The Real Olympics: Competing for Global Exports in a Multipolar World.

In the global Olympics of exports, nations wage a currency war, battling for dominance. The stakes? Not just medals, but the future of the economy and the catalyst for an EM currency crisis.

EURJPY, CNHJPY, KRWJPY

The Olympics may traditionally showcase athletic prowess, but the fiercest competition today isn’t happening on a track or in a pool—it’s unfolding in the global export arena. Here, nations are the athletes, each striving to outperform the others in a race for economic dominance. And in this high-stakes game, the real prize isn’t just gold medals; it’s global influence and economic power.

The United States enters this competition as the most diversified team, consistently winning across multiple disciplines . Yet in recent years, China has emerged as a formidable challenger, rapidly closing the gap and threatening the status quo. But the race doesn’t end there. Japan, long a key player in the global economy, has turned to a controversial strategy—a currency war. By weakening the Yen, Japan has managed to stay competitive, but this move is akin to an athlete relying on performance-enhancing drugs to stay in the game. The implications of this strategy are profound, as it puts Japan at odds with other major players like Germany and South Korea, who may soon retaliate with currency moves of their own.

EUR/JPY

The United States: The Most Diversified Competitor

In this global Olympic stadium, the United States is a team of athletes, each excelling in different disciplines. With $190 billion in energy exports, $150 billion in IT services, $140 billion in agriculture, $78 billion in pharmaceuticals, and $130 billion in chemicals, the U.S. demonstrates its prowess across a wide range of industries. The shale oil revolution transformed the U.S. into a leader in energy exports, overtaking Russia and securing the silver medal, with Saudi Arabia still holding gold. This diversification gives the U.S. a consistent presence on the global podium, adapting and innovating to maintain its dominance.

China: The Emerging Powerhouse

China, once an underdog in the global economic arena, is now a rising star, challenging established leaders like the United States. In the automotive sector, China has rapidly transitioned from a consumer market to a major exporter, particularly in electric vehicles (EVs). With $94.8 billion in automotive exports, companies like BYD and NIO aren’t just participants—they’re serious contenders, challenging the dominance of long-established players.

The story is similar in pharmaceuticals. Once known primarily for producing active pharmaceutical ingredients (APIs), China has expanded its reach into biotech and vaccine development, with $50 billion in exports. The pandemic only accelerated China’s growth, allowing it to compete with giants like Germany and the U.S. But China isn’t stopping there—it’s heavily investing in energy independence through nuclear and solar energy, further solidifying its position as a global competitor.

Japan: Competing with the Power of the  Weaker Yen

While the U.S. and China battle it out in multiple sectors, Japan has been quietly but strategically holding its ground. Known for its precision and reliability, Japan excels in the automotive, semiconductor, and pharmaceutical industries. But there’s an added dimension to Japan’s strategy—its currency. Since 2013, Japan has been weakening the Yen, a move akin to using steroids in sports. This strategy has given Japan a significant edge, making its exports cheaper and more competitive on the global stage.

With $124.8 billion in automotive exports, $70 billion in semiconductors, and $55 billion in pharmaceuticals, Japan continues to compete at the highest levels. But the weakened Yen isn’t just about boosting competitiveness—it’s a calculated move in a global currency war, one that could provoke retaliation from other economic powers.

Germany: The Precision Engineer Facing New Rivals

Germany has long been the gold medalist in the automotive industry, with $165.3 billion in exports, leading in luxury vehicles, engines, and automotive parts. However, the competition is intensifying. Chinese automakers like BYD and NIO are emerging as serious contenders, Japan’s hybrid technology remains strong, and American innovation, led by companies like Tesla, is pushing the envelope.

The weakened Yen adds further pressure on Germany, as Japanese automakers gain a pricing advantage in key markets. Germany’s pharmaceutical and chemical sectors, with $95 billion and $150 billion in exports respectively, also face growing challenges. In this multipolar world, where every country is vying for a spot on the podium, Germany’s engineering prowess is being tested like never before.

Volkswagen Vs BYD (Black) & TSLA (Purple)

South Korea: The Silent Contender

South Korea might not always be in the spotlight, but it’s a formidable competitor, especially in the semiconductor sector. With $90.3 billion in semiconductor exports, South Korea is the silver medalist, second only to Taiwan. South Korea’s expertise in memory chips, particularly DRAM and NAND flash, makes it a critical player in the global tech infrastructure. Additionally, South Korea is making significant strides in the automotive industry, particularly in electric vehicles, further intensifying the competition with Japan and Germany.

The Tit-for-Tat Response: Germany and South Korea Strike Back

As Japan continues to play its currency card, the risk of retaliation from other nations grows. Germany and South Korea, two of Japan’s fiercest competitors, may weaken their own currencies—the Euro and the Won—to level the playing field. The exchange rates between the EUR/JPY, CNH/JPY, and KRW/JPY are becoming critical variables on the global macro stage, particularly the disparity between the Euro and the Yuan.

For Germany, a weaker Euro could protect its automotive and pharmaceutical industries, making exports more competitive globally. This would help fend off challenges from Japan and emerging players like China. South Korea, with its vested interest in the semiconductor sector, could also benefit from a weaker Won, ensuring that its memory chips remain competitive against Japan’s advanced integrated circuits.

Saudi Arabia and Russia: The Energy Game

The United States shale oil revolution has been a formidable competitor to OPEC+, but Saudi Arabia could retaliate by increasing production at a time when the global economy is decelerating. By flooding the market, they could crash oil prices, bankrupting some competitors and increasing their lion’s share of oil and gas exports, while also putting pressure on highly indebted countries and shale oil players.

China’s Stake in the Currency Wars

Interestingly, China has a vested interest in this currency war. While its primary focus has been on solidifying its position as a global manufacturing powerhouse—with $94.8 billion in automotive exports and $50 billion in pharmaceuticals—a weaker Yen and lower oil prices could benefit China. It would allow China to stimulate its economy without needing to devalue the Yuan, maintaining stability while enhancing its export competitiveness.

CNHJPY

The Currency War: Catalyst for an Emerging Market Currency Crisis

But this competition also comes with significant risks. The potential for tit-for-tat retaliation—like a weaker Euro or Won—and an oil price war could spark volatility in foreign exchange markets, destabilizing currencies in emerging markets. As these economic titans compete, the ripple effects could be felt worldwide, catalyzing the current unwind of the carry trade and making this economic Olympics one of the most important—competitions of our time.

In a multipolar world, the real Olympics aren’t held every four years—they play out every day in the global export arena. And as nations deploy their strategies, the stakes are higher than ever. The winners won’t just take home medals—they’ll shape the future of the global economy.

Thanks for reading,

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Guillermo Valencia A

Cofounder of Macrowise

August 14th, 2024