The Dollar’s Not Ready For What’s Coming

What My Rental Car Says About China’s Quiet Coup

With a lurch, my car came to an abrupt stop.

The message on the dashboard of my Mini Cooper Countryman said that something with the drive train was screwed up. Turns out it was a little electronic box, hidden in the trunk area. A previous repair of a taillight over the summer had apparently been performed poorly, creating a seam that allowed rainwater to leak in and ultimately make its way to the electronic box in question that does something to control the drivetrain.

The point being: I was given a rental car to use while my Mini was in dry dock.

That rental… a BYD Seal U DM-i, an electric car made by a Chinese company.

I am not exaggerating when I say, “Those Chinese know what they’re doing!”

“Can we trade our can in? When does our lease end? I want this car!”

That was my wife after we’d spent the better part of an afternoon on a road trip in the BYD between our house in Braga, Portugal, and a doctor’s appointment in Guimaraes, about 30 to 40 minutes away. On the way home, we took the very long way—back roads through the hills and mountains—and she absolutely loved everything about that car.

I did, too.

The drive, the creature comforts, the mileage from the electric-gas hybrid engine.

I note this BYD episode for a simple reason: China just recently announced its fourth five-year plan, and one of the country’s primary goals going forward is “high-quality development” aimed specifically at enhancing China’s status as a major producer of advanced industrial products.

Some people will scoff at that sentence. “Advanced industrial products?” From China?

Riiiiight….

I’m old enough to remember when “Made in Japan” was a sign of inferiority.

Today, some of the best-made products in the world are Japanese: Canon, Nikon, Toshiba, Toyota, Honda, Sony, Nintendo, Bridgestone, Nissan, Panasonic, etc. etc. et. al.

China is already progressing toward that goal. My BYD rental is just one example of China’s growing superiority in electric vehicles. Or as The Wall Street Journal reported recently, a made-in-China EV “often costs thousands of dollars less than one developed in the U.S. or Europe, while offering top-end features and long-range battery packs far cheaper than those of competitors.”

China has also taken a large lead in solar panels and integrated wireless communications, all based on advanced technologies and production practices.

And why do I share any of this?

I’m not suggesting you go buy a Chinese car, or add Chinese solar panels to your roof.

I’m telling you this because China is quietly taking aim at the US, and it’s doing so at a moment when the US is preoccupied with social and political discord… at a time as the world increasingly backs away from the dollar because of America’s mountain of mounting debt.

For years now, I’ve been warning my readers that China quietly plans for three generations, while America boisterously plans for Friday night.

While the US is preoccupied with its internal squabbles—Red vs Blue, immigrants vs. natives, the bone-headedness of tariffs, constantly overspending the budget—China is focused on replacing America globally.

In Thailand, Chinese EVs control 93% of the market. In Indonesia, it’s 78%.

And sure, those are small Asian markets. Who cares?

So, let’s look at Europe…

Chinese EVs own about 18% of the continental market.

American EVs—primarily Tesla—control 14%.

China wins.

That’s not a boast… It’s a warning.

If you’re familiar with the Thucydides Trap, you’ll likely recognize just what’s happening… If you’re not familiar, the Thucydides Trap is the idea that, across history, when an upstart power challenged an existing power, in 75% of those cases the challenge led to war.

It probably will this time as well… if only because America is an exceedingly militaristic society and the US, with its military spending and its love of bang-bang, is far more likely to lift up the guns in an attempt to preserve its role as global hegemon.

Will the US succeed in that war?

Who knows?

But I do know China has a massively important weapon: its substantial possession of US debt. China could dump all that debt onto the global market in one fell swoop and instantly destabilize the US (and global) economy.

That would severely disrupt America’s war machinery and send the country into a hyperinflationary tailspin due to market interest rates in America spiralling out of control.

Lots of commentators say that will never happen because it would hurt China just as badly.

I disagree.

Sure, China might feel some pain from a plunge in sales to the US, but China has spent the last however many years weaning itself off US reliance and now the US only accounts for about 3% of China’s GDP. A 3% hit is merely a hiccup to China. They can absorb that by redirecting trade elsewhere and by stimulating local consumerism.

More importantly, as I recently noted in a Field Notes dispatch, the world is coming ‘round to the realization that China has vastly more gold reserves than previously assumed (I’ve been saying this was the case, since 2011 or so).

While dumping Treasury debt would send the dollar reeling, it would send gold prices to the moon and beyond… meaning China benefits.

In short, China, in planning for three generations, has spent the past 20-plus years accumulating the world’s largest hedge against a dollar decline.

As I always note, I’m not saying any of this is necessarily going to happen.

But I am also not saying that it won’t happen.

The China/America Thucydides Trap is a gray swan that anyone paying attention can see. China is gunning for America, and it’s increasingly deepening its ties to the rest of the world.

If you’re not prepared for that swan to crash land onto the landscape, then you’re not prepared for the vast, vast destruction that momentous event would have.

So, here at the end I’ll offer this advice: Play the role of Boy Scout and get yourself prepared, just in case.

Don’t think, “That’ll never happen.”

So many things that’ll never happen end up happening anyway.

If you can envision the possibility—and China’s actions are telling us all this is a possibility—then own gold, silver, bitcoin, and Swiss francs as your insurance policies.

Otherwise, prepare for a disastrous financial mess.