Is Donald Trump bluffing about starting a financial war with China? Chinese officials aren’t so sure

As the US president ups the rhetoric, Chinese officials are taking seriously the possibility of a financial war, which could take the form of the US cutting the country out of the international payments system or seizing Chinese assets

Reading Time:3 minutes

US President Donald Trump raises his fist as he arrives at Bangor International Airport in Maine, US, on June 5. Photo: Reuters

Published: 9:15am, 24 Aug 2020Updated: 9:16am, 24 Aug 2020

Is US President Donald Trump practising the “art of the deal” on China by scaring it into making major concessions on trade to avoid being decoupled from the global financial system? There are signs this may be so but, even if Trump is bluffing, many in China are taking the threat seriously.

A recent report by Reuters quoted officials and economists in China saying that a “broad financial war has already started” between the two countries and that Beijing has to be prepared for Washington's “nuclear option” of kicking China out of the dollar payment system.

It seems that having failed to secure a decisive victory in his trade war against China, the US leader is preparing for financial war – or at least giving the appearance of doing so. This could be just scare tactics, because it could damage the US as much as China.

Even so, the risk of mutual economic damage or even destruction did not deter Trump from launching trade wars against China and others. So it would be unwise to leave anything to chance, and in that sense Chinese experts are wise to think through the implications of potential financial conflict.

Trump’s attacks on Huawei, TikTok, WeChat and other Chinese companies are directed against easily identifiable targets, but an assault on aspects of China’s financial system operations would be different. That involves threatening to cut off China from the international payments system.

At present, most of China’s cross-border transactions are settled in dollars via the Swift international payment network, one of the largest financial messaging systems in the world. Such a move would hurt China’s international trade and capital transactions.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x