PDF Summary:Paper Soldiers, by Saleha Mohsin

Paper Soldiers by Saleha Mohsin explores how the United States leverages the dollar as an instrument of economic warfare and foreign policy maneuvering to pursue its national interests. The narrative delves into how the dollar evolved from financing the Civil War to becoming a central pillar of global dominance, enforcing sanctions, curbing terrorism financing, and propelling geopolitical agendas against rivals like Iran and Russia.

The book also examines the Treasury Department's newfound significance in national security, as well as the implications and challenges that arise from the dollar's dual role as a political tool and the world's reserve currency. Tensions between the U.S. and China over currency manipulation are highlighted, underscoring the complex economic and political dynamics at play.

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Practical Tips

• Collaborate with a friend or family member to practice combined decision-making skills. Take a shared goal, such as saving for a vacation, and work together to gather intelligence on the best deals and enforcement strategies to stick to your savings plan. This partnership can help you refine your ability to use diverse sets of information and tactics in a practical, goal-oriented context.
• Engage with local representatives to discuss the importance of international economic policies and their impact on global affairs. Write a concise email or letter expressing your views on specific policies and ask how they align with promoting international goals. This personal initiative can provide insight into the practical side of policy-making and its implications.

The growing autonomy and influence of the Treasury Department within the U.S. government's national security apparatus.

Mohsin explores how the reach of the Treasury Department has expanded within different sectors of the U.S. government. She attributes the rise of the agency to its skill in financial warfare, its deep understanding of global economic trends, and its successful use of the US currency to achieve foreign policy goals. The author emphasizes the growing involvement of officials from the Treasury in high-level discussions on national security, their joint efforts with intelligence organizations, and the increasing influence of their experts in developing international sanctions strategies.

Other Perspectives

• This growth in influence might encroach upon the traditional roles and expertise of other departments, such as the State Department in diplomacy and the Department of Defense in military affairs, leading to potential conflicts of jurisdiction and inefficiencies.
• The rapid evolution of technology and financial instruments can outpace any single department's ability to fully understand and adapt to global economic trends.
• Relying on financial tools for foreign policy can disproportionately affect civilian populations in targeted countries, leading to humanitarian issues.
• The expansion of the Treasury's role in national security might not be matched by a corresponding increase in accountability and oversight, which could lead to unchecked power within a single department.
• Such collaboration could result in an overemphasis on security concerns at the expense of economic growth and the welfare of citizens, as national security imperatives might overshadow domestic economic needs.

Employing the dollar within global political tactics while maintaining its position as the foremost reserve currency around the globe.

Saleha Mohsin delves into the intricate challenges faced by the Treasury Department as it strives to maintain the dollar's status as the predominant global reserve currency while also leveraging it as an instrument for economic sanctions. The author argues that while sanctions are a powerful tool for promoting American interests, overuse of this instrument could undermine confidence in the dollar, driving foreign governments and businesses to explore alternative systems. She underscores the warnings of past Treasury leaders such as Jack Lew, who recommended not tying the use of the dollar to the objectives of foreign policy, cautioning that this could eventually result in a shift towards different currencies.

Mohsin examines specific instances where the application of sanctions, particularly targeting entities engaged in transactions with Iran, intensified tensions with allied countries and spurred the development of new financial systems that operate without reliance on the US dollar. She understands the significance of meticulously and tactically implementing measures that restrict economic activity to enhance the goals of national security, taking into account the robustness of the U.S. dollar and the equilibrium of global financial systems.

Context

• Historically, other currencies, such as the British pound, have lost their reserve status due to geopolitical shifts and economic changes, illustrating the potential risks to the dollar if its dominance is not carefully managed.
• By controlling access to the dollar, the U.S. can effectively limit a country's ability to participate in the global economy, as most international trade is conducted in dollars.
• There have been instances in history where overuse of economic tools led to unintended consequences, such as the development of parallel markets or increased economic alliances among sanctioned countries.
• Jack Lew served as the U.S. Secretary of the Treasury from 2013 to 2017, during which he dealt with various international financial issues, including sanctions.
• Sanctions are economic and financial penalties applied by one or more countries against a targeted country, group, or individual. They are often used to influence political or economic behavior.
• Some countries have increased their gold reserves as a hedge against dollar dependency, viewing gold as a stable alternative reserve asset.
• Policymakers must balance the immediate benefits of sanctions with long-term strategic goals, ensuring that measures do not undermine the economic systems they aim to protect.
• Past financial crises, such as the 2008 global financial crisis, highlight the importance of maintaining equilibrium. These events show how quickly instability can spread, emphasizing the need for careful policy implementation.

The impact of strong policies related to the U.S. dollar on employment, manufacturing, and the nation's broader economic landscape.

This section of the examination explores the economic consequences arising from a US financial policy that often advocates for a robust domestic currency. Mohsin delves into the negative effects of a strong currency on American workers, focusing on those employed in industries dependent on manufacturing and exporting goods. The author highlights the social and political fallout from joblessness and the downturn of industry, along with the frustration of those who see themselves as casualties of economic policies favoring Wall Street, feeling overlooked in the worldwide merging of economic systems.

The negative effects of a strong US dollar on the country's production and international trade sectors.

Mohsin examines how a strong dollar adversely affects key aspects of the American economic system. She argues that while a robust currency may benefit consumers through reduced prices on imported items, it also creates challenges for American exporters by reducing the appeal of their goods on the global stage. The disparity frequently results in employment declines within the industrial and tertiary industries, as businesses face challenges in contending with less expensive imports. The author suggests that the persistent strength of the U.S. currency played a significant role in the decline of America's manufacturing heartland, commonly known as the Rust Belt, thereby exacerbating the effects of industrial decline in advanced economies.

The industrial heart of America faced challenges as jobs moved overseas and it grappled with the competition from less costly foreign imports.

Mohsin's historical analysis suggests that the decline in the United States' industrial production is a consequence of the dollar's appreciation, increased global trade, and the enactment of treaties like NAFTA. She emphasizes the profound impact on predominantly working-class neighborhoods resulting from the transfer of jobs to countries like China and the decline of manufacturing centers in the heart of America's industrial sector. The author depicts the challenges faced by Weirton, West Virginia, a community dependent on steel production, which struggled financially because of unfair trade practices from countries like China, and emphasizes the profound impact on the employees and the local area when a key car manufacturing facility in Moraine, Ohio came under the control of Chinese investors.

Context

• As manufacturing jobs decline, there is often a shift towards a service-based economy. This transition can be challenging for workers who lack the skills required for new types of employment, leading to a skills gap and necessitating retraining programs.
• There was a growing demand for more affordable products, which often came from countries with lower production costs.
• The dollar's appreciation has been influenced by various factors, including monetary policy decisions by the Federal Reserve, global economic conditions, and geopolitical events that drive demand for the dollar as a safe-haven currency.
• Advances in technology and transportation have made it easier and cheaper to move goods across the globe, facilitating increased global trade and impacting domestic industries.
• The effects of NAFTA were uneven across the U.S., with some regions experiencing significant job losses and economic decline, while others benefited from increased trade and investment opportunities.
• The identity and culture of working-class neighborhoods, often closely tied to local industries, can be significantly altered, leading to a loss of community heritage and pride.
• As economic activity declines, there may be less investment in maintaining and upgrading infrastructure, leading to deteriorating roads, public buildings, and utilities.
• The U.S. steel industry has often accused countries like China of dumping steel—selling it at a price lower than its market value—into the American market. This practice can undermine domestic producers who cannot compete with the artificially low prices.
• Automation and technological advancements in manufacturing have also played a role in reducing the number of available jobs in traditional industrial sectors.
• The decline of manufacturing jobs led to economic downturns in communities like Weirton, resulting in reduced local government revenues and public services.
• Stricter environmental regulations in the U.S. increased operational costs for industries like steel, making it more challenging to compete with countries that had less stringent environmental laws, further contributing to the decline.
• The North American Free Trade Agreement (NAFTA), implemented in 1994, was a treaty between the United States, Canada, and Mexico aimed at eliminating trade barriers and tariffs to encourage economic integration and increase trade among the three countries.
• As job opportunities dwindled, there was an outmigration of younger residents seeking employment elsewhere, leading to an aging population and further challenges in revitalizing the community.
• The facility in Moraine, Ohio, was originally operated by General Motors and was closed in 2008 during the financial crisis, which led to significant job losses in the area.
• Over time, foreign ownership can lead to shifts in local economies, potentially affecting everything from local tax revenues to the types of industries that dominate the area. This can have lasting effects on community development and economic resilience.

The industrial workers' discontent sparked a political retaliation aimed at international trade and the agreements linked to it.

Mohsin delves into the social and political consequences that arise due to the decline of industrial output in America. She argues that the combination of stagnant wages and rising unemployment has fueled a surge in resistance against international trade agreements. The author examines how fears and disillusionment with the political establishment created an opening for populist leaders like Donald Trump to capitalize on anti-globalization sentiments to build their political base. She underscores the attractiveness of Trump's domestically-focused strategies to voters in the nation's interior, who frequently perceived themselves as overlooked by economic policies that appeared to prioritize the banking industry and foreign competitors, at the expense of local workers.

Other Perspectives

• Stagnant wages may also be influenced by broader economic trends, such as the decline of union power, which affects bargaining power for wages, rather than being directly tied to industrial output.
• The resistance against international trade agreements could be influenced by misinformation or political rhetoric rather than an objective assessment of the impact of these agreements on wages and employment.
• Some voters may support populist leaders due to alignment with specific policies or ideological stances, rather than a general disillusionment with the political establishment.
• Anti-globalization sentiments might be amplified by populist leaders rather than created by them, suggesting that these sentiments could have a life of their own independent of political manipulation.
• Some economic policies that appear to prioritize foreign competitors may actually be aimed at keeping consumer prices low, which indirectly benefits all consumers, including those in the nation's interior.

Authorities did not adequately address the negative economic consequences experienced by specific industries as a result of a strong currency.

Mohsin argues that policymakers, particularly in the Treasury Department, often overlooked the negative impact a strong dollar policy could have on American workers. She disapproves of the Treasury secretary's inclination towards forceful rhetoric over concrete measures when dealing with the currency manipulation of trade partners like China, rather than implementing stringent measures.

Typically, the Treasury Secretary exhibits reluctance to adopt major actions in reaction to the currency manipulation tactics employed by trading partners like China.

Mohsin examines the responses of different governments to China's fiscal policies. She argues that despite calls from lawmakers and trade groups for action, a succession of Treasury Secretaries, including Bob Rubin, Hank Paulson, and Tim Geithner, refrained from labeling China as a currency manipulator, wary that it could spark a trade dispute or destabilize the global economy.

The author emphasizes specific instances, especially when Senators Chuck Schumer and Lindsey Graham were actively pushing for tougher actions against Beijing, but their impact diminished due to the interventions of the Treasury Department. Trump's pressure on Mnuchin led to the reluctant labeling of China as a currency manipulator in 2019, a move that ultimately proved to be of minimal consequence, emphasizing the insignificance of the action, as pointed out by Mohsin. China's conduct persisted unchanged, and the expected balance in trade flows did not emerge.

Other Perspectives

• The reluctance to take significant actions could be rooted in a complex understanding of international economics, where the effects of such actions are not always straightforward and could lead to unintended consequences for the U.S. economy.
• The global economy is complex and resilient, and it is possible that labeling China would not have had as destabilizing an effect as feared, especially if accompanied by multilateral discussions and coordinated responses.
• The Treasury Department's interventions may have been based on a broader economic perspective, considering the potential repercussions of aggressive actions on international relations and the global economy.
• The impact of such a labeling might not be immediately apparent and could have longer-term effects on the behavior of other trading partners who might fear similar accusations.
• The lack of significant change in trade flows does not necessarily mean the action was inconsequential; it may have prevented further manipulation or escalation of the situation.

The gap between the everyday needs of employees and the goals pursued by Wall Street.

This section of the narrative highlights the imbalance in focus between the architects of policy on the financial industry and the needs of the typical individual within the United States. Mohsin argues that although a strong dollar favored investors and multinational corporations, it exacerbated economic inequality and amplified hardships for workers within the sector of industrial production. This dynamic further fueled the anxieties and anger of those who felt abandoned by the ruling class and exploited by globalization, setting the stage for a political backlash that would have profound consequences for American democracy and global leadership.

Context

• Globalization involves the integration of economies worldwide, which can lead to job outsourcing and wage suppression in developed countries as companies seek cheaper labor markets, impacting local workers negatively.
• Companies might adjust their supply chains to take advantage of cheaper imports, which can lead to a reduction in domestic manufacturing jobs.
• Decisions made by governments or financial institutions that affect the economy, such as interest rates, taxation, and trade agreements. These policies can have varying impacts on different socioeconomic groups.
• Economic policies perceived as favoring elites can erode trust in governmental and financial institutions, leading to a crisis of legitimacy and challenges to democratic norms.

The tense dynamics between the United States and China stem from their respective currency policies and the resulting impact on the global economy.

Mohsin delves into the complex interplay between China and the United States, highlighting the tension arising from China's fiscal policies and their impact on the global economy. The author explains that China deliberately lowers the worth of its currency as a tactic to improve its trading stance, emphasizing the country's persistent efforts to reduce the valuation of the yuan, thereby boosting its exports and leading to a substantial growth in its foreign currency reserves. She delves into the intricate monetary negotiations involving the US and China, underscoring the challenges faced by American diplomats in persuading Beijing to adopt a currency valuation system more aligned with market principles, along with the widening gap regarding fiscal strategies and trade practices.

China's transition to a market-based economy and the use of currency manipulation to boost exports

The author provides a historical examination, emphasizing how China shifted from an economy governed by state-mandated plans to one that embraces market-driven approaches. Mohsin highlights how China's deliberate actions to devalue its currency significantly contributed to the country's growth, which was fueled by exports, by detailing Beijing's tactics of keeping the yuan's value low to gain a competitive advantage in international trade.

The United States called for swifter reforms in response to the consistent appreciation of China's currency.

Mohsin delves into the evolution of China's approach to its currency management, highlighting the steady appreciation of the yuan as a result of pressure from the United States and its trading partners. She investigates the various tactics that Beijing utilizes to regulate its currency, including widening the trading band of the renminbi and increasing the adaptability of its value, all under a tightly controlled framework.

Practical Tips

• Start a virtual investment club with friends or online community members focusing on currency impact to simulate and discuss real-world currency management strategies. Each member could be assigned a virtual currency to manage, and the club could use a simulation platform to track how different strategies, like widening trading bands or adjusting values, affect their currency's performance. This activity would provide a collaborative environment to learn about currency management without financial risk.

The central objective of the high-level economic talks between the United States and China is to influence how Beijing manages its currency practices.

The section of the book delves into the establishment of the U.S.-China Strategic Economic Dialogue, a forum designed for elevated economic discussions, which Henry Paulson, serving as Secretary of the Treasury, launched in 2006. Saleha Mohsin's analysis delves into the difficulties American authorities encounter when they attempt to persuade China to adopt stringent measures concerning its currency practices and other unfair trading strategies. She underscores the contrasting approaches and priorities, highlighting China's commitment to long-term strategic planning and maintaining equilibrium amidst international disputes, in contrast to the United States, which concentrates on immediate concerns such as joblessness and trade deficits.

Practical Tips

• Engage in mindful shopping by considering the origin of products and the influence of currency practices on their prices. Before making a purchase, check the label to see where the product was made. If it's from China, think about how currency practices might affect the cost. This can lead to more informed decisions about the true cost and value of what you buy.
• Consider creating a personal investment strategy that includes Chinese markets. By researching and investing a portion of your portfolio in Chinese stocks or funds, you can gain a practical understanding of the economic interplay between the U.S. and China. This hands-on approach to finance will make you more aware of the global economic environment and the impact of international policies on investments.
• Consider volunteering with a nonprofit organization that addresses joblessness. By offering your time to help with resume workshops or job fairs, you contribute directly to reducing unemployment in your area. You don't need to be an expert; just being there to help with basic tasks or to offer moral support can make a significant difference.

The growing rift between the United States and China can be traced back to their unique approaches to economic policy and the deliberate use of the dollar for exerting influence.

Mohsin addresses the growing economic imbalances that are present between the United States and China. She emphasizes that the assertive actions taken by the leadership under President Trump, including the implementation of tariffs and sanctions, reflect a growing hostility towards the commercial strategies of China, which have faced criticism for taking advantage of the United States.

The United States escalates its sanctions and employs diverse tactics to counter China's intentional manipulation of its currency's valuation.

The author examines how the United States is progressively using economic sanctions to assert its power over China. She particularly highlights the enforcement of disciplinary actions on entities that engage in trade with the sanctioned country and are located outside its national boundaries.

Other Perspectives

• The use of sanctions could escalate tensions and lead to a trade war, which historically has been detrimental to global economic stability.
• There is a debate among economists about what constitutes currency manipulation and whether China's actions fit this definition.
• Such disciplinary actions may push the affected entities to seek alternative markets and financial systems, thereby reducing the long-term effectiveness of the sanctions.

China and its associates are actively exploring strategies to bypass the dominant role of the U.S. dollar in global trade and financial exchanges.

Mohsin's final remarks emphasize the measures implemented by China along with its allies to reduce their reliance on the U.S. dollar. The initiatives include the creation of new transaction methods, the enhancement of trade through the use of direct currency swaps, and the strengthening of the yuan's position as a major reserve currency.

Context

• Leveraging financial technology (fintech) innovations to create platforms that support multi-currency transactions and settlements, enhancing the ease and speed of cross-border trade.
• Countries like China have established currency swap agreements with several nations, including Russia and Brazil, to facilitate trade and investment without relying on the dollar.
• A currency that is widely used as a reserve currency can lead to lower borrowing costs for the issuing country, increased global influence, and greater economic stability.