The Trade War Winner No One is Talking About

The Trade War Winner No One is Talking About

The U.S. dollar is dying, and gold is flying. Take a look at the chart below. It should keep U.S. investors up at night.

The chart shows China’s gold buying since 2022. That year is significant.

It’s when the U.S. and its allies froze about $600 billion worth of Russian foreign currency reserves after the country invaded Ukraine.

That $600 billion isn’t just a pile of cash sitting in some Moscow vault. It’s mostly electronic balances in commercial and central bank accounts in the U.S. and other Western nations.

As of right now, the U.S. dollar is the world’s reserve currency. And Washington controls the dollar-based financial system.

If you want to use that system, you have to play by Washington’s rules.

That got China thinking, “If the U.S. could freeze Russian assets – and Russia is a key exporter of natural resources and nuclear power – what could it do to us?”

That’s why China started stockpiling gold in 2022. It wanted to prepare for a day when it, too, could face U.S. sanctions.

That day came on April 2, when President Trump imposed a new global tariff regime. And his main target was Beijing.

Washington has imposed up to 245% tariffs on most Chinese imports. And Beijing has retaliated with tariffs on U.S. goods of up to 125%.

Since then, we’ve seen pandemic-type levels of volatility in the markets. And nations race to reposition themselves to succeed in the new global trading order.

The Trump administration says it’s in talks with more than 75 countries on new trade deals. Meanwhile, China has launched a charm offensive with its trading partners.

Last week, Chinese President Xi Jinping embarked on a diplomatic tour of Southeast Asia, visiting Malaysia, Cambodia, and Vietnam.

It was the first time Xi had visited Malaysia in 12 years and Cambodia in nine years. His goal is to show the world China is a more reliable trading partner than the United States.

It’ll be an uphill battle.

While we’ve seen an erosion of trust in the U.S. dollar since the outbreak of the trade war… The markets haven’t necessarily embraced the yuan, either.

I’m sure Malaysia, Cambodia, and Vietnam would accept gold to settle trades with China. But they’re unlikely to accept billions of dollars’ worth of yuan.

That puts China in a dilemma.

It has stockpiled plenty of gold. But as we’ve shown you over the past few weeks, gold has serious limitations as a settlement asset in modern-day global trade.

Now, the People’s Bank of China could print plenty of its currency to settle trades. But outside of China, who wants piles of yuan sitting in their bank accounts?

China needs an alternate trade settlement asset that is both liquid and trusted. Apart from gold and the dollar, there’s only one other solution…

Turning Away from the U.S. Dollar