By Michel Santi, economist
As the yuan remains artificially devalued, the United States deliberately turns a blind eye.
This unexpected alliance masks a cynical pact: to preserve American symbolic power at the cost of real economic decline.
The Sino-American face-to-face is only a theater, monetary manipulation their shared secret.
The staggering distortions suffered by the global economy are caused by phenomenal price differences between what is practiced inside Chinese territory and outside.
A night at the Waldorf Astoria in New York costs $2,000, while that at the Waldorf Astoria in Beijing is $330. A BYD hybrid costs $15,000 in China, but $50,000 everywhere else.
The endemic weakness of the Yuan clearly accentuates this substantial price gap, and stabilizes the cost of living in China when the prices of materials and production increase everywhere else.
In these conditions, is it not tempting to outsource to China since producer prices have soared by 35% in Europe and 25% in the United States over the last five years?
Because it is a significant figure which has only just been made official. For the first time in its long history, China has just exceeded $1,000 billion in goods and merchandise exported to the rest of the world this year. Unquestionably, indisputably, the Chinese engine is stimulated by the weakness of its currency which – at around 7.1 renminbi to the dollar – is undervalued by almost 50 %
compared to its equilibrium value, located around 3.5 Yuan per dollar.
This explains, independently of the merit of Chinese companies, these remarkable export performances. Thus, Europe will import six times more Chinese vehicles in 2025 than five years ago! However, this persistent weakness of the Chinese currency – even artificially undervalued, even manipulated – represents for the United States of America auntold windfall
. A Yuan at 7 instead of a level which should, according to experts, be around 3.5 saves the USA from supreme humiliation: that of being relegated to the rank of second economic power in the world
in terms of nominal GDP. Indeed, it would be enough for Beijing to finally let the Yuan appreciate towards its fair value for Chinese nominal GDP (converted into dollars)double mechanically
jumping well beyond 30 trillion and far surpassing that of the United States.
This unusual American tolerance towards the extreme weakness of the currency of their main competitor must of course be understood in the light of fundamental geopolitical issues.
Being the “first world economy” goes far beyond statistics: it is a pillar of American power, strengthening its position in international alliances, in trade negotiations, and in global public perceptions.
A China officially number one in terms of nominal GDP would accelerate the shift of the world, ostensibly challenge American hegemony, erode investor confidence, amplify narratives of American decline, tarnish the prestige of the United States.
However, Washington is sacrificing its industries by tolerating this monetary dumping, all in the name of a symbolic victory.
Never mind: the American elites and powers prefer a weakened real economy, at the cost of retaining their title of “number one”.
This weak Yuan acts as a convenient veil. It masks America’s relative decline, it avoids a head-on confrontation that would reveal the vulnerability of the empire.
This massive monetary distortion safeguards their geopolitical pride, even at the cost of their own deindustrialization. Michel Santi is a macroeconomist, specialist in financial markets and central banks, and writer.