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    The trade war between China and the US continues to unfold as Donald Trump imposes $50 billion tariffs on Chinese products. Beijing plans to respond with symmetrical actions. The financial expert Ernst Wolff told Sputnik that more threats are to follow as China financially challenges the US.

    Sputnik: Mr. Wolff, where are we currently in the trade war between the US and China? Are the announced US punitive tariffs on Chinese products a threat and a symbolic gesture? Or is it already turning serious and shaking the system to the core?

    Ernst Wolff: I'm afraid the situation takes a serious turn. I am also afraid that we are at the beginning of dangerous development. It’s reported only about the US threats to impose tariffs and the Chinese reaction. But judging by the circumstances in which the situation unfolds, we will be put under a cold shower soon.  The Shanghai Stock Exchange has already started to trade oil futures in yuans. This has been a very important decision because the dollar has always been the worldwide currency for oil futures trading. This is a huge affront towards the petrodollar.

    READ MORE: Beijing Answers the US Trade War, Charges US Pork and Aluminum Scrap

    Besides, there is another consequence. The start of trading these oil futures coincided with the beginning of phase two of tests for the Cross Border Interbanking Payment System (CIPS). This is a yuan payment system, which is adopted by eleven Chinese financial institutions and eight foreign establishments, including Deutsche Bank. This payment system was created as a rival to the Swift system, used worldwide by major banks for payment processing. China has twice financially challenged the petrodollar and the US dollar just over the past week. We have seen before, where it can lead.  What I mean is that [Libyan leader Muamar] Gaddafi did it, [Iraqi leader] Saddam Hussein did it, so did Iran, and we all know which consequences it all had.

    Sputnik: What lies behind the US economic policy and its protectionism?

    Ernst Wolff: Let’s have a look at the historical development. China has become the US's major rival over the past two decades. China has outrun the US as a trade power, becoming the largest trading partner for 120 countries. The US has developed such relations only with 70 countries. China can boast faster growth than the US. The Chinese yuan has got into the currency basket of the IMF [International Monetary Foundation]. China also runs the huge “New Silk Road” project, which is the biggest international economic venture of all time. All these facts are greatly disturbing for the US.

    Besides, the Chinese have founded the AIB, short for the Asian Infrastructure and Investment Bank, as part of the “New Silk Road” project. All Western powers participate in it, except the US and Japan. China has taken over a lot of territory with the yuan growing stronger. The danger is that, if the yuan becomes the rival for the US dollar, things can grow worse very fast for the US. And we know that Libya and Iraq were not destroyed to the ground for nothing after they had challenged the US dollar. I think we are at the beginning of a very dangerous turn.

    Sputnik: But the US is not stupid with all due respect and knows that they can’t destroy China. Maybe it’s better to acknowledge that the opponent is at least equally strong and profit? Trump loves deals.

    Ernst Wolff: This is one thing. I don’t also think that there will be an open war between China and the US because both countries depend on one another. China is currently the major warehouse for the USA because of its low labor expense. They also depend on the Chinese government purchasing bonds.

    You have to take into account that both countries struggle with a great deal of domestic problems. Trump sits not so tight in the office, which is a common opinion. He made big promises to get jobs back, but nothing has happened so far. China has bloated and very corrupt bureaucrats in the leadership, which bothers foreign investors who may have financial interest there.

    But I'm afraid there's another conflict with Iran, unfolding right now. Iran has immense geostrategic importance for the “New Silk Road.” It’s also China's largest oil supplier. This makes it a target for the US at the moment which has almost become self-sufficient with oil thanks to the fracking method. Now the US urgently needs lower oil prices. I suspect that the Americans are rattling with their sabers right now because they are preparing a war against Iran. Newly appointed US Security Advisor John Bolton has always advocated for a war against Iran. Some news looks really scary now.

    Sputnik: But won’t China and the US negotiate away from the public eye? What will the US want to achieve?

    Ernst Wolff: That will certainly be the case. There have always been threats. I can suggest that the initial threats with higher tariffs of the US had in perspective to give up trading oil futures on the Shanghai Stock Exchange. But the Chinese did not back down, but responded. This has led to escalation. The problem is that we have to deal with two regimes with no space for retreat as economic development allows to progress no longer. The US market and the stock exchanges are enormously bloated. In the past, governments used to try to build an external enemy, coming economically on the edge. I believe that a widening of the war in the Middle East could once again help the United States to cope with economy struggles.

    READ MORE: China Can Rely on Manufacturing Strength in Case of Trade War With US — Analysts

    Sputnik: The US’s other both big competitor and partner is the EU. What awaits European-US trade? The new tariffs have been announced. At the same time the TTIP [Transatlantic Trade and Investment Partnership] is to be brought from oblivion. The EU seems to become flexible with the US.

    Ernst Wolff: This seems to be true at the moment. But we can trace a few tendencies in the German new coalition government. What I mean that Mr. Gabriel has been replaced by Mr. Maas, which isn’t a coincidence. Gabriel preferred a softer approach toward Russia while Maas has taken the opposite stance. Besides, one can see that the EU faces huge troubles. There are various problems. Just think about France, which witnesses big strikes against [President Emmanuel] Macron. His position in the office is not so secure. Our government also doesn’t keep a tight grip to the office. If the war in the Middle East keeps escalating, the Western countries are to expect another wave of refugees. This will be a big interior problem – on the top of all the financial difficulties we have now.

    But will the US get support?

    Ernst Wolff: I'm not so sure if this has a long-term perspective, because the power of the US depends on the dollar – and the currency is crumbling now. It’s unclear what speed this process will gain.

    The views and opinions expressed by Ernst Wolff are those of the journalists and do not necessarily reflect those of Sputnik.

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    tariffs, government, conflicts, China trade wars, dollar hegemony, Stock markets, EU, Xi Jinping, Donald Trump, European Union, China, United States
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