reshaping trend of the new global pattern due to the game between major powers will not stop but will intensify.
That is to say, the other side of the ocean will continue to exert pressure on our country's economic transformation and industrial upgrading momentum.
Even if the U.S. dollar interest rate cut, its liquidity for global investment layout will not flow into our country to strengthen our asset value, only because it has been increasingly strengthening its control over overseas U.S. dollar liquidity in recent years, including but not limited to the unified taxation of multinational corporations, the strengthening of overseas citizen asset taxes, and the tightening of immigration policies for Chinese people, as well as measures such as border customs declaration for the inflow and outflow of assets.
In general, for a period of time in the future, the other side of the ocean will continue to suppress the large asset categories within our country and curb its liquidity for investment layout in our country.
Third, the normalization of U.S. dollar interest rate cuts may lead to the over-appreciation of our country's sovereign currency, or always be in the appreciation range, which is not conducive to the development of the import and export trade industry.
As the world's factory, the main engine of our country's economic growth in the next ten years will still be the mid-to-low-end manufacturing and export trade industry, especially exporting a large number of mid-to-low-end manufacturing industrial products and consumer goods to the most dynamic commodity consumption market and daily consumer goods demand market globally, thereby generating a large trade surplus, becoming the operating profit of the industry practitioners, and strengthening the foreign exchange asset reserves.
However, the normalization of U.S. dollar interest rate cuts will inevitably cause our country's export products to gradually lose competitiveness in the overseas trading market, and with the European and American regions imposing high tariffs on our country's new quality productivity fields such as new energy electric vehicles and photovoltaic solar panels, our sovereign currency will be long-term in the appreciation range, which is detrimental to the foreign exchange earning ability of the export trade industry, and will also prevent the new technological paradigm revolution tide from the other side of the ocean from being popularized within our country, thus missing the dividend of the new round of overseas technology inflow.
Please note that Japan at the end of the last century and the early millennium was like this, missing the development dividend of internet technology.
Fourth, according to the predictions of overseas investment banks such as Goldman Sachs, our country's export manufacturing enterprises currently have up to 600 billion U.S. dollars of unsettled funds overseas.
Once the U.S. dollar interest rate cut tide comes, it is expected that nearly 100 billion to 200 billion U.S. dollars of unsettled funds will flow into the country through the way of settlement.
The corresponding situation is that the central bank needs to prepare nearly 200 billion U.S. dollars of foreign exchange reserves for foreign exchange sales.
In this way, although it has a positive impact on the appreciation of the sovereign currency, it also consumes the corresponding foreign exchange reserves.
Due to the current domestic investment target shortage, the commodity housing prices, which were originally the largest asset of the sovereign currency, have shown a continuous downward trend in recent years, and other social resources and industrial operating profits are occupied by the public ownership subjects, resulting in a lack of transaction subjects in the capital market, that is, it cannot produce enough transaction profits to reduce the maintenance costs within the market and offset the costs of overcoming institutional barriers, resulting in this batch of funds after settlement can only go to the bond market to purchase general government bonds or special government bonds with the highest sovereign credit.
However, now our country's deposit interest rates have entered the "1" era, and the loan interest rates have also correspondingly entered the "2" era.
The behavior of purchasing a large number of government bonds in the market will not only push up the yield of government bonds, causing the price of government bonds to be in a long-term downward range, causing the entire society's interest rate corridor to be in a continuous downward trend, but also will intensify the investment target shortage, causing the investment return rate of various domestic financial projects to also decline, leading to the net interest margin of banking institutions to continue to narrow, and even fall to negative values.
The operating profit of the enterprise sector has been greatly reduced, and the three major sources of income for the resident sector, namely wage income, asset income, and social security income, are all in a downward trend, which worsens the investment and consumption expectations of the entire society, amplifies the risk on the financial supply side, and increases the debt repayment pressure of the macroeconomic department, that is, the three major sectors of society, making the social demand side always sluggish.
Although it is assumed that this fund will not flow into the government bond market in the future, but will flow into the real economy field, according to the current domestic industrial development situation, it will also promote the formation of overdevelopment waste behavior in various industries, causing the asset depreciation rate to continue to rise, and ultimately leading to a situation of serious overcapacity.
In summary, the last stage of the game between major powers, that is, the financial war, has come to an end with the imminent interest rate cut of the U.S. dollar.
Overall, the game in this stage has more winning chances for the other side of the ocean, and we, as the passive side, have mostly adopted a defensive strategy.
In the future, the game between major powers in the economic field will have the final showdown, that is, the interest rate cut of the U.S. dollar is very likely to curb the comprehensive recovery of our country's macro economy.