China Says SCREW YOU To US Sanctions

Joining us now to talk about the global economic impacts from the Iran war is Professor Richard Wolff.He is professor of economics emeritus at the University of Massachusetts Amherst.He's also co -founder of Democracy at Work and host of their syndicated show Economic Update.Great to see you, Rick.

Good to see you, sir.Thank you very much, both of you.It's a pleasure to be back.

Yeah, of course.So I wanted to start with this specific news item and then we can sort of broaden out.But this seems very noteworthy from China.We can put E1 up on the screen.This is from our friends over at Dropsite.They say China invokes blocking statute for the first time.

China's Ministry of Commerce has for the first time activated its 2021 blocking rules, ordering all Chinese firms and individuals not to comply with U .S.sanctions targeting five independent Chinese oil refineries, accused of purchasing Iranian crude.Beijing called the U .S.measure imposed under two executive orders an unjustified and improper use of extraterritorial law.

The move puts multinational companies operating in both markets in direct legal conflict.Compliance with U .S.sanctions now risks violating Chinese law and vice versa.Global banks and firms with dollar exposure face secondary sanctions risk if they continue dealing with the affected refineries.So help us understand if you could the significance of this action from the Chinese.

Well, my judgment is it's very significant.It marks a change in the way that the Chinese are approaching what has been the American foreign policy now for quite some years.I would summarize, describe that policy as very provocative interferences in a way previous American governments have not felt entitled to do.The Trump administration prides itself on doing what previous governments didn't do.I mean, the war in Iran is a grosser example of all of that.And what the Chinese

done until now is tiptoe around it, make believe they didn't know about it, urge their banks and others to find evasive ways of getting around it.Now, that is most of the time enough.Sanctions are a very critical crude instrument.We have been applying sanctions as a nation, and the United States does that more than any other country on earth.Nobody else is even close.We have been applying sanctions, as folks know, on Cuba, on North Korea, on Russia, for years and years and years, and they have found very quickly ways around it.

And so they can pretend not to notice and get around it, and no more feathers get ruffled.What the Chinese just did in the clip that you just showed us was to say, if you allow me to paraphrase our president, no more Mr. Nice Guy.We are not going to tiptoe around you.We are simply saying to the world, no more.We, the Chinese government, will not permit our banks to be threatened in this way, to be inconvenienced.It costs a little to get around sanctions.

It's not that it's free.It's a nuisance.But we're not going to allow that anymore, and we're serving notice on the whole world that this is no longer our problem.We are not alone.The Chinese are going to figure out how to dance around Mr. Trump.we're, you know, throwing down a kind of gauntlet, if you will, saying no.

And so this raises enormous questions becausethe next issue is how seriously will the Chinese government pursue any Chinese or other entity that conforms to what the United States wants and thereby violates what the Chinese just did.So we'll see and you know it's another one of these little not so little, maneuvers around the chessboard and we all wonder who's gonna yell uncle first.Right now, I have to tell you though, as an American economist born, worked here all my life and I'm glad about that, that this is embarrassing.This is not the way international trade ought to be conducted.And it looks to the whole world, my colleagues around the world, including many that are very friendly to the United States.

It really looks like a country that can't compete in the old ways, having to do it in these ways.And when you look at it that way, then the sympathy begins to move towards China as being the victim of this change.And they're all worried that they will be the next victim of the change.And it's shifting the whole world balance in ways that if I were a policymaker would worry me.

Professor, let's zoom out more.You just spoke there about China.But what does this mean generally?You were talking there about the international trading system, U .S.dollar hegemony.

like the basis of the American empire has really rested on its economic might, not just to compel countries, but to do business with a lot of these countries.When you combine this with the current Iran situation and the level of damage US consumers arefor example, let's put the gas price up here now on the screen.We currently have it at $4 .45 a gallon at the national average, over $6 a gallon in the state of California.So we're punishing our own domestic economy.We're also doing, kind of like you said, embarrassing ourselves on the international front.

Some sort of new order will emerge from this.What's that going to look like?look like and how's that going to affect us all?

Well, things are going very, very fast, and they're going downhill for the dollar.I don't want to be misunderstood.The dollar is still the most important global currency, but it is nowhere near as powerful, as dominant as it once was.So comforting yourself by saying, well, over 50 % of the central banks of the world keep their reserve to back up their own currency in dollars, True enough, but it used to be 80%.And that is a sea change in terms of what is counted as secure.You know, we just crossed a milestone a few days ago when our national debt exceeds our GDP.

That's a usual warning sign.But to whom is it a warning?To the people who lend to the United States.Countries, companies, banks, Americans, foreigners.They all now have to ask a question.Is this declining role of the dollar something that ought to make me either stop lending to the United States the way we've been doing for the last 30 years, or lend but demand much higher interest payments to compensate for the rising risk of the number one debtor country.

in the world.And now let me add to that Iran.The Gulf countries, the half dozen countries out there, Kuwait, United Arab Emirates, all of that, they have taken a shellacking in this war.Americans don't perhaps grasp it, but the Iranians have been extraordinarily successful.far beyond anything that any of us foresaw in damaging American bases in those countries, damaging gas and oil facilities in those countries.Those are all key players in what's called the petrodollar system.

The fact that for many years, oil was priced in dollars, requiring everybody anywhere in the world to have dollars.Wonderful for our country because everybody has to get their hands on dollars, and if they have dollars and hold them, the nicest way to hold them is to lend them to the American government because you get interest when you hold your dollar that way.Well, let me just give you a footnote as a strategist.If the United States had had to fight the wars in Vietnam, Afghanistan, Iraq, or anywhere else with money axed from the American people to pay for the war, the opposition to those wars would have been greater than anything we can imagine for obvious reasons.Instead, the whole world lent us the money with which we could fight those wars without taxing our people.We could use the borrowed money.

And if you want to really understand the craziness of this, the Chinese, who are major lenders to the United States,because they sell us so much stuff and get so many dollars that they then hold as treasury securities, that the Chinese government on the other side of every one of those wars was helping the US pay for the war against which the Chinese were fighting.But the craziness of our global economic system makes those things happen.And right now, they are happening to diminish the standing of the dollar.And while it hasn't yet hit us, it will.And if you want a taste of where it's going, then you just have to look at Europe.

Europe is a kind of basket case now of where we are going.We're not yet there.We have advantages in this country the Europeans don't have.But the Europeans, this morning's headlines all over Great Britain, are that the cost of living is literally out of control.It's as if you showed those statistics you had in front of us a few moments ago, but it covered many, many more commodities than gasoline, and it together was really hurting the standard of living of the mass of the British people.

So let's talk a little bit about who is going to cry uncle here, because right now the Iran war is predominantly being engaged as economic warfare.There are some indications this morning we may be going back to hot kinetic warfare, but as of right now, it's predominantly economic warfare.I can put this next element up on the screen.This is gas prices.This is the way most Americans will interact with the war.This is from a little while ago.

Now the gas price is up a little bit more.It's at 4 .46 for the national average.And so, the bet from Trump is that if they can enforce this blockade against Iran, that'sto curtail their oil exports, that their economy is really going to struggle.They've been fed this line that their oil wells are going to explode and they're going to run out of storage capacity very quickly, and then it's going to be a big problem for the Iranians.And that the U .

S., although consumers don't want to pay these prices at the pump, will be able to withstand the economic pressure longer, and that it will be less of a problem for the U .S.to deal with than the Iranians.What can you tell us about your assessment of those dynamics?

Well, you know, it's a little bit like a problem I had teaching mathematics.The odds are that there's an immense array of possible outcomes.I mean, the more we use our imaginations, we human beings, the more we can foresee it could go this way, it could go that way, and all of that's true.But the job of the brain is to try to focus in on what are the most likely, because you can't prepare for everything, and you have to make choices, and so you do.And we live in a country whose leadership I'm talking now about the Trump people, has been systematically hostile to other forms of energy and systematically favoring oil, fossil fuels, gas, all of that.The problem is when you do that and you then give to places like Iran a weapon they didn't have before, you really can't be claiming surprise if they use the weapon.

They knew, like everybody did, that a quarter of the world's oil goes through the Strait of Hormuz.They can't possibly fight the United States on a military basis.They're an infinitely poorer country.not to mention smaller and all the rest.So they either have to come up with some other kind of weapon, or they're not going to be able to to pull off anything in this situation, they'll have to do what Mr. Trump says.They figured it out.

He emphasizes oil and gas, and they can control, effectively, the price of that.And so what we're seeing is the screaming of all those in America who thought they had a big friend in Mr. Trump because he tilted in their direction, their kind of energy, their commodity, the gas -burning automobile that uses it, and so forth, not imagining—failure of imagination—what kind of vulnerability goes with that.And they have now learned.And then what is Mr. Trump going to do?He can't deny that he favored the very energy source that is now being priced out of everybody's range.He's going to tell a story about something that might happen in the future to turn a shortage of oil into a glut.

Is that possible?Yes.Is that likely?No.And if you had, you know, half of a brain really working at this, you wouldn't take that chance.You wouldn't lopsidedly go to one in the hopes that it would self -correct.

And let me warn you, if you're going to play that game, here's something to worry about.A few days ago, the United Arab Emirates fourth largest source of oil that we have on this planet, withdrew from OPEC, stopped working as it has for decades,with the Saudi Arabian -run cartel of that part of the world's oil.Now, long story short, why?Because they don't like being held back.They have a lot of oil.

They don't pull it up.They don't sell it because Saudi Arabia holds back.oil from what we could have to drive up the price because they sell that.They're just doing what every monopolist ever did in the history of the world.Nothing new, nothing strange, nothing exceptional.And by the way, with the active support of the United States, which of course doesn't say that to its own people because otherwise you're upset at high gas prices would go to Washington rather than to foreigners upon whom it can be locked.

What does the United Arab Emirates want?It wants to bring up the roughly one and a half to two million barrels of oil per day that it could bring up but hasn't been.because it has to repair the damage Iran has done to their oil facilities, to the American bases there.The damage of the missiles from Iran is very significant, as it is in Israel.And we can keep pretending that it isn't the case, but the world is too small for that.You can find it out if you do a little bit of effort.

So here's my story.United Arab Emirates will succeed, and they won't be the only one.And we might very well see the glut that that clip you just showed, you know, implies.But that's not altogether good news either, because then the price of oil will collapse.And if it does, $30, $25 a barrel.barrel instead of what we see now, then all of the fracking in the Midwest of this country will stop, and they'll all be out of business.

And if you think that's not a problem, you're making a mistake, because all of that depends on bank loans.They will not be able to repay them.And then our banks will be in a problem.We keep using up every angle we can in this ad hoc government by Mr. Trump, and it's going to come sooner or later.He won't be able to patch it here, here, and here, and then it'll blow.But it could blow anywhere.

But at this point, the mistake was ever in my judgment, to overdo the dependence on fossil fuel.What is that about?The whole world is going in the other direction.We're not the top dog anymore.We don't run the world economy.That's a fantasy of the second half of the 20th century.

That's not what we have anymore.I regret it.You regret it.We all as Americans are having to live with what I just said, and that's hard.My heart really goes out to people, but denying it is not a rational way of coping with this.Then what you do is you get the fantasy of the British, if I can be so unfriendly.

They know That their empire is gone.They're just playing at it.That's why they have a king and white visits and all the rest of it.I don't want to be mean.We don't do that to our credit, but there's a denial here that the British can no longer or the French or the they know it's over.We still think we are, and we therefore make decisions on an assumption basis that then comes back and whacks us, and that's what we're experiencing now.

Well said, sir.We appreciate your time and your analysis.You're always dropping knowledge bombs.

All right.I hope so.I hope you find it interesting.And I appreciate it.And I speak for many of my friends, all the work that you do on your program.Thank you.

That's extremely kind.

Thank you very much.Great to see you.

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