Geopolitics and Markets Review – 17th July 2023

I’m back with the Geopolitics and Markets Review, every week. I’ve rested up and I’m ready to dive straight back into the world of geopolitics. Let’s see what’s happened in the last week, and the most important implications.

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Yellen Visits China

Does anybody want $850B of US treasuries? Now I’d take $850B in treasuries, but after seeing the US confiscate Russian FX reserves, it's understandable why very few countries want to be heavily committed to a large holding of US treasuries. After Treasury Secretary Janet Yellen’s visit to China, social media rumoured she had three demands for the Chinese. Withdraw anti-sanction measures, commit to stop supporting Russia, and purchase $850B of US national debt.

This chart shows the reversal of the Chinese attitude towards US debt. Peaking in 2014 at 1.3T, this dropped to 1.1T by 2019 and now sits at 868.9B. Why would China be willing to link itself to the United States this heavily when they have seen how “enemies” of the US are treated under the weaponization of the dollar? This would almost double their treasury holdings, making them the largest holder of US treasuries by quite a distance. Note these were rumours on social media. It almost seems implausible that Yellen would even ask this.

In the background, limitations on exports and investments between China and the US continue in semiconductors, and now AI and quantum. The US limited the export of materials used in semiconductors to China. The Chinese issued a response last week by placing restrictions on the export of Gallium and Germanium, two vital metals used in semiconductors. These restrictions will be active from August 1st. China accounts for 80% of gallium’s world supply. The rising trend is resource nationalism is clear. Indonesia limited exports of nickel for years and is weighing up export bans on 20 commodities. Another example was the ban on palm oil exports earlier in 2023. Couple this with Ukraine being the largest producer of Sunflower Oil prior to the war, and that’s why your bottles of cooking oil at the supermarket are rather expensive.

Does this classify as peaceful competition instead of superpower conflict?