The US is already at war with Russia and China and not necessarily well placed for victory. While Ukraine claims most of the media attention for having gone kinetic, economic relations are unrecognizable as anything other than warfare. US actions against Russia following their military intervention, including oil sanctions, banning from the SWIFT financial transactions system, and clearly coordinated corporate pullouts, are as severe as any America has brought against a foreign government. They also follow the hostile patterns of domestic cultural ‘cancellations’, making the most basic functions of economic life impossible. The problem for the US is that it is no longer in a position to level such draconian measures against a major global power. Unlike any time in the past three decades, China is positioned as a feasible alternative to America in the realms of global currency, production capacity, debt leverage, technological infrastructure, and the military muscle to back up their interests. To survive, American business and policy leaders must give the implications of this dynamic serious consideration.

Two recent events in the economic war demonstrate the decline of US dominance and the potential for once safe punitive actions to backfire: the ban of Russian oil imports and the banning of Russia from the SWIFT global financial settlements system. Both of these actions are likely to do more damage to the US Dollar (USD) than to the Russian economy in the long run. While Russia is the world’s third largest oil exporter, China accounts for nearly half of sales with the US serving as a largely insignificant market. The post-sanctions crude oil price spikes will therefore likely increase Russia’s oil revenues while only fueling inflation in the US.

The west’s decision to ban Russian banks from using the SWIFT system for global financial transactions is even more potentially damaging. This move has made it difficult for Russians to transact with international financial institutions and was apparently aimed at hindering the liquidity of Putin’s foreign reserves. This financial weapon may not be as potent as the west might hope however, and China has quickly filled the gap by offering its own international settlement platform, called CIPS. To further reduce American influence, Russia has decreased its USD reserves in favor of Chinese Yuan, from 40% in 2017 to 16% today. With US-Russia trade essentially eliminated, China has positioned itself as the dominant trading partner, reserve currency, and financial infrastructure provider for nations facing US sanctions.

This might be why OPEC countries are suddenly considering abandoning the ‘Petrodollar’ standard and pricing some oil transactions in Chinese Yuan. If the USD loses its status as sole currency with which to purchase oil, it will quickly lose its appeal as the global reserve currency of choice. That on top of the fact that 80% of M1 dollars ever printed were printed in the last two years, leaves the end of USD hegemony looking like a foregone conclusion. Maybe this is why Saudi and Emirati leaders have reportedly declined calls from the Biden administration as they negotiate trade terms with China: they see a new global master.

The highly publicized supply chain disruptions faced by the US during and since the COVID pandemic have done nothing to lessen the perception of US dependence. While shortages were a worldwide phenomenon, America faced its largest challenges in securing the supply of products produced in East Asia. It has become abundantly clear since early 2020 that the US is dependent on China, and nations within China’s sphere of influence, for everything from household supplies to complex electronics and high-tech components. If China were to impose sanctions on the US (or vis-a-versa), the economic damage could immediately dwarf anything stemming from the Ukraine-Russia conflict. If China were to exercise its military might to restrict supply from surrounding countries, the US economy would likely collapse in short order. This is increasingly a realistic threat considering recent events in eastern Europe and America’s apparent inability to prevent the outbreak of major warfare.

To much of the world, America’s power and influence must look to be rapidly collapsing, with China strongly positioned as an alternative. America’s vanishing dominance over global reserve currencies, financial infrastructure, economic productivity, and ability to enforce her interests through hard power is clearly on display. If the USD collapses, America’s financial leverage is also likely to diminish accordingly. China has stepped up to replace US hegemony in each of these areas and is poised to dominate much of the world in debt leverage through infrastructure loans made under their Belt and Road Initiative. The challenge for American policy makers and corporations is now to accept the reality of this new power dynamic and begin adapting to it. Reshoring critical production capabilities, focusing investment on countries in the US sphere of influence, and sobering monetary and financial policy are essential next steps. Without serious recognition of the new playing field and its economic implications, American business and policy leaders could be walking off a cliff.

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