Sunday, October 19, 2014

China Can Deploy Sanctions Too

There has been much trumpeting of US sanctions against Russia for uhhh, gays, uhhh Ukraine, uhhh the Crimea, whatever the excuse is for a nation resisting American borg assimilation. Russia has made nice with China to the tune of hundreds of billions in economic deals. If not soon, when China fully confronts the US, someone will write a "Who Lost China Part Deux" column. Forgotten will be moves in the '90s that allowed for China to have more independence and American self inflicted wounds, and Putin will get some credit for seeing the Chimerica split. Sanctions go both ways, and not just with Russia's counter-sanctions on imports. China recently hit an American ally, Australia, with a pretty stiff coal import tariff.

Australia is not to be laughed at as an ally. It is an important commodities producer. It is part of the Anglosphere. It has also participated in each military engagement led by the US after World War Two (including Vietnam). America has a military presence there, and has a long history of cooperation with the Australian military. They are an important Pacific partner. They also have had a huge housing bubble, sucked in tons of Chinese money the last decade, and have been feeding the dragon with raw materials for a long time. Australia has invested immense dollars and resources into developing their coal sector to meet Chinese demand. China hit them with a 3% import tariff on coking coal and a 6% tariff on non-coking coal. China had been shifting coal import sourcing already, but this stings Australia's mining sector. If you think this is worldwide on China's part, they gave Indonesia a nice exemption for coal imports since the Indonesian coal is cleaner. Not hard to piece together the fact that Russian natural gas could further reduce China's use for Australian coal.

The global chessboard truly is a big board with many players and different moves. While the dominant player for now, America and her allies have weak spots and can be subject to pressure just like Russia and China. Australia's commodities boom has strengthened their currency, has fed the housing boom and boosted their consumer sector. With the leverage in place in Australia, it would not take much of a reduction at the margin for foreign commodity demand to pop their entire bubble economy. After all, the US financial crisis of 2008 was started because by late 2005, we had run out of greater fools to buy homes in sand states and the Ponzi buyers had lost the asset inflation power to sell for higher to cover their borrowing costs. We are just in the phase of sanctions and minor trade war moves. Looking at moves on the back pages, and not just from the regime's propaganda shills, is a good indicator of who exactly is hurting whom.

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