Think Piece – China’s Downward Spiral
Trump’s tariffs are globally ridiculed but the POTUS has found Xi’s Achilles’ heel. China is basically fucked.
Pretty much every economist, geo-strategist, pundit and chatterbox deems Donald Trump’s trade war against China as a ‘full-retard’ move. “Geez, doesn’t he realize that the American public will pay the exorbitant costs of the tariffs on Chinese-made goodies in the form of dearer prices?” goes the argument. Doesn’t The Donald fathom that a trade deficit does not correspond to strategic weakness? Um, what about cost-push inflation?
When he attended ‘the most venerable finance institution the world has ever known’ (the Wharton business school, of course – LoL), Donald Trump evidently skipped the soporific seminars and disquisitions on David Ricardo’s theory of comparative advantage. But somewhere along the way he picked up an instinctual grasp of high-stakes power politics and geo-strategy (and a fetish for neo-mercantilism).
A recent visit to China revealed to VIVISXN that the commie head honchos are clambering to come up with an effective strategy (any strategy, actually) to counter Trump’s sly asymmetrical blitzkrieg – which is exposing the feeble nature and fundamental weakness of China’s political-economy. China’s strategists, befuddled as fuck, have split ranks about what to do next; they are trying to make sense of the consequences of an ‘exogenous Trump shock’ that even Sun Tzu wouldn’t have foreseen. The Middle Kingdom’s middle class is increasingly angsty about what is to come. Members of the ruling CPC are ambivalent about a government helmed by Xi Jinping – ‘Mr. President for life’ – who keeps getting blindsided by America’s blond-coiffed global game theorist.
China has responded in totally predictable ways. It has imposed puny retaliatory tariffs, but it realizes the fundamental inequality: that Chinese imports of US goods are much less than US imports of Chinese goods – to the tune of $450 billion; hence the big ass imbalances. The notion of dispatching another delegation to Washington has been once again abandoned. Last week the loony ex-finance minister, Lou Jiwei, called for export restrictions on US companies such as Apple and Boeing; hotheads and puzzlewits like Wang Huning and Hu Xijin at the Global Times, are yammering for more draconian measures, like ‘weaponizing the yuan’ to undercut the US and blocking American businesses inside China. Even Wang Yi, China’s most cosmo and clever diplomat (below), is talking like a geo-economic jobbernowl. Watch the Chinese popinjay get played here by SecState Pompeo.
A few naive thought leaders in Beijing argue that the trade war has created an opportunity for the commies to speed up economic reform. Pessimists admit that the US tariffs pose an existential threat. They fret that, far from speeding up reform, the trade war could lead to its postponement – or outright failure. China is meant to be dealing with the mushrooming liabilities of its corporate sector, overcapacity in heavy industry and a financial system plagued by Ponzi shadow actors and ridiculous risks. But to hedge against the adverse effects of the trade war, China’s autocrats seem to be rekindling their debt-propelled infrastructure investment machine and fomenting black swans. Meanwhile China is becoming a nefarious dystopian nightmare. Read this.
The most significant feature of China today is the growing division in the party’s governing apex. As one China hand put it, there are three Chinas today: the “New New China” of the dynamic technology sector, the “New Old China” of the most profitable state-owned enterprises (SOEs), such as banks and telecoms, and the “Old Old China” of the heavy industrial, rust-belt SOEs.
There is mounting pressure on New New China from the government, which perceives the big tech companies as having grown so large as to pose a political/ideological threat. Jack Ma’s recent announcement that he intends to step down as executive chairman of Alibaba (the ‘Chinese Amazon’) has been the subject of febrile speculation. Rumor has it that Ma was told to step down with immediate effect but was able to negotiate a postponement.
Cheng Li argues in a current essay in Foreign Affairs that the key to China’s future is the attitude of its vast new middle class. That’s legit. The looming question is whether criticism of China’s leadership — which has focused on the escalation of the trade war but relates to other issues, including Xi’s abolition of term limits — will mutate into bellicosity of American bullying.
That is an interesting question. It seems that many educated Chinese people view the government’s foreign policy with derision. The recent media coverage of Xi in the People’s Daily has been comically old-fashioned, with innumerable boilerplate reports of his meetings with obscure heads of state, the majority from Africa. A few weeks back, hilariously, the front pages heralded Xi with Nicolas Maduro, the Venezuelan dictator, and Vladimir Putin. A popular meme on social media is a WeChat message contrasting China’s history of conflict with Russia with its history of good relations with the United States.
There is much about Xi Jinping’s China that brings to mind the French Second Empire, proclaimed in Paris 166 years ago. The emperor, Napoleon III, was a modernizing autocrat, a living advertisement for the benefits of strong leadership over democracy. Like Xi, Napoleon III pursued a free trade policy, exemplified by the 1860 Cobden-Chevalier trade treaty with the UK. Like Xi, he was a bold urban planner. During his reign Paris was transformed into the spacious city we know today, just as Beijing is being shorn of its migrant workers’ slums.
As in China today, the bourgeoisie in Second Empire France was, on the whole, content with its lot as long as the good times rolled on and the bourses ripped. There was a railway construction boom. The department stores of Paris, such as Le Bon Marché, were a sensation. But, like their Chinese counterparts, they held dear the gains of their enterprise. Property rights were sacrosanct, and threats to them were unpopular. If the threat was posed by corrupt officials, the reaction took the form of a liberalism that asserted the benefits of limited government, the rule of law and representative institutions.
The Second Empire grew ossified. Growth slowed. Foreign policy reverses culminated in the Franco-German War of 1870, in which French forces were swiftly squashed by the superior Prussian army. After a revolutionary interlude (the Paris Commune), the Third Republic was proclaimed. The lesson of history is that an autocratic regime that brings into being a large middle class runs a certain risk, one that Karl Marx — a total prick but keen observer of the events described above — understood well.
Xi Jinping is a student of Marx. He must therefore be aware of the risks he is running. For that reason we should expect him to do whatever it takes to avoid a significant slowdown in Chinese growth and to minimize conflict with a very superior adversary. He must be incessantly racking his brain over how to avoid the sort of head-on confrontation with his geo-strategic rival that undid Napoleon III. But that leaves him in a very uncomfortable position if Trump presses on with his trade war.
Unlike Kim Jong-un, Xi is not able to give Trump a symbolic victory by conceding to his demands at a showy summit, although the North Korean leader has demonstrated the ease of reneging when the cable TV cams move on. Even if Xi were sure that China’s trade policy could remain unchanged after such a summit, he still would not risk the associated loss of face. Jack Ma took a small piece of revenge on his political master by reflecting that the US-China trade war might last 20 years. That is the stuff of nightmares for China’s emperors.
Sure, Trump’s tariffs violate the theory that free trade is a ‘win-win’ process, but they make a good deal more political sense than is generally realized. With his uncanny instinct for exploiting the weak spots of adversaries, Trump has found the Chinese leadership’s principal vulnerability.
How far this weakness may lead to real economic problems for China remains to be seen. But it is already causing real political problems to Xi, six months after the decision to extend his term in office sine die. Future historians may be as impressed by the Trump shock as today’s economists are contemptuous of it.
Images Wikimedia Commons + Chen Man + 20th Century Fox
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