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Will China Dump Its Dark Deal with America?

A new cold war is upon us, but only China is in a position to push it beyond the point of no return. That moment will come when China’s policymakers cross the Rubicon and decide to wean Chinese economic growth off the US trade deficit.

ATHENS – True hegemons prevail not by force but by offering hard-to-resist Faustian bargains. A prime example is the “Dark Deal,” which underpinned China’s economic miracle prior to the new cold war with the United States. That arrangement now hangs by a thread.

“Our Dark Deal,” a Chinese official once explained to me, “turns on the US trade deficit, which keeps demand for our manufactures high. In return, our capitalists invest the bulk of their dollar superprofits into America’s FIRE [finance, insurance, and real estate]. Once this process got underway, America shifted much of its industrial production to our shores.”

For nearly a half-century, the Dark Deal allowed China to convert its excess production – or net exports – into rights over property and rents in the US. It ensured that the dollar’s supremacy was just as functional to the interests of US rentiers as it was to Chinese capitalists.