- China’s aggressive political and economic policies threaten the U.S. economy.
- Key threats include: the risk of war with Taiwan, China’s role in de-dollarization, and bursting the AI stock bubble.
- Precious metals held in a Gold IRA can offer long term protection from China’s policies.
China’s Aggressive Ambitions
China poses a multi-pronged threat to the U.S. economy and, by extension, your retirement funds. As the world’s second-largest economy, China is projected to surpass the U.S. as the global economic leader between 2030 and 2036. Key threats include: the risk of war with Taiwan, China’s role in the BRICS de-dollarization, and its ability to burst the AI stock bubble by launching cheaper, competitive AI systems. These factors could have profound consequences to your financial future.
The Taiwan Conflict: A Ticking Time Bomb
China has escalated its threats against Taiwan with military drills, cyberattacks, and diplomatic pressure. President Xi Jinping wants to forcefully annex Taiwan by 2030 if unification fails. Analysts warn that Beijing’s assertiveness raises the risk of a wider conflict. With the U.S. being dragged in since it has pledged to defend Taiwan.1
A war between China and Taiwan would have severe economic consequences for the U.S., potentially causing a 6.7% contraction in GDP if the U.S. intervenes. Even a Chinese blockade of Taiwan could reduce U.S. GDP growth by 3.3% within the first year. These projections far exceed the 2.2% contraction in GDP seen during the COVID-19 pandemic. The global economy could lose $10 trillion. There would be major disruptions to semiconductor supply chains and financial markets.2
China’s Push to Dethrone the U.S. Dollar
China is leading de-dollarization to reduce reliance on the U.S. dollar and promote the renminbi (RMB).
China’s central bank has developed a digital yuan. It is being piloted domestically and in cross-border trade with countries like Thailand and the UAE. This initiative seeks to set global standards for digital transactions. It also aims to cut reliance on dollar-based systems. And pushes the U.S. to create its own freedom threatening ‘digital dollar’.
China has also launched renminbi-denominated commodities markets, further reducing dollar reliance. The country is leveraging its dominance in critical mineral supply chains to promote RMB use in the clean energy transition.
China is cutting its U.S. Treasury holdings and boosting its gold reserves to protect its economy from possible U.S. sanctions. By March 2024, China’s gold reserves exceeded 2,264 tons, doubling in five years.3
If China abandoned the U.S. dollar, the impact on the U.S. economy could be devastating. Growth could stall, trade would be disrupted, and a sharp decline in the dollar’s value could fuel inflation. A sell-off of U.S. Treasury securities would raise borrowing costs. It could also trigger a financial crisis due to market instability and capital flight.
The dollar’s status as the world’s reserve currency would be at risk, severely weakening U.S. global influence. Foreign investment would dry up. The U.S. could lose its dominance in the global financial system. Making it economically and geopolitically vulnerable. While an abrupt shift is unlikely, even a gradual transition could inflict lasting damage.
China’s AI Disruption: Bursting the Tech Bubble?
Chinese AI startup DeepSeek may burst the AI stock bubble, triggering massive market turbulence.
DeepSeek has developed AI models comparable to leading U.S. offerings at a fraction of the cost. The company invested only $5.6 million in its latest AI model, R1, which performs similarly to ChatGPT. This challenges the idea that AI needs huge investments. It may devalue firms that have spent billions on AI research.4
The revelation of DeepSeek’s capabilities led to a sharp decline in U.S. stock markets. The Nasdaq Composite plummeted by 3.6%, with the S&P 500 dropping 2% and the Dow Jones Industrial Average falling 0.8%. 5
6
Major U.S. tech companies and chip manufacturers saw significant drops in their stock prices. Nvidia, a major player in AI chips, saw a nearly 17% drop. This loss wiped out almost $600 billion from its market cap. It was the biggest single-day loss ever in stock market history. Other companies like Broadcom and Microsoft also suffered losses.7
DeepSeek’s success shows China’s rapid AI progress despite U.S. chip restrictions. U.S. tech controls may not be as effective as intended. Leaving Investors reassessing AI stock valuations, potentially bursting the bubble.
Protecting Your Wealth with Gold
The risks from China are mounting. Now, more than ever, gold is a critical hedge against China’s plans. Their record gold buying aligns with a global trend among BRICS nations to reduce dollar dependency. Central banks are boosting their gold reserves. They seek to hedge against inflation and geopolitical risks. A seismic shift in the global reserve currency landscape is happening as we speak.
For individuals, the same principle applies. Adding gold to a retirement portfolio, particularly through a Gold IRA, may be the best way to protect assets from currency devaluation and market volatility. Contact American Hartford Gold today at 800-462-0071 to learn more.
