(GLOBALINTELHUB.COM) 2/10/2017 -- One of the most important points in the new "Trump System" of doing business, is that of the US Dollar, which currently is used by world's central banks as their reserve. Also, it's used by peasants in many parts of the world including Russia - as an alternative to their domestic currency. Practically, there isn't a clear alternative to the USD for the time being, with China's economy mostly built on ponzi frauds - but it should be noted by all that it is only a recent phenomenon that the USD is the world's reserve currency, and it can change with the blink of an eye. The Trump Administration should consider the political element of FX - namely, that 'trade' is actually 'FX' - let's provide an example.
In an extreme scenario, let's imagine that in one day, the value of the USD went up by 100%. This is impossible but let's just imagine this for a small thought experiment. Let's take a common European import - Mercedes. Let's say that the high end model Mercedes is $100,000 USD, before this big jump. EUR/USD moves from 1.00 - 2.00 in our one day hypothetical. So, the result would be - Mercedes cost now $50,000. In reality, the market is not so efficient, because of tarrifs, transport costs, and local pricing rules (companies will sell their products in a region for a certain price, regardless of FX). BUT - what would happen, and it always does - if there's a big difference between the dealer price and FX, there'd be entrepreneurs loading boats with Mercedes and selling them for the discounted 50% off, minus their fee, and other various costs involved. It's legal, it happens every day. Let's not call it arbitrage, because of all the moving parts. Let's call it Currency Rate Exploitation.
What has allowed the United States to be a net importer, and to buy cheap products - has been a combination of a strong USD and the fact that manufacturer nations like Japan and China, manipulate their currency. The circumstances with China are particularly hairy if one doesn't understand FX. It's true, they are a currency manipulator. Every central bank with a fiat currency is a manipulator! The Fed manipulates the USD via interest rate policy, Quantitative Easing, and market operations (yes, the Fed does engage in direct market operations, in many markets, and in FX.) So do other central banks. So what?
So if China's currency increased by a huge value, companies like Wal-Mart wouldn't have a source of cheap products. The point is, the reason everything in China is cheap, is mostly due to the currency discrepancy. FX is the real driver of global trade, not taxes, not rules. If the Yuan was 1.2 to the USD you can bet this massive US-China trade would decrease by 90%. It would still exist, like anything - but it would be completely different. What enables the US to live with such high debt loads, and to be a net importer, is the status as a world reserve currency. Without this, managing trade would be no different than in countries like Italy.
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