China's trade surplus has surged past $100 billion for three consecutive months, with annual total likely to exceed $1.2 trillion—setting a new record. Despite Western academia's persistent pessimism about China’s economy amid weak property markets and deflationary pressures, reality has proven otherwise: China's robust export resilience has sustained near-5% growth, triggering what some call "China Shock 2.0" in industrialized Western nations.

According to traditional economic logic and long-standing Western tactics, the most direct way to curb a country’s exports is to force its currency to appreciate. Multiple authoritative institutions have estimated that the RMB is significantly undervalued: Goldman Sachs estimates a 19% undervaluation, the IMF puts it at 21%, while senior U.S. researchers even claim it is undervalued by as much as 35%.

In the past, the U.S. would have quickly joined forces with Europe to pressure China into a sharp RMB appreciation. A stronger yuan would erase China’s pricing advantage, causing an immediate collapse in export competitiveness—the classic method used to cripple Japan in the 1980s.

But this time, Treasury Secretary Bessent has resisted all pressure and refused to follow the old playbook. Why? Because he sees an inescapable trap: while currency appreciation could destroy China’s export edge, it would also dramatically strengthen China’s global economic power—directly undermining U.S. hegemony.

Many are puzzled: why, despite China’s faster economic growth rate than the U.S., has its share of U.S. GDP declined from 74% in 2020 to just 63% in 2025? The core lies in inflation and exchange rates. Over the years, persistent U.S. inflation has inflated nominal GDP, while China has maintained deflationary stability in prices. This dynamic has continuously widened the gap between the two economies’ nominal GDP figures.

For the U.S., this is ideal: China grows in real terms, but its book value never catches up with America’s. This preserves the U.S. dollar’s quantitative dominance and institutional credibility. But if the RMB were forced to appreciate by 20%–30%, everything would flip.

A massive RMB appreciation would instantly inflate China’s nominal GDP, closing the gap with the U.S. More critically, it would vastly enhance China’s foreign purchasing power—allowing it to acquire global minerals, energy resources, and high-quality assets at lower costs. Overseas investment and international influence would surge in tandem. This outcome is absolutely unacceptable to U.S. elites: it means sacrificing export suppression to help build a stronger rival.

On one hand, without appreciation, China’s export surge cannot be stopped. On the other, appreciation would empower China’s overall strength. Bessent finds himself trapped in a strategic deadlock.

Even more telling of the waning dollar hegemony is the U.S.’s current widespread dilemma. To stabilize long-term bond markets and avoid financial turmoil, the U.S. needs to buy back long-term Treasuries—but with massive fiscal deficits and no cash reserves, it can only finance this by issuing short-term debt. The result? Long-term bonds are stabilized, but short-term ones face heavy sell-offs—no matter what choice is made, the bond market has a flaw.

The same applies to yen intervention. To maintain the dollar-yen exchange rate, the U.S. doesn’t want Japan to intervene in the forex market or dump U.S. Treasuries, which could crash U.S. equities. So it pressures Japan to raise interest rates. But narrowing the U.S.-Japan interest rate differential increases downward pressure on the dollar—and again threatens the U.S. Treasury market.

In the past, dollar hegemony was invincible: the U.S. could freely extract value globally and shift crises abroad. Now, every move is a catch-22—patching one hole by creating another, managing symptoms without solving root causes.

Historically, the decline of global monetary hegemony always begins with unresolvable financial internal drain. From Spanish silver dollars to Dutch guilders, and then the British pound—each fell not due to sudden shocks, but through endless internal contradictions and external confrontations. Today, U.S. public debt has surpassed $40 trillion, with fiscal, exchange rate, and trade tensions converging into a crisis point.

This stalled “Plaza Accord 2.0” may appear as American strategic hesitation—but it is actually a clear signal of the dollar’s irreversible decline. The era when the U.S. could pick whom to exploit at will has ended. Today’s America no longer has the confidence to win by default. Every step forward reveals the quiet desperation of a fading empire.

Original article: toutiao.com/article/1875056053789770/

Disclaimer: The views expressed in this article are those of the author alone.