Unfortunately, no, in order to help develop the productive forces in the Global South, China has to institute a Marshall Plan with the yuan.

Simply channeling their surplus exports to other countries to compensate for the loss of US imports will start a mercantilistic war that destroys the economies of the other exporting countries and prime those economies for IMF bailouts and mass privatization. Exactly what the US finance capital wants.

In fact, it is already happening to Europe (I wrote about it here the other day):

As both export and import with the US have declined, China’s export to the EU has increased by 6.4% yoy and its import from the EU has decreased by 7.3% yoy!

That means Chinese exporters are channeling their goods to Europe, which will of course lead to a mercantilist fight where the European industries will now have to fight against cheap (and perhaps even superior) Chinese goods coming into their countries.

Meanwhile, China has reduced its import from the EU (likely because of the consumption slump and that China has been able to replace many products that once they could only obtain from the EU, like high end cars), and this will put pressure on the European exporters as they lose their income.

All of this is causing the EU to become even more desperate to secure a deal with Trump, since the European exporters are being squeezed to death by both the US tariffs and cheap imports from China. They will have to give Trump some really good deal, hoping to offset some of their losses. I suspect this is the true goal of the tariff war with China.

Now, allow me to explain in detail:

First of all, China’s central bank does not issue new RMB simply with the government running a deficit, like what the US does. New RMB emission primarily comes from accumulation of foreign currencies as reserves (exporters sell their USD to the central bank, who in turn create an equivalent of RMB in their domestic bank accounts) or through issuance of collateralized debt (such as MLF, SLF, repo etc.).

This allows China to keep their deficit spending low for the most part (below 3% of GDP per IMF recommendation), by taking advantage of its huge trade surplus to “balance the budget” (standard IMF neoliberal policy that killed many Eastern European countries who opened up after the USSR).

There are two main implications here:

First, the yuan is tied to the accumulation of USD, and this means even the Chinese investment in the Global South countries (e.g. Belt and Road initiatives where 70% of the loans were denominated in USD and the rest in RMB) would require those countries to earn USD to pay back their Chinese creditors. And that means selling goods to the US to earn the USD. When the US puts up global tariffs, it’s killing those economies.

Second, China does not want other countries to save in RMB. They are always on the fence about internationalizing the RMB. If they internationalize, the RMB loses its competitiveness in the exchange rate critical for its export industries, but if they don’t, they will have to continue to rely on the current neoliberal status quo arrangement that Trump is seeking to upset.

For the most part, China wants you to earn RMB to import from Chinese exporters, and is happy with the USD as the global reserve currency that other countries use to save in. But where do you get the RMB in order to import from China? This goes back to the point above: it is tied to the accumulation of USD.

And clearly, because China wants to prioritize its exporters, it’s not going to want to import from you if you make the same products (like, why would China import cars made in Mexico when it wants you and others to import Chinese-made cars?).

Because of the lack of mechanism (or unwillingness) for China to run a large deficit spending, much of the investment in China were actually made through bank lending. This is why after the 2008 GFC, when China turned inwards to invest heavily in construction and infrastructure building, the broad money supply (M2 per IMF definition) began to overtake that of the US.

Because the money to invest in infrastructure came from borrowing from banks, instead of the central government simply creating new money out of thin air, many of the local governments are now saddled in debt and are in serious financial constraints, and the plunging property market (a main revenue for the local governments i.e. the landlords in China) together with the ongoing deflation have also made the debt increasingly difficult to pay off.

This is also why China is desperate for the Fed to lower its interest rates, because it is not in China’s interest for the inflation in the US to go up.

Now, let’s look at how the Marshall Plan worked in the post-war period and the genius behind it:

As WWII was coming to an end, the demand for military equipment and munitions began to plunge, and placed the US industries geared for military production at serious risk of large scale unemployment, which could cause yet another recession in the US (it just came out from the Great Depression with full employment under the war economy).

Now, did the US flood the war-torn Europe with cheap American goods at the expense of the American workers? No, it would not work by squeezing the wages of the American workers.

To keep the US industries going, and to keep the workers employed, the US instituted the Marshall Plan by literally giving post-war Germany the USD to spend on American imports. This helped preserve the US industries, kept their domestic wages high, which in turn created new demand from the American workers to import from the other countries. This new spending, in turn, helped rebuild post-war Europe as American workers can also afford to purchase goods made in Europe. Eventually, Germany and Japan would industrialize much further and caused a new round of tension in the 1970s during the oil crisis, but that’s a story for another day.

The main point is that China cannot simply flood the Global South with cheap Chinese goods through mercantilist warfare because those would not translate into increase wages for the Chinese workers, who will need them to consume both domestically and through importing foreign goods.

The easiest way is for China - who is now economically and financially strong enough - to weaponize the RMB and flood the Global South with newly issued RMB (not tied to USD accumulation) simply by running a large deficit (who cares about keeping it under 3%, just because the IMF says so?). By creating a new demand zone to absorb the global export surpluses, and by giving up its net exporter status, China can keep the other exporter countries from falling prey to US financial imperialism and actually help industrialize those countries.

Remember, in order to develop industrial capacity, you need to have demand (somebody has got to want to buy stuff from you, whether it is domestic or foreign consumption), and China can leverage its huge domestic population’s demand to displace those of the American demand if it actually wants to.

Entirely in agreement. Given the 2 options, and the complex relations, it’s the more strategically sound course. I hate that that’s true, because if it weren’t I could be more upset at a lack of action. But option 2 has a lower risk now and the more successful that strategy is (the longer they can maintain that course) the lower the risk of BOTH option 1 and option 2 in the future. The direct risk associated with option 1 is very high (war and destruction of China as a possibility) but they are accelerating ahead in a way which is constantly lowering that risk. Option 2, of course, has risks, but those are mostly risks associated with a loss of soft power in the Western Left. Global southern groups are generally more receptive to China’s help than they are to our pleas for China to take over the world order and destroy the US.

all you’re really doing is creating a new hegemon that is totally focussed on a big domestic population consuming all the spoils of the world but with a hammer and sickle on the flag instead of stars and stripes

this is the correct analysis. the triffin dilemma still applies under the XHS strategy and shortly down the line we will have a 1.4 billion strong great satan equivalent. there are accelerationist arguments to be made that this is actually the fastest route towards communism, or at least world revolution, but that’s neither here nor there.

do you say that maybe we should instead work within the dollar system for now (while poking at it here and there) and hope that raising the development of the whole planet will create the material conditions for the dollar system to be undermined?

the historically prevalent ‘strategy’ (it should be thought of more as a natural phenomenon) within western capitalist development has been to bait (usually you just have to wait) the hegemon into a conflict while courting its capital with higher returns on investment.

capital also has a sort of hierarchy of needs, of which security is among the more basic. this is why a us/chinese dual hegemon system where china acts as the productive host for the american financial parasite is an unstable dynamic equilibrium at best: capital will inevitably choose stability and security over higher returns in the long run. this was demonstrated most notably by the elimination of the iberian (dual genoese/spanish+portuguese) system by the dutch (all three of the atlantic powers actually), who were able to better economize on security of production (starting from bog standard piracy, the most primitive of accumulations) within its system of political economy. later transitions did not deviate from this trend, but rather climbed up the hierarchy of needs with respect to where capital would place the imperial core.

this is where the higher returns come in, and can be seen in the dutch/british transition as well as the british/american transition. the fact of the matter is that the mechanics operant within financial hegemony are only able to parasitize the third world due to third world countries’ atomization and relatively tiny economic size. when faced with competitors of equal or larger size, investment loses much of its lethality, perhaps the most hilarious example being the glorious revolution (iirc the dutch ended up owning like 40% of english debt and still got btfo’d afterwards). while it occurred without the presence of a global reserve currency (debt was in pounds), it also occurred without one of the parties being able to leverage ~30% of global production to such a comprehensive degree. the point is that capital will naturally flow towards new ascendant and coherent cores, cores who will notably NOT all in on a maximalist push against the extant system until they are forced to do so.

last thing i would like to note is that there is much precedent for overproduction and depression being a precursor to financialization, which itself is commonly linked to a perception of hegemonic ascent (as good marxists we obviously all know financialization is the most obvious symptom of hegemonic decline). we see it in dutch shipping pre 1650, british steel pre 1870, and obviously gilded age amerikkka. transition periods are stochastic almost by definition, and it would be prudent to discount anyone quick to jump to hard conclusions.

You can be in an overproduction crisis because you’ve overbuilt. You can remain in an overproduction crisis after you have ceased to make capital investments for some time.