Turmoil on the Horizon

Sino-American Relations and Protecting Yourself from International Instability Thanks to Bitcoin

I’ve decided to undertake writing some analytical pieces based on observable and historical macro trends and how Bitcoin will be affected or the role it would potentially play in such cases. 

For this first foray into macro and mega-political analysis, the theme at hand will be China (People’s Republic of China) and its relationship with the United States. There was quite a bit of animosity around the subject during the initial months of the epidemic, with its origin being traced back to Wuhan and the Chinese Communist Party being criticized for its lack of warning the rest of the world or for failing to contain the virus. 

Ping-Pong Politics

The relationship with Communist China has been rocky since it’s beginning, until the Americans took the first step into welcoming them into the international community in the ‘70s. American trade with the Chinese amounted to around $200 million per annum in 1950. When the CCP got involved in the Korean War, President Truman imposed a trade embargo in retaliation to the Communist Party actions. The trade restrictions were only lifted 21 years later, when Nixon wanted to "create broader opportunities for contacts between the Chinese and American peoples" (Kilpatrick, “China Trade”, 1971). He also cleared the way for larger farm exports to China, the Soviet Union and Eastern Europe bloc by terminating a requirement imposed by President Kennedy that half of grain and flour shipments to Communist countries be carried in American ships (Semple, “Embargo”, 1971). 

A lessening of the hardships imposed by the Americans all that time was to open the floor to direct communication and encourage peace to the nation that had around $2 billion in exports and imports respectively. There was even the belief that by doing so the Chinese would be keen to adopt the American principles of freedom, individualism and right to property. 

Copy-Paste-Edit Policies

We know well now that this has not been the case. The CCP has adopted some elements quintessential to American success, which are (supervised) capitalism and large-scale industrialization and manufacturing. Last year, they boasted a trade surplus of $421.93 billion dollars (Statista, “Trade Balance”, 2020), lightyears away from the third-world country they once were. To a certain extent, consumers have benefited from the rise of Red China thanks to their manufacturing of low-cost products. It’s important to note, however, that these semblance of benefits have come with their fair deal of trade-offs for the West. We will see how these past actions and measures have led to the strained relationship we have with China today and what they might hold for our future and what we can do about it now to hedge ourselves. 

Snake in the Grass

For nearly four decades, the United States has maintained the One China Policy, granting them full diplomatic recognition and severing normal ties with Taiwan. This has eventually led China to becoming a member of the World Trade Organization in 2001 and one of the United States’ largest trading partners. China was expected to continue on its path of economic reform and transform itself into a market-oriented economy and trade regime (White House, “Strategic Approach”, 2020). 

However, these hopes have never truly materialized as they used their membership status to exploit the benefits for themselves all the while employing unfair measures to protect their domestic market. Findings by the United States Trade Representative in 2018 demonstrated that the People’s Republic of China: (1) requires or pressures United States companies to transfer their technology to Chinese entities; (2) places substantial restrictions on United States companies’ ability to license their technology on market terms; (3) directs and unfairly facilitates acquisition of United States companies and assets by domestic firms to obtain cutting edge technologies; and (4) conducts and supports unauthorized cyber intrusions into United States companies’ networks to access sensitive information and trade secrets(White House, “Strategic Approach”, 2020).

As Attorney General William Barr has stated last month in Michigan: “The ultimate ambition of China’s rulers isn’t to trade with the United States; it is to raid the United States.”

Controlling the Mountains and the Rivers

China has been positioning itself to become the world leader in both economic terms and ideological ones. The United States government is now taking a stronger stance towards the threat Beijing faces. The governments of Australia, France, the United Kingdom, Canada and Germany have also taken initiatives in order to combat China’s dishonest policies. The tensions brought on by the tariff wars that have begun in 2018 and their labeling of being currency manipulators in 2019 have calmed since the signing of the Phase One Trade Deal at the beginning of the year, only to be reignited with the spread of the Coronavirus. 

Their violation of human rights in Xinjiang with the detention of over one million religious ethnic minorities in the region(Swanson & Wong, “Sanctions”, 2020) has only added fuel to this growing fire in which the Chinese government poses economic, security and moral challenges to the United States and the rest of the world. 

This has led to a profound shift in U.S. policy, as highlighted by the Secretary of State, Mike Pompeo in July (Pompeo, “Communist China”, 2020). What does all of this entail for the rest of the world? We’ve seen that Beijing has repeatedly demonstrated that it does not offer compromises in response to American displays of goodwill, and that its actions are not constrained by its prior commitments to respect their interests. There has been a tremendous failure in understanding the nature of the CCP. It was only believed that they were communist in name only and have failed to see them for what they are: a Marxist-Leninist organization (O’Brien, “Global Ambitions”, 2020). 

The United States will take on an approach through which they no longer act on what the Chinese rulers simply say, but one that acts according to their actions. It is still possible to have productive relations with Beijing, as we’ve seen with the Phase One Trade Deal, but they must no longer be made on Beijing’s terms. Then again, China has been reticent to comply with the deal at hand. 

Xi Jinping Thought

I do not believe that Xi Jinping, China’s Supreme leader, will willingly start playing by rules. Of the nearly 5,000 active FBI counterintelligence cases currently underway across the country, almost half are related to China(Wray, “National Security”, 2020). The CCP’s stated goal is to create a “Community of Common Destiny for Mankind,” and to remake the world according to the CCP(O’Brien, “Global Ambitions”, 2020). The effort to control thought beyond the borders of China is well under way (O’Brien, “Global Ambitions”, 2020). This has been demonstrated by their “Belt and Road” plan as well as their “Digital Silk Road” initiative, forms of modern-day colonialism in which they take control of foreign digital and physical infrastructures. 

I doubt that China will want to curb their ambitions of world domination. If they do not play ball with the United States this would only lead to greater instability. If tensions were to rise further and we escalate into a full-on Cold War, several means of attack are available:

• China can retaliate by dumping their $1.07 trillion in U.S. Treasury holdings (U.S. Department of Treasury, “Foreign Holders” 2020), devaluing the dollar. 
• 90% of trade is done by sea. The United States controls the largest naval fleet in the world and assures most of the protection for cargo ships on their journeys. They can force them into compliance by impeding on Chinese exports. 
• Both nations have cyber-attack capabilities (China has already an extensive history of hacking American companies).
• They have become an important manufacturer of important goods:
• China is now the world’s largest producer of active pharmaceutical ingredients. 
• There is a great dependence on them for their rare-earth minerals used to make armoured vehicles, precision-guided weapons, batteries and night-vision goggles (Cammarata, “Minerals”, 2020). 
• There is a growing unified front against China that the U.S. can leverage in order to make them comply with the international rules that have been settled. 

It Doesn’t Stop Here

China will not be able to stand eye to eye with the American military force any time soon, but it can achieve local superiority much more rapidly. This has been displayed time and again with the many conflicts it has entered in the region. From 2013 to 2017, China has created 3,200 acres of land in the South China Sea (Office of the Secretary of Defense, “Security”, 2020) further increasing tensions with several countries in the region, such as Brunei, Indonesia, Malaysia, the Philippines, Taiwan, and Vietnam. 

The region is filled with natural resources that they claim to be theirs since they consider it to be their Exclusive Economic Zone (EEZ). They have constructed ports, military installations, and airstrips. China’s claims threaten important maritime passages that facilitate trade and the movement of naval forces (Council on Foreign Relations, “South China”, 2020). The United States and its allies have challenged China’s assertiveness in the region in order to prevent military escalation from territorial disputes. Failure of resolving these disputes would undermine international laws and encourage arms build ups that could very well spill over into conflict. 

Honk Kong has also been a center for conflict for quite some time since the revolts over the past years in an attempt to prevent the Chinese government from taking over. Britain has responded by offering millions of Hong Kong residents a path to British citizenship and the United States have revoked their special trade status, both of which China has vowed to enact countermeasures (AFP, “Conflict”, 2020). 

What’s more, China also has a heated relationship with India. Since the 1980s there have been talks concerning border issues in the Himalayan region. Since May of this year, there have been melee clashes and brawls between the two countries, which resulted in 20 Indian and 43 Chinese troops losing their lives in June. India has also been in conflict with its neighbour Pakistan over disputes of the Jammu and Kashmir regions (AFP, “Conflict”, 2020). 

Clashes are not limited to China. There have been an increase in confrontations around the world. The Nagorno-Karabakh conflict is an ethnic and territorial conflict that has been ongoing between Azerbaijan and Armenia since 1988. Between 31,000 and 41,000 casualties have occurred so far, with fighting still ongoing (Stronsky, “Flare-Up”, 2020). Elsewhere in the world, Israel and Syria’s long standing rivalry has been rekindled with the Israeli Defense force attacking Syrian outpost in response to attempted bombings (Zvulun, “Israel Army”, 2020). 

Not All is Lost

All in all, instability seems inevitable. The Americans are unwilling to turn the cheek again and the Chinese government won’t suddenly become democratic and cooperative. The only way I see that we as individuals can protect our livelihoods from evaporating is by holding onto assets that neither of them can control and for that matter, is under the control of no single entity. What I am talking about is Bitcoin. This asset, similar to gold in nature due to its rarity (only 21 million coins will ever exist), also has the added benefit of being both censorship and confiscation resistant. Historically, it has been an excellent asset to integrate into your portfolio and still presents important upside potential due to the economical and political shifts we are facing and their unprecedented consequences on our future. 

As more and more aspects of our culture and society are weaponized by local or foreign powers, Bitcoin allows us to remain neutral and avoid having our wealth wither away due to the increased dangers we face. Fiat money and its centralized institutions now operating at the whims of governments represents tremendous risks for our purchasing power. Effective monetary policies that wouldn’t drive our societies into oblivion in the long term seem distant now as. The money we know and use today is no longer a tool that is beneficial for us as the efforts we put into accumulating any sort of savings are in peril. 

We do not know how all of this will play out. We can infer that times will get tougher for all of us, the Sino-American relations is merely one of the many events affecting our lives. We need not succumb to the forces at play and their agendas. Let us protect ourselves any way we can by assuring at least that we can hold onto something that is much more likely to maintain its value so that we can leave the generations after us with the bedrock to rebuild their lives if worst comes to worst. 

At Veriphi, we believe that Bitcoin is an ultimate safe-haven asset that will help us face the tremendous amount of risk we are now facing. Periods of peace, such as the Pax Americana, that we have known since the middle of the 20th century, are starting to crumble. Purchasing Bitcoin and holding onto it securely for the long run are not always easily accomplished, which is why we have been focusing for these past two years on offering our customers a service through which they can easily purchase bitcoins and that they feel confident that they maintain total control over them. If you have any inquiries or are interested in adding Bitcoin to your investment portfolio, feel free to contact me and I’d be happy to answer any questions. 

I invite you as well to follow Veriphi for more content.

References

Agence France- Presse. “China taking on more conflict around the world”. Bangkok Post. July 3, 2020. https://www.bangkokpost.com/world/1945424/china-taking-on-more-conflict-around-the-world

Annual Report to Congress. “Military and Security Developments Involving the People’s Republic of China 2017”. Office of the Secretary of Defense. May 15, 2017. https://dod.defense.gov/Portals/1/Documents/pubs/2017_China_Military_Power_Report.PDF 

Cammarata, Sarah. “The Pentagon wants to end its reliance on China for rare earth minerals. But can it be done?”. Politico. August 3, 2020. https://www.politico.com/news/2020/08/03/pentagon-rare-earth-minerals-china-390939 

Global Conflict Tracker. “Territorial Disputes in the South China Sea”. Council on Foreign Relations. August 6, 2020. https://www.cfr.org/global-conflict-tracker/conflict/territorial-disputes-south-china-sea 

Kilpatrick, Carroll. “U.S. Ends Ban on China Trade; Items Are Listed”. The Washington Post. June 11, 1971. https://www.washingtonpost.com/wp-srv/inatl/longterm/flash/june/china71.htm 

“Major Foreign Holders of Treasury Securities”, Department of the Treasury. July 16, 2020. https://ticdata.treasury.gov/Publish/mfh.txt 

O’Brien, Robert C. “The Chinese Communist Party’s Ideology and Global Ambitions”. U.S. White House Briefings. June 26, 2020. https://www.whitehouse.gov/briefings-statements/chinese-communist-partys-ideology-global-ambitions/ 

Pompeo, Micheal R. “Communist China and the Free World’s Future”. U.S. Department of State. July 23, 2020. https://www.state.gov/communist-china-and-the-free-worlds-future/ 

Semple, Robert B. “President Ends 21-Year Embargo on Peking Trade”. New York Times. June 11, 1971. https://www.nytimes.com/1971/06/11/archives/president-ends-21year-embargo-on-peking-trade-authorizes-export-of.html 

Statista. “Merchandise trade balance in China from 2009 to 2019”. https://www.statista.com/statistics/263632/trade-balance-of-china/ 

Stronski, P. “Behind the Flare-Up Along Armenia-Azerbaijan Border”. Carnegie Endowment for International Peace. July 22, 2020 https://carnegieendowment.org/2020/07/22/behind-flare-up-along-armenia-azerbaijan-border-pub-82345

Swanson, A. & Wong, E. “U.S. Adds Sanctions Over Internment of Muslims in China”. New York Times. July 31, 2020. https://www.nytimes.com/2020/07/31/us/politics/sanctions-china-xinjiang-uighurs.html 

Wray, Christopher. “The Threat Posed by the Chinese Government and the Chinese Communist Party to the Economic and National Security of the United States”. Hudson Institute, Video Event: China’s Attempt to Influence U.S. Institutions Washington, D.C. July 7, 2020. https://www.fbi.gov/news/speeches/the-threat-posed-by-the-chinese-government-and-the-chinese-communist-party-to-the-economic-and-national-security-of-the-united-states 

White House Release. “United States Strategic Approach to the People’s Republic of China” May 2020. https://www.whitehouse.gov/wp-content/uploads/2020/05/U.S.-Strategic-Approach-to-The-Peoples-Republic-of-China-Report-5.20.20.pdf

Zvulun, R. & Reuters. “Israel army says it attacked military posts in southwest Syria”. Aljazeera. August 4, 2020. https://www.aljazeera.com/news/2020/08/israel-army-attacked-military-posts-southwest-syria-200804074324652.html