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The use of sanctions against Russia, North Korea and China

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The West uses economic sanctions against any and everybody it disagrees with. It uses the economic sanction regime like a headmaster in an 18th-Century public school.

If you misbehave, we will make you pick pin and face the wall!! The United States will ask its Treasury to instruct its banks to freeze assets; it produces a long list of persons whose houses and assets are seized or whose companies are barred from doing business, etc.

President Trump, who seems to need a course in Economics 101, has come to this regime with a totally out-of-date economic concept of trade deficit, which ignores the progress made in the past 20 years towards globalisation and the success through the mechanism of the World Trade Organisation.

President Trump also ignores the mechanisms within the World Bank and the International Monetary Fund (IMF) to lead towards financial stability.

The economy of the world has been moving towards mutual dependence in the past few years. Modern economic system does not reside in the zero-sum game of buying and selling parity.

Mr. Trump, for example, insists that the trade deficit between the United States and China is US$800 billion. He claims that the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico is against the U.S. and that the pacific Trade Pact is against U.S. interest.

Mr. Trump is willing to have a trade war by raising tariffs on specific items coming from each country that it feels it has a trade deficit with the United States, so he has threatened 35% tariff on steel and aluminum; he has raised tariffs on washing machines and a host of other goods.

Let’s have a closer look at what’s on the ground so far as Mr. Trump and Europe are concerned.

All the financial instruments, methods and back-up are all based on Western currencies, precisely United States dollar and the Euro. World trade is orchestrated largely from New York, London, Paris and Frankfurt.

If the U.S. were to pay for the privilege that forces the rest of the world to trade in dollars, how much will that be?

If all the money in the Middle East, India, Singapore, Malaysia, Latin America, etc. are not held in the U.S. dollars, what other currency should we use? Can we use the Japanese Yen, the Chinese Yuan, and the Russian Rouble? What price is the U.S. willing to pay to be the leader of the world?

Not too long ago, world currency was controlled by the gold standard. For centuries US$ 2.4 was equal to £1 and this exchange rate was backed by gold.

When President De Gaulle of France, after World War II, felt that the U.S. was overbearing with its dollars and was actually manipulating it in much the same way as the U.S. is now accusing China, De Gaulle insisted that every dollar it held should be redeemed in gold by the U.S., which it did. President De Gaulle wanted the French Francs to be backed by gold.

One fine morning, President Nixon suddenly decided that the gold in Fort Knox would no longer be used to shore up the dollar and several other currencies as the Reserve Depository of World Currency.

Strange as it might seem, the dollar is backed by nothing today – (although some countries use US$ as a reserve currency) but just a belief that it can endure. Given the debt profile of the United States and the large U.S. government bonds held by China, can China not destabilize the U.S. dollar?

Each time the U.S. threatens other countries with sanctions, given the volatility that a trade war would cause then perhaps the dollar may not be beyond damage.

Should other countries not begin to think of an alternative to the dollar as the means of most financial transactions? If so, would the West not lose the traction it now commands vis a vis its supremacy on the economic flag pole?

When people in Africa, Middle East, and Asia make money, they are inexorably drawn to the dollar. Will this always be the same? Should the Asian tigers float a currency to rival the dollar? What then?

When the West wants to invest in Russia or China or Vietnam, the Governments of these countries do not ask the investors to prove the provenance of their money. When Shell invests in Nigeria or in Saudi Arabia, no one asks Shell whether it actually earned the money without corruption.

When Russians or Uzebekistan’s buy office blocks, houses or companies in the U.S. or in Europe, the investors cannot sleep easy because they do not know when their investments may become subject to sanctions and seizure.

The world is becoming less liberal. Many countries are on the road to fascism, especially in Europe and the U.S.

As they lurch to the right there must be a reaction against the openly stated positions that the West does not want immigrants, that is, black people and non-Caucasians in their countries. Soon, the non-Western countries would get the message and begin to adjust accordingly.

The West must be less sanctimonious in its public stand. Morality is not particularly strong at this moment and a reaction is likely to set in sooner, rather than later.

It is in a technological age when communications are so easy and central, that precisely, these right-wing extreme positions are becoming more popular. A reaction is bound to occur.


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