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I think the Achilles Heel of this trade war for China is their currency. The basic problem is the Yuan has no purchasing power even in its own country. You're not allowed to use it to buy any housing, land, businesses or anything else of economic value. It's forbidden. Outside of China you can't use it to buy oil, gold or any equities globally unless there's some African economy that accepts it, I don't know.
I had a very wealthy Chinese friend in Japan who was a big player in selling Japan's scrap steel to China. Went with him for a couple of business trips there. They laid on the full royal treatment on his visits. A convoy of limos, clubs, women, feasts. No expense spared. Even had companies bribing him to deal with them over others. Only one thing; he wanted to be paid in USD. And then he had to physically smuggle the money out of the country via Hong Kong. Otherwise his money was locked there in useless red paper.
The Chinese themselves have no confidence in the Yuan as can be seen by the enormous capital flight into the Australian, Canadian, US and now SE Asian housing markets. People have generally assumed this was "hot money" from corrupt officials and undoubtedly much of it was but I maintain most of it was Chinese nationals eager to pay almost any price over the market to get into foreign currency/ownership.
I had some pushback on Twitter from an FX trader in London saying that trade in Yuan was off the scale. Another poster pointed out that that was money getting out of China, not buying in. How much Yuan does anybody you know hold? I guess zero. What would you do if you received Yuan? Exchange it immediately, no?
If China wants to have a legitimately accepted currency then they'll need to play by accepted rules. They need to allow people to be able to use their currency to buy their capital goods fairly or it will end badly for them. But I very much doubt the Chinese Communist Party will allow that.
