Gold is the Winner of Biden’s Green Trade War

May 21, 2024

Green Trade War

The long simmering trade war between China and the US is heating up after Biden announced new ‘green’ tariffs. China has already been positioning itself for a new dominant role in the global economy. Tensions between the two countries are rising as the prospect for both economic war and actual war in the South China Sea increase. As a result, markets are becoming more uncertain, and the price of gold is projected to leap up.

China is taking measures to disentangle itself from the United States. They are doing this both to boost their own economy and to defend against hostile US policy. In the first quarter of 2024, China dumped a record number of US treasuries. They were worth a staggering $53.3 billion. This is the largest sell-off by China ever recorded. ¹

China, along with the other BRICS nations of Brazil, Russia, India, and South Africa, have been offloading billions in Treasuries since 2022. They are moving forward with their de-dollarization goal. They want to move away from the dollar towards their own independent currency. Moving away from the dollar aims to strengthen their own economies and protect them from US sanctions and influence.

Major foreign debt holders like China may also be losing faith in the dollar. It is waning due to growing fears that the US will not be able to pay its uncontrolled $34.4 trillion debt. They don’t want to risk taking a loss on devalued dollars if interest rates go up again. Selling the Treasuries now would also help them shore up their struggling economy.

As China unloads dollars, it is buying gold. Last year, China added more than $550 billion of gold to its reserves. They’ve bought gold for 18 months in a row. China’s actions are part of a broader strategy to diversify its assets amid rising global tensions. China wants to protect its economy from the same sort of sanctions applied to Russia after they invaded Ukraine. ³

“As China is selling both (Treasuries and bonds) despite the fact that we are closer to a Fed rate-cut cycle, there should be a clear intention of diversifying away from US dollar holdings,” said Stephen Chiu, Chief Asia Foreign-Exchange and Rates Strategist at Bloomberg Intelligence. “China’s selling of US securities could speed up as US-China trade war resumes.” ⁴

Analysts say China’s buying of gold, selling of Treasuries and hoarding raw materials could be preparation for war against Taiwan. But they could also be preparing for economic warfare. They may be looking to devalue their own currency, the yuan, to flood the global economy with obscenely cheap products. What economists call the ‘nuclear option’ to save their collapsing economy.

Economist fear this could spark a bigger trade war. Meanwhile, Biden is launching shots across the bow.

Global Green Trade War

Janet Yellen’s recent meeting with her Chinese counterparts exposed deep divides between the two countries. They are operating in two different worlds. The US works in a rules-based open market system. In contrast, the Chinese do whatever is in the best interest of the Chinese Communist Party. Conflict seems inevitable.

Especially now that China is flexing its excess capacity in green tech like EV, solar panels and wind turbines. China is “flooding global markets with artificially low-priced exports,” the White House said.

Biden countered with new tariffs on Chinese goods. They include electric vehicles (100%), steel and aluminum (25%), lithium-ion batteries (25%), critical minerals (25%), and solar cells (50%). Ironically, the Biden administration is using the same laws they criticized Trump for using to impose the new tariffs.⁵

The tariffs are all about domestic politics, not security. They are designed to protect Biden’s climate promises. His government fears the market being flooded with China’s excess electric vehicles and driving American producers out of business. Domestic demand for EVs is already weakening.

US auto manufacturing is taking a hit from the mandated EV transition. Ford reported losing more than $100,000 per EV in the first quarter. Biden promised hundreds of thousands of jobs from his green subsidies. Now he is starting a trade war to keep his promises. The tariffs will raise costs for Americans but are unlikely to change China policy. If anything, they will invite retaliation. Chinese is likely to respond with their own tariffs, hurting American exports. ⁶

Impact on Gold

Gold is maintaining its momentum, consolidating around $2,200 an ounce. Biden’s green mandate is forcing central banks to accumulate more debt to support it. Additionally, escalating tensions in the South China Sea are contributing to global instability. Both factors are fueling inflation and weakening currencies. As a result, the demand for safe haven assets is expected to rise. Analysts are suggesting that $2,500 per ounce is now a feasible target.⁷

Conclusion

Economic and actual war is brewing with China. Tensions in the South China Sea over Taiwan are increasing. At the same time, the Biden administration is levying massive tariffs against China to protect his green initiative here at home. The sum result of which is more global uncertainty. These conditions are right for gold to see another surge in prices. Americans looking to defend the value of the assets from volatility and a weakening dollar are moving into gold. A Gold IRA from American Hartford Gold is designed to protect the long-term value of retirement funds. To learn more, contact us today at 800-462-0071.