E Why Tariff War Success Will Bring Economic Damage

Tariff wars cannot help the United States of America. Oh yes, they can give POTUS political points and could boost production temporarily. But tariff wars that succeed would damage the world economy in one important way. If a tariff war succeeded in improving the trade balances that the USA has with foreign nations, it will cause a shortage of Eurodollars. That will result in a slowing world economy which will ultimately drag the United States down as well. 

Jeffrey P Snider has been at the forefront of modern Eurodollar theory. This was acknowledged by Christian Hutchings, in a Linkedin article that helps us understand what is at stake in the tariff wars. Before getting into that article and his introduction of one Chinese General Liang's view on the virtual American economy, let us look at some recent work by Snider. 

It is necessary to repeat what Eurodollars are. Eurodollars are the reserve currency of the world. Eurodollars, not dollars are what fund worldwide investment. The Triffin Paradox of trade deficits results for the nation creating the reserve currency. And there is scarcity in the Eurodollar reserve currency market even without tariff wars. Fed tightening is often not tightening in a real sense here at home, but it hurts emerging markets badly. 

While we cannot have sympathy for the communists, as Snider has said, we can have sympathy for 1.4 billion Chinese people who will be affected by the Eurodollar squeeze, which will ultimately attack the US economy. As Snider said:


When China signed on to the eurodollar system, they did so thinking it was a one-way ticket to paradise. Even after 2008, there were complaints about it (Zhou in March 2009) but no serious challenge once it looked like Emerging Markets were going to emerge maybe even the winner – it was widely believed there was a “new normal” in the West leaving growth the exclusive property of the East (and South).
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Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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