That furthers the imbalance to the detriment of the US and in favor of the holders of whichever currency replaces USD.
Dedollarization means that the US market is far poorer and can't import as much as before, yet the new reserve currency(ies) make holders that much richer, enabling greater demand for either imports or self-consumption.
It will be an adjustment, but there will be many winners, none of which are the US. There may be some losers who do not negotiate trade deals or can't find new markets, but it's unlikely. The supposed US trade war on China has resulted in their GDP growing by a massive 5% last year. Canada, losing its exports to the US, negotiates deals with other countries.
The pain for other countries is more organizational than anything economic. The US will face massive economic disaster in the form of devalued dollars and the need to close the government deficit after decades of being addicted to massive reserve-currency-enabled deficit spending. The US will be plummeted into massive recession by those sudden changes, while the rest of the world merely trades with whoever are the winners.
If, for example, China decides that it finally wants a consumer economy, and the Renminbi becomes a partial reserve currency, the consumer demand will be absolutely massive. Europe may have a harder time signaling to Europeans that they are far wealthier, but make imports cheaper for Europeans, and people who find that they suddenly have a lot more left in their bank account at the end of the month usually find ways to spend at least part of it.
> If, for example, China decides that it finally wants a consumer economy
This is a fantasy that the CCP leadership will not entertain, because it would mean losing their control as the (export/industrial) king. Their national security descends from having that crown firmly in their hands & making everyone else reliant on their industries, and will do as much as they can to make sure it stays that way.
A strong currency runs counter to what the CCP leadership wants, having seen how it has hollowed out the US' industrial capacity (as a result of strong currency demand leading to comparatively higher labor costs).
The CCP aspires to climb the value chain up to where the US is, which means shifting away from manufacturing to the high profit margin tech, biotech, and other science related industries.
The manufacturing stage is just a stepping stone to getting to where the US already is.
The end goal of the CCP is not to be a middling power, with middling wealth. It's to be the greatest power. That some in the US want to go down the value chain and take China's manufacturing spot just as China zooms ahead of the US, is, well... It would be comical if it weren't so sad.
> The CCP aspires to climb the value chain up to where the US is, which means shifting away from manufacturing to the high profit margin tech, biotech, and other science related industries.
None of that requires a strong currency, only a strong industry.
That's what the CCP has done with their own currency, by deliberately weakening it & funneling the strength into drowning the global market with their industry's products. A strong currency runs counter to that by making their products more expensive as a result.
Had the RMB continued its original trajectory (2003-2015), it would've wound up at approximately 1EUR ~= 5RMB. Instead, the CCP made the decision to weaken the RMB to maintain industrial capability, and further expand into technological ventures without abandoning the other industries they've captured before.
> That some in the US want to go down the value chain and take China's manufacturing spot just as China zooms ahead of the US, is, well... It would be comical if it weren't so sad.
1) China is able to "zoom ahead" because they have a strong industry within their own borders, buffered from the political decisions of other countries.
2) The value of the lower parts of the chain is not obligated to be lower than the upper parts of the chain.
>The supposed US trade war on China has resulted in their GDP growing by a massive 5% last year.
I'd take those numbers with a grain of salt. China is known to play with the numbers to hit goals when they feel that they need to.
>The US will be plummeted into massive recession by those sudden changes, while the rest of the world merely trades with whoever are the winners.
The massive devaluation in the dollar would mean that the country would become incredibly attractive for manufacturing exports, which would prevent a massive recession.
>If, for example, China decides that it finally wants a consumer economy, and the Renminbi becomes a partial reserve currency, the consumer demand will be absolutely massive.
If you think that China is going to shut down the majority of its factories, move them to other countries, and let their currency float freely (well, freer than it is today), you're delusional.
> the country would become incredibly attractive for manufacturing exports
First, the US will not be attractive in any way for investment because it is run by a madman that has ridiculous tariff policies that make starting manufacturing supply chains nearly impossible.
Second, even if the US could transition its economy back to manufacturing, that's a massive slide down the value chain to far less profitable industries than our current tech, biotech, and service driven economies. The idea as presented is a serious downgrade in quality of life compared to today.
> If you think that China is going to shut down the majority of its factories, move them to other countries, and let their currency float freely (well, freer than it is today), you're delusional.
China wants to transition its economy up the value chain to the high tech industry that the US currently has. It has the educational system and the brain power, and the biggest impediment, brain drain to the US, has now been shut off.
If climbing the value chain, out of manufacturing, requires China to shut down factories or open up currency somehow, they are far more likely to do that than to abandon their ambition of economic growth.
Dedollarization means that the US market is far poorer and can't import as much as before, yet the new reserve currency(ies) make holders that much richer, enabling greater demand for either imports or self-consumption.
It will be an adjustment, but there will be many winners, none of which are the US. There may be some losers who do not negotiate trade deals or can't find new markets, but it's unlikely. The supposed US trade war on China has resulted in their GDP growing by a massive 5% last year. Canada, losing its exports to the US, negotiates deals with other countries.
The pain for other countries is more organizational than anything economic. The US will face massive economic disaster in the form of devalued dollars and the need to close the government deficit after decades of being addicted to massive reserve-currency-enabled deficit spending. The US will be plummeted into massive recession by those sudden changes, while the rest of the world merely trades with whoever are the winners.
If, for example, China decides that it finally wants a consumer economy, and the Renminbi becomes a partial reserve currency, the consumer demand will be absolutely massive. Europe may have a harder time signaling to Europeans that they are far wealthier, but make imports cheaper for Europeans, and people who find that they suddenly have a lot more left in their bank account at the end of the month usually find ways to spend at least part of it.