Today global economy has a problem of duality. While global production center is today China, global financial or banking center has remained in USA. Global economy gives less loans to China relative what its income level deserves while gives more loans to US relative to what is income level backs. So China consumes less goods and services relative to its production or income while US consumes more. This duality is maintained through the domination of US Dollar in global currency market. Global US Dollar domination is maintained through military and top notch technology domination of USA. But it is not backed by the level of production volume it should have.
In 1970s, USA has largest share of global GDP in PPP i.e. 30%. China has a mere 2%. In 2024, US share of global GDP in PPP is 15.67% and for China it is 20%. In global manufacturing share, 2023, China accounts for 35% of global manufacturing while for US it is only 12%. In global export share, China accounts for 20% today while USA just 7%. But today the case is opposite in currency markets. US Dollar use in global foreign exchange transactions is at 88% while Chinese Yuan use is hardly 2%. In global currency reserves today US Dollar share is 58% while Chinese Yuan share is mere 5%. US Dollar share in export invoicing is 54% while Chinese Yuan is 24%. Too much use of US Dollar at global scale ensures uncompetitive production and highly inflated asset market inside USA while too less use of Chinese Yuan ensures highly competitive production and under-valued asset market inside China. Naturally US asset market attracts more loans from all over the globe leading to high External Debt/GDP ratio.
This duality can be broken only if Chinese Yuan is allowed to take a global role that matches China's global GDP share in PPP.. It means US Dollar global role has to shrink to match its global production share. But any country habituated to debt led consumption will refuse to size down debt and consumption. Since US military domination and tech power are fundamental pillars backing this debt flow, US wants to keep the dual domination at any cost.
In 2017, US President Donald Trump hoped that raising tariff rate on Chinese and other big partners would shift the production to US. But it did not happen. China has created new market in Global South using BRI projects and Chinese goods found its place in US market via Vietnam Malaysia Mexico. The negative effect of high US Dollar value on US production cannot be countered by tariff on imports. So tariff failed to boost US production. Neither could tariff harm Chinese production sector. China's trade surplus touched record 1 trillion US Dollar by the end of 2024.
In 2017, Trump also tried to destroy the future challenge to US tech domination by imposing restrictions on the flow of high tech products to China. China began its "Made in China 2025" program in 2015, which targeted top most technology sectors. Trump thought restricting top notch tech flow to China would slow down Chinese technological progress. But opposite happened. Tech war of USA forced China to become self reliant in topmost tech sectors. In 2024, China is dominating Electric Vehicle industries, solar panels, lithium batteries, biopharma, robotics. It is progressing quite well in AI, Quantum Computing, Semiconductors, Agro Machineries, New Materials, etc. It is said by 2024 China has accomplished 86% of its target declared in "Made in China 2025".
So US policies of Trade War and Tech War have utterly failed. Now in 2025, Trump is coming up with a new plan. If Chinese production base cannot be weakened, US production base can be strengthened. The constraint is that US Dollar global domination must not be hurt. But then US production cannot become competitive. So another way is to add other countries' production to US production. Annexing Canada will add 1.3% global GDP share to US global GDP share. Gulf of Mexico to Greenland if becomes one country then it will have its impact on new Arctic Ocean trade routes too which has opened up recently due to melting of ice. So in future Mexico and all Central American nations may face annexation by USA. This is because due to higher population and lower wage rate, these regions have far greater potential global share of GDP than Canada. So by annexing neighboring countries USA can add extra share of global GDP without reducing US Dollar's role in global market.
Another point is USA can give more room to China in currency market and high tech market by killing Euro and EU's industrial base. Well, both the process in already underway. Ukraine war and the resulting sanctions on Russian oil and gas has resulted in high inflation in EU making its industry uncompetitive, And Chinese Yuan has already displaced Euro from second position in global export invoicing market.
If USA claims entire North America while allowing rise of China at the expense of EU, it can be said that Trump is preparing for Kissinger recommended Red Line Deal between USA and China. According to Kissinger since China and USA both are big economic, military and technology powers, both must have their own backyard zone of influence and the red line of those zones must not be trespassed by anyone of the two. Remember, when Trump was asked about the reason Xi Jinping was invited to his coronation ceremony, he replied that USA and China together can solve all the problems of the world.
Author: Saikat Bhattacharya
