Trade

War!

Mr. Trump Attacks Aluminum, 

Russia Attacks the Debt

Putin is the master of parallel aggression.  You take an action against Russia, he will generally hit you back along some other vector.

In the case of the insane sanctions on Oleg Deripaska and Russian Aluminum giant, Rusal, back in April, we finally got some clarity as to how Russia can and will respond to future events. 

In yesterday’s Treasury International Capital (TIC) report, we saw clearly that Russia activated its nearly half of its $100 billion in U.S. Treasury debt to buy dollars in April.  More than $47 billion in U.S. debt was dumped into the market to cover the chaos engendered by Trump’s overnight diktat for the world to stop doing business with Rusal. 

In times past we may have not seen such a massive dump of U.S. debt by Russia.  They may have simply sold dollars directly or swapped euros or yuan for them.  But, these are different times.  Trump has taken the use of sanctions to a level that hasn’t been seen before. 

The net result will be more of the aluminum market will flow through the Yuan rather than the dollar, neatly avoiding sanctions and any future threats.  Because with the insanity caused by the overnight chaos in April, any aluminum supplier/consumer will be wary of another such edict from the naked Emperor in D.C. 

And, as such, they will diversify the currencies they buy and sell aluminum in.  It won’t be a sea change overnight.  Those least exposed will jump ship first.  Rusal will be one of the main beneficiaries since Russian banks are already sanctioned. 

Abusing your customers is never a winning marketplace strategy and that’s exactly what Trump’s sanctions policy is doing, abusing customers of the dollar.  Trust has been the dollar’s strongest attribute for a long time now and it is the primary reason why it has dominated trade and reserves. 

This is why Russia continues to run a very tight financial ship while it leads the charge away from the dollar. It’s inviting customers into the ruble with both a strong national balance sheet and relatively higher interest rates.  This has the U.S. fuming.

DYI