Federal Reserve’s embrace of higher inflation is ‘momentous’ for markets

Funds pile into gold, commodities and inflation-protected bonds as hedges for price rises

Jennifer Ablan

Everything worked in 2019. US stocks, junk bonds, silver, oil, bitcoin and even Greece-focused exchange traded funds posted stunning gains, boosted by easy central bank policies.

Now new risks lurk, as the US Federal Reserve continues to keep interest rates low and pursue monthly liquidity injections, as well as purchases of Treasury bills at a similar magnitude as previous rounds of quantitative easing. Such efforts have helped to send nearly every asset class into “bubbly” territory.

But a growing band of voices on Wall Street is warning of a possible consequence of this ever-looser monetary policy: inflation, which could dominate headlines this year for the first time in many.

Jeffrey Gundlach, chief executive of DoubleLine Capital, said it was a remarkable day for financial markets in late October, when Fed chair Jay Powell said he would need to see a “really significant move up in inflation that’s persistent, before we would even consider raising rates to address inflation concerns”.

For Mr Gundlach, whose firm manages $150bn in assets, the key word was “persistent.” He described it as “momentous” that Mr Powell was “now one of the leading inflation cheerleaders in the system. Higher inflation is now the goal of the Federal Reserve chairman. Can’t people see what a big shift this is?”

Worrying about inflation would certainly make a reversal from the past decade or so, when market watchers have been more bothered about deflation. Central banks have pulled out the stops to avoid sinking into the low-growth, low-inflation mire of “Japanification”.

The Fed cut interest rates three times last year, taking its target range for short-term borrowing costs to 1.5 per cent to 1.75 per cent.

The US central bank has a dual mandate of stable prices and maximum sustainable employment, “but unemployment is at a 50-year low, so why would they cut rates three times in three months?” said Richard Bernstein of Richard Bernstein Advisors. “It must be their concerns about deflation. Or put another way, not enough inflation.”

Mr Bernstein and Mr Gundlach note that Mr Powell’s push for more inflation is coinciding with moves by Donald Trump, US president, to relax fiscal constraints. The US government’s annual budget deficit swelled to $984bn in fiscal 2019, the most in seven years, as a drop in tax revenues coincided with higher military spending. The deficit is expected to top $1tn this year, theoretically feeding inflation.

At the same time, the effects of the long trade war with China may work their way through into higher consumer prices. The reason the US has not seen more inflation so far from tariffs is that companies are absorbing extra tariffs and accepting the squeeze on their margins. “That’s unlikely to continue in 2020,” said Mr Bernstein.

As a result, Mr Bernstein said his firm, which oversees $9.3bn of assets, has big positions in Treasury inflation-protected securities, or Tips. Such bonds, which pay investors a fixed interest rate as the bond’s par value adjusts with the inflation rate, are the “most straightforward way” to safeguard portfolios from inflation, said Kathy Jones, chief fixed income strategist for Charles Schwab.

Mr Gundlach also favours Tips as well as gold, commodities and emerging market assets, which tend to benefit from a weaker dollar, knocked down by inflation. He said a lower dollar was his highest-conviction trade for the year.

“We’ve suggested we are revisiting That ’70s Show, but not the late-’70s,” said Mr Bernstein, referring to the TV sitcom. “The inflation spirals of the ’70s didn’t start with everyone worried about inflation.”

Some parts of the market are catching on. Investors poured $208m into US-based Tips funds in the week ended January 15, according to Lipper data. That was the fifth consecutive week of inflows.

The softening dollar, meanwhile, is unleashing flows into commodity-linked funds, according to Jason Bloom, senior director of global ETF strategy and research at Invesco. He said such funds serve as a “powerful inflation hedge”.

Others are also piling into gold, the classic inflation hedge. Bridgewater Associates, the world’s largest hedge fund with $160bn in assets under management, sees gold prices, currently about $1,550 an ounce, eventually moving beyond $2,000 in an environment of lower rates and the Fed’s embrace of higher inflation.

The plaudits paid to former Fed chair Paul Volcker, who died late last year, focused on his victory over inflation in the 1970s.

His tenure demonstrated that inflation, once unleashed, is not easily tamed. It is understandable that investors are getting nervous about looser talk.

Persistent stimulus has kept global growth on track

Luckily, policymakers have believed their eyes rather than their theories

Martin Sandbu

Jerome Powell, chairman of the U.S. Federal Reserve, left, and Mark Carney, governor of the Bank of England (BOE), walk the grounds during the Jackson Hole economic symposium, sponsored by the Federal Reserve Bank of Kansas City, in Moran, Wyoming, U.S., on Friday, Aug. 23, 2019. Powell said the U.S. economy is in a favorable place but faces
Jay Powell, US Federal Reserve chairman, left, and Mark Carney, Bank of England governor, during the Jackson Hole summit in Moran, Wyoming, US, in August © David Paul Morris/Bloomberg

“The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.”

Thus wrote John Maynard Keynes in 1936. More than 80 years on, his insistence that governments should continue to stimulate demand even in a prolonged upswing is newly relevant.

The long, slow recovery from the 2008 financial crisis shows how concerns that demand stimulus had exhausted its purpose and should be dialled back have been at best premature.

So what have we learnt? The lessons are remarkably similar in all advanced economies.

First, demand stimulus works.

That simple observation faces surprising resistance. But those who reject stimulus because the economy is still in the doldrums and inflation below target have it the wrong way round.

The fact is that a persistent expansionary policy — monetary stimulus everywhere, and fiscal stimulus in the US and a few other places — has kept growth on track well beyond the length of typical economic recoveries, and more stimulus has tended to go with more growth.

This has pushed unemployment down and created more jobs than observers thought was safely possible.

The “Phillips curve” that warns of inflation rising when labour markets become too tight has been quiescent.

Second, the longer demand keeps expanding, the greater the benefits for the least fortunate.

Those on the margins of the labour market are typically hurt first and worst in a downturn.

Conversely, only when the economy is kept in Keynes’s “quasi-boom” does it bring them towards acceptable levels of unemployment and wage growth.

In the US, according to researchers associated with the US Federal Reserve, “when the unemployment rate of whites increases by 1 percentage point, the unemployment rates of African Americans and Hispanics rise by well more than 1 percentage point, on average”.

In a recent paper, they found that when labour markets are particularly tight, this extra advantage for marginalised groups becomes even stronger.

In this sense, aggressive demand stimulus becomes more, not less, beneficial the longer it goes on.

We can see this phenomenon in many of the numbers and stories that describe the current state of our economies.

In the US and the UK, recent wage growth has been strongest for those paid the least.

In much of Europe, more of the population has a job than ever before.

Anecdotes abound about those previously given up as hopeless cases — former drug addicts and ex-prisoners, for example — now being not just hired, but trained to earn their keep by employers struggling to fill vacancies.

We are entitled to hope for a third lesson: that the historical pattern of productivity increasing in an upswing will also come through this time.

The reason for procyclical productivity is that robust demand growth creates incentives for businesses to do more with the same resources once it becomes difficult to expand by just hiring more.

We have been lucky in that many policymakers, especially central bankers, have been more willing to believe their eyes than their theories.

They have seen their policies working for longer than expected. They have noted the positive results — often highlighting the lack of inflationary pressures, the benefits of driving employment higher for those on the margins, and the possibility that supply capacity adjusts to satisfy demand pressures.

Because of this sensitivity to economic reality, the end of demand stimulus has been postponed many times.

Without it, more policymakers would have caused unnecessary slowdowns or downturns — as the eurozone did by tightening fiscal and monetary policy in 2011.

But avoiding unforced mistakes is not enough for sound policymaking. At a minimum, the experiences of the past decade call for a much more tolerant attitude to stimulus, whether from finance ministries or central banks.

Better still would be to incorporate this data formally in the formulation of policy targets — whether central banks’ mandates or rules for government budgets.

In practice, this could mean at least three things.

One would be to increase the burden of proof for scaling back stimulus on the grounds that the economy had reached full capacity.

That would avoid premature tightening — and the subsequent need to loosen.

Another would be to shift the focus from how the economy performs on average to how it performs for those on its margins.

All-economy (un)employment and inflation rates could be complemented by explicitly taking account of labour market and wage performance for vulnerable groups, trading off higher tolerance for overall inflation risk against greater expected benefits for those often left by the wayside.

Third, the effect of demand pressure on productivity growth could be explicitly included in forecasts.

Such steps could introduce an inflationary bias — but only if there was no risk of leaving unused economic capacity on the table.

But as the past few years have shown, that risk is real.

In the 1980s, economic theory concluded that responsible macroeconomic policy required policymakers who were more hawkish than voters.

Today, we need the opposite.

Was Killing Suleimani Justified?

At a press conference following the US drone strike that killed Iran's top military commander and several others, a senior State Department official burst out: “Jesus, do we have to explain why we do these things?” In fact, the international rule of law depends on it.

Peter Singer

singer179_ATTA KENAREAFP via Getty Images_iranprotestsoleimani

MELBOURNE – On January 3, the United States assassinated Qassem Suleimani, a top Iranian military commander, while he was leaving Baghdad International Airport in a car with Abu Mahdi al-Muhandis, an Iraqi leader of Kata’ib Hezbollah, an Iran-backed militia. All the occupants of the car were killed.

The next day, at a special press briefing, an unnamed senior US State Department official said that Suleimani had been, for 20 years, “the major architect” of Iran’s terrorist attacks and had “killed 608 Americans in Iraq alone.” He added that Suleimani and Muhandis had been designated as terrorists by the United Nations, and that “both of these guys are the real deal in terms of bad guys.”

In 2003, US intelligence about Iraq’s supposed possession of weapons of mass destruction was completely wrong.

Those errors led to the invasion of Iraq, which cleared the way for the involvement of Iran and Suleimani in the country.

But let’s assume that this time the facts are as the US administration says they are.

Was the double assassination ethically defensible?

We can begin with the presumption that it is wrong to take human life.

President Donald Trump won’t deny that. A year ago, for example, he said: “I will always defend the first right in our Declaration of Independence, the right to life.” Trump was addressing his remarks to anti-abortion campaigners, but a right to life that applies to fetuses must also apply to older humans.

Is there an exception for “bad guys,” though?

Again, to keep the argument as straightforward as possible, let’s assume that the right to life protects only innocent humans. Who is to judge innocence? If we favor, as Americans often say they do, “a government of laws, not of men” there must be a legal process for deciding guilt. Since 2002, the International Criminal Court has sought to apply that process globally.

The ICC has had some notable successes in prosecuting perpetrators of war crimes and crimes against humanity, but the court’s scope is limited, and its reach has not been helped by the refusal of the US to join the 122 other countries that have accepted its jurisdiction.

In the wake of Suleimani’s assassination, Agnès Callamard, a Special Rapporteur on extrajudicial, summary, or arbitrary executions at the Office of the UN High Commissioner for Human Rights, noted that there is no oversight of targeted killings carried out beyond a country’s borders.

The Executive simply decides, without any legal due process or approval by any other branch of government, who is to be killed.

Accepting such an action makes it difficult to find any principled objection to similar killings planned or carried out by other countries. That includes the 2011 “Cafe Milano Plot,” supposedly masterminded by Suleimani himself, in which Iranian agents planned to kill the Saudi ambassador to the US while he lunched at a well-known restaurant in Washington, DC.

The only thing the US can say in defense of its assassinations is that it targets really bad guys, and the Saudi ambassador was not such a bad guy. That puts the rule of men above the rule of law.

The other justification that the Pentagon offered for the killing referred vaguely to “deterring future Iranian attack plans.”

As Callamard pointed out, this is not the same as the “imminent” attack required to justify acting in self-defense under international law. She also noted that others were killed in the attack – reportedly, a total of seven people died – and suggested that these other deaths were clearly illegal killings.

A careful reading of the transcript of the January 3 press briefing, held by three unidentified senior State Department officials, reveals the Trump administration’s real thinking.

In response to repeated questions about the justification of the assassination, one official compared it to the 1943 downing of a plane carrying Japanese Admiral Isoroku Yamamoto, who was visiting Japanese troops in the Pacific – an incident that occurred in the midst of war, more than a year after the Japanese attacked Pearl Harbor.

Another official said: “When I hear these questions it’s like you’re describing Belgium for the last 40 years. It’s the Iranian regime. We’ve got 40 years of acts of war that this regime has committed against countries in five continents.”

At one point, the official who had compared the assassination to the killing of Yamamoto burst out: “Jesus, do we have to explain why we do these things?”

If senior State Department officials believe that the US is engaged in a just war with Iran, as it was with Japan in 1943, the killing of Suleimani makes sense.

According to standard just war theory, you may kill your enemies whenever you have the chance to do so, as long as the importance of the target outweighs the so-called collateral damage of harm to innocents.

But the US is not at war with Iran.

The US Constitution gives Congress the sole authority to declare war, and it has never declared war on Iran. Speaker of the House Nancy Pelosi suggested that congressional leaders should have been consulted on the plan to kill Suleimani. If it was an act of war, she is right.

If, on the other hand, the killing was not an act of war, then, as an extrajudicial assassination that was not necessary to prevent an imminent attack, it was both illegal and unethical.

It risks severe negative consequences, not only in terms of escalating tit-for-tat retaliation in the Middle East, but also by contributing to a further decline in the international rule of law.

Peter Singer is Professor of Bioethics at Princeton University and founder of the non-profit organization The Life You Can Save. His books include Animal Liberation, Practical Ethics, The Ethics of What We Eat (with Jim Mason), Rethinking Life and Death, The Point of View of the Universe, co-authored with Katarzyna de Lazari-Radek, The Most Good You Can Do, Famine, Affluence, and Morality, One World Now, Ethics in the Real World, and Utilitarianism: A Very Short Introduction, also with Katarzyna de Lazari-Radek. In 2013, he was named the world's third "most influential contemporary thinker" by the Gottlieb Duttweiler Institute.

The Kenya Attack and Soleimani’s Killing

By: Hilal Khashan

While the world was still reeling from the death of Iranian Gen. Qassem Soleimani, an attack occurred in Kenya against U.S. and Kenyan military forces.

In the early hours of Sunday, fighters with Somalia-based terrorist group al-Shabab overran the Manda Bay Airfield. The airfield is part of Camp Simba, a key military base for Kenyan-U.S. counterterrorism operations, located in Lamu County near the border with Somalia.

The attack was the al-Qaida-linked group’s first on U.S. forces in Kenya and lasted several hours before the attackers were repelled. U.S. and Kenyan officials said the attack resulted in the deaths of three Americans (one soldier and two contractors) and damaged six civilian aircraft operated by contractors.

A Kenyan police report obtained by the Associated Press indicated the destruction was more extensive, saying the attackers destroyed two fixed-wing aircraft, a U.S. Cessna and a Kenyan Cessna, along with two U.S. helicopters and several U.S. vehicles. According to al-Shabab, there were 17 U.S. casualties as well as nine Kenyan soldiers killed and seven aircraft destroyed.

At first glance, the attack does not necessarily register as significant. Al-Shabab has carried out frequent attacks in Kenya since 2011, when Kenya sent troops to Somalia to help fight the group.

Over the past two years, the United States has stepped up its airstrikes against al-Shabab targets, to which al-Shabab responded with an uptick in attacks against Kenyan military and civilian targets. But until now, the group has avoided U.S. forces.

This fact plus the timing and global context suggest the attack may be tied to other, more significant events in the neighboring Middle East and therefore worth more consideration.

Al-Shabab said the Kenya attack was part of a pro-Palestinian jihadist campaign that the group joined back in 2019, but there are reasons to think it may have been retribution for Soleimani’s death.

At this point the evidence is weak, but it appears the attack was hastily organized and poorly executed.

The weapons used were not particularly sophisticated, and the equipment that was damaged – going by the more detailed U.S. report – will not affect the ability of the United States to conduct its counterterrorism operations. The main objective appears to have been to make headlines.

The assailants failed to force their way into the base, and five of them were killed.

Indirect mortar fire inflicted the U.S. and Kenyan casualties, and the aircraft were reportedly damaged by fuel tank fires. The entire episode was concluded within a couple of hours.

It also may not be a coincidence that the attack comes just days after Soleimani’s killing. It’s true that al-Shabab’s attacks in Kenya are frequent, but this is the first time the group has targeted a U.S. base in the country.

Soleimani’s death provided not only a potential motive for an anti-American attack but also the opportunity to strike a U.S. target while the U.S. military was focused on the threat of reprisal attacks closer to Iran – in Iraq or Saudi Arabia, for example – as well as on troop deployments in the Middle East.

Finally, it is noteworthy that al-Shabab claimed that it attacked the military base for the sake of "al-Quds" (Jerusalem), which is similar rhetoric to that used by the Iranians to legitimize previous operations of Soleimani, who commanded Iran’s elite Quds Force.

Though the Islamic Revolutionary Guard Corps and al-Shabab belong to different branches of Islam, the traditional Sunni-Shiite divide between the two groups is not insurmountable, and indeed the two have economic ties.

Al-Shabab exports Somali charcoal, which is famous for its quality, by boat to Iran, where it is repackaged and sold as an Iranian product. Al-Shabab needs funds to cover its expenses, and the Iranians have always been eager to cooperate even though al-Shabab is Sunni.

This is not the first instance of the IRGC crossing the religious divide with other end goals in mind. Hamas works with the Iranians despite their distinct ideological differences, which became obvious after the inception of the Syrian uprising in 2011.

Business transactions and political ideology are two separate matters.

The full range of implications of Soleimani's killing has yet to fully play out and be understood.

In the case of the Kenya attack, the timing, target, poor execution and al-Shabab's rhetoric and economic links to the IRCG are enough to raise the question of a possible link between the two, which would indicate a level of internationalization of the conflict.

Unfortunately, that is all we have to go on at the moment, and no firm conclusions can be drawn.

But the killing of Soleimani was a significant event, and we must be alert for potential ramifications not just in the immediate neighborhood.

400-pound rivals

China views Donald Trump’s America with growing distrust and scorn

And cynics in Beijing hope for his re-election

Zoologists use a mild-sounding term—“displacements”—for moments when a strong, young mountain gorilla confronts the dominant male in his group. Behind the jargon lies a brutal reality: a drawn-out, bloody conflict looms.

China’s leaders similarly use prim, technical-sounding terms to describe their confrontation with America. In closed-door briefings and chats with Western bigwigs, they chide the country led by President Donald Trump for responding to China’s rise with “strategic anxiety” (ie, fear). They insist that China’s only crime is to have grown so rapidly.

However, behind that chilly, self-serving analysis lurks a series of angrier, more primal calculations about relative heft. These began before Mr Trump came to office, and will continue even if an initial trade truce is made formal (Mr Trump says he will sign one on January 15th).

They will endure long after November, when American voters next choose a president. China has spent decades growing stronger and richer. It already senses that only one country—America—can defy Chinese ambitions with any confidence.

Its leaders have a bleak worldview in which might makes right, and it is a fairy tale to pretend that universal rules bind all powers equally. Increasingly, they can imagine a day when even America ducks a direct challenge, and the global balance of power shifts for ever.

Getting hairy

China does not seek a fight now.

Like a powerful juvenile warily sizing up a silverback gorilla—his age and status marked by the silvery fur on his back, and his mighty muscles and teeth—China knows that America can inflict terrible damage, as it wields still-unrivalled economic, financial and military might.

But officials and scholars in Beijing no longer bother to conceal their impatience and scorn for an America they view—with a perilous mix of hubris and paranoia—as old, tired and clumsy.

When addressing foreigners, China’s leaders talk piously of their commitment to free trade, market opening and globalisation. Their domestic actions betray a different agenda: namely, to make Chinese companies dominant in high-value manufacturing sectors, and to hasten the day when they no longer depend on America for vital technologies.

Long before Mr Trump was elected, China pursued such policies as “indigenous innovation” and “civil-military fusion”. Since Mr Trump’s tariff war with China began in 2018, President Xi Jinping and his underlings have accelerated efforts to make China self-sufficient in high-value sectors, creating supply chains that are “autonomous, controllable, safe and effective”, in Mr Xi’s words.

For decades Chinese officials have seen bilateral relations swinging, pendulum-like, between periods of hostility (notably during American elections, when candidates promise to shield workers from unfair Chinese competition) and a profit-driven willingness to engage. Now Chinese and American insiders talk of a downward spiral. Both countries have become quick to assume the other has malign motives.

Where relations were once balanced between co-operation and competition, and China’s rise seemed on balance to benefit both countries, Chinese officials accuse Mr Trump and his team of seeking co-operation only when it serves a coercive, short-sighted “America First” agenda.

They do not see this changing soon—far from it. They view relations with sour fatalism, and America as a sore loser.

Chinese experts talk wistfully of the scores of dialogues and mechanisms that used to underpin co-operation with America’s government before Mr Trump scrapped most of them. But, when pressed, they struggle to explain what a useful agenda for future talks might be. Instead, they prefer to count the ways in which America is to blame for today’s tensions.

In China’s telling, American companies became accustomed to making fat profits in China, but see Chinese rivals catching them up and potentially setting global standards for future technologies. Now American businesses are crying cheat, and demanding that trade rules designed for the rich world be used to keep China down.

Populist election victories in the West are ascribed to domestic failures in the countries concerned. Chinese officials say that America failed to educate workers, allowed inequalities to yawn and never built social safety-nets to help victims of globalisation—and is now scapegoating China for those ills.

In public, Chinese officials call Mr Trump’s tariffs self-defeating and stress their country’s economic resilience. In private, they are both less confident and less focused on tariffs than they pretend. They are less bullish because economic sentiment in China was fragile before the trade war. Worse, the tariff feud has planted seeds of uncertainty about the country in the heads of every chief executive pondering where to place a new factory.

Chinese officials are less focused on tariffs than they maintain in public because they believe Mr Trump will lose his leverage over time, as he frets about the impact on American farm states and other places where he needs votes. Chinese officials fear other forms of competition more than any tariff fight. In Beijing leaders do worry about the consequences of a technology war with America or of an all-out struggle for global influence.

It is not just a figure of speech when officials in Beijing divide foreign grandees into “friends of China”, and “anti-China forces”. China’s rulers take an intensely personalised view of foreign relations. Communist Party bosses have learned over decades that individual foreign envoys, ceos and political leaders can be turned into reliable advocates for China with the right blend of high-level access and reasoned appeals, financial incentives and flattery.

But Chinese officials feel sadly short of influential friends in the corridors of American power.

Within the Trump administration, only the treasury secretary, Steven Mnuchin, is seen as representing the old, familiar American approach of putting profit first when engaging with China.

There are firms that rely heavily on China as a supply base and market, from Apple to General Motors, which sells more cars in China than in America. But the profit motive itself is under suspicion in the new, populist Washington, where even Republican members of Congress urge businessmen to weigh America’s national interests in dealings with China, and not just their shareholders’ dividends.

China can live with “Trump first”

After much study, leaders in Beijing have decided that Mr Trump is neither a friend of China nor a traditional anti-China hawk, in the sense of someone who disapproves of the party’s policies on grounds of principle. In essence, Mr Trump is seen as a friend of Mr Trump—a man whose self-interest is his only reliable guiding instinct.

Famous scholars at elite universities in China who have studied America for years tut-tut about how that makes Mr Trump unpredictable and liable to break any promise he makes to Mr Xi.

More cynical figures, including some close to the national security bureaucracy, unblushingly root for Mr Trump to win re-election in 2020, so that he can continue to upset allies and cast into doubt decades-long American security guarantees in Asia.

Their great fear is that Mr Trump may be captured by sincerely hawkish aides. That includes economic nationalists with trade portfolios, like Robert Lighthizer and Peter Navarro. But unique animus is aimed at the “two Mikes”: the vice-president, Mike Pence, and the secretary of state, Mike Pompeo. In Beijing both are called anti-communist, evangelical Christian zealots, with ambitions to succeed Mr Trump in 2024.

China is sure it is in a worldwide influence war, in which its propaganda about Xinjiang, Hong Kong or Huawei is pitted against an “anti-China” story.

Mr Pence and Mr Pompeo are semi-openly reviled as crazy, ignorant warriors in that conflict.

They are accused of slandering China over its iron-fisted rule in the western region of Xinjiang, and of egging on pro-democracy protesters in Hong Kong, whom China calls terrorists and separatists. Mr Pence and Mr Pompeo are also condemned for leading a diplomatic charge to warn smaller countries to beware of Chinese loans and technology (the results have been mixed).

Chinese officials have not missed the factor that links all successful efforts at American arm-twisting. Countries have proved most tractable when America has real co-operation to offer or to withhold, whether that involves Poland and its yearning for a permanent garrison of American troops to act as a tripwire against Russian aggression, or Brexit Britain dreaming of a free-trade deal with Mr Trump.

Where American envoys merely nag countries to shun China’s investments without offering concrete alternatives, they have fared less well. As one Chinese insider crows, America under Mr Trump looks “self-isolating”.

Chinese officials who favour Mr Trump’s re-election hope that he will feel free in his second term to disavow hawks around him and pursue transactional policies. They fret that a Democratic president may place more weight on human, labour and environmental rights.

All this fulminating does not mean that China seeks to match the hawks in Washington and drag their two countries into a new cold war, in which the world is divided into rival camps. China believes that most other nations do not want to choose between it and America, at least for now.

China is playing for time, as it builds its strength and tries to construct alternatives to such potent tools of American power as the dollar-denominated financial system. China’s interest in developing its own blockchain technology and international payment systems is in part a sign of its fear of American sanctions that would expel Chinese banks from American markets.

Some Chinese voices say their country has not lost interest in an offer China made to Mr Trump’s predecessors, involving a “new model of great-power relations”: code for carving the world into spheres of geopolitical influence, and an end to American carping about China’s ways. Others stress China’s right to help write the rules of globalisation.

That would be reasonable, were it not that China’s aim is to make the world safe for techno-authoritarian state capitalism. Chinese officials want to avoid confronting America for now. But few silverbacks gracefully retire.

Increasingly, America is seen as an obstacle to China’s rise. That means trouble looms.