China’s upset with the West. Or the West is upset with China. Both. It’s both.
“Essentially, it’s protectionism,” Mao Ning, a spokeswoman for Xi Jinping’s foreign ministry snapped, feigning irritability at a daily press briefing on Monday.
Mao was referring to efforts in Western capitals to level the proverbial playing field in the face of what US and EU officials claim is a deliberate effort on Beijing’s part to export its way out of an economic slowdown.
This isn’t exactly a new concern, but it’s taken on a heightened sense of urgency amid a seemingly intractable domestic demand slump in China. Efforts to revive consumer sentiment have largely come to naught, and the last round of activity data from the NBS juxtaposed a brisk pace of industrial activity with a moribund consumption impulse, underscoring the “two-speed” nature of China’s nascent recovery.
To be sure, cheap exports from a country grappling with entrenched factory-gate deflation can be a godsend for policymakers at pains to corral inflation across the developed world. But Washington and Brussels increasingly view that dynamic as too much of a good thing. Or too much of a goods thing, if you’ll pardon the bad trade joke.
The Biden administration unveiled new tariffs this month, and the G7 communique that came out of Stresa was biting, if not openly antagonistic. “We express concerns about China’s comprehensive use of non-market policies and practices that undermines our workers, industries and economic resilience,” the world’s richest countries said, adding that the G7 intends to “monitor” trade with China for any “potential negative impacts” of Xi’s overcapacity problem. In the event such impacts are identified, the West “will consider taking steps to ensure a level playing field.”
It was that language which rankled Mao — the foreign ministry spokeswoman, not the dead dictator, although he’d probably be indignant too. “The G-7 hypes up China’s so-called ‘overcapacity’ and tries to erect obstacles and limit China’s progress,” she chided.
In many respects, this is just run-of-the-mill, tit-for-tat blame casting, but it’s increasingly difficult to separate trade measures from actions taken in the name of national security. The blurring of that line — the two issues are by now essentially one — is a risk to global stability. If every trade dispute’s also a national security dispute, then there are a lot more national security disputes. And national security disputes are by definition destabilizing.
No issue encapsulates that dynamic more completely than the chip wars. On Monday, Bloomberg cited data from Tianyancha in tallying nearly $50 billion in Chinese state-linked financial commitments to the third iteration of a national semiconductor development fund. The size of the investments underscores Xi’s determination to make China self-sufficient amid US-led efforts to keep the country one step (and several years) behind the cutting edge.
When it comes to industrial policy, China’s no longer the only game in town. Voters in the US might not know it by name, but a lot of the initiatives championed by both Biden and Donald Trump are indeed a manifestation of industrial policy. Long story short, it’s now dawned on both Democrats and Republicans that the race with China is on and it encompasses everything from EVs to AI chips to rare earths.
By now, pretensions to civility are completely (laughably) transparent. The two sides (the West and China) are at war by proxy in Ukraine. Everyone knows that when Xi talks of a “multipolar” world order, what he really means is a bipolar world where China’s a pole. Or even a new, post-Pax Americana world where China’s the hegemon. And exactly no one believes Washington’s actually interested in a cajoling Beijing into a “fair and reciprocal” trade relationship. That ship sailed a long time ago. There’s no trust on either side and there never will be.
In public, Western officials pretend the world hasn’t changed. “It is really important [we don’t] unintentionally creep back into protectionism,” Jeremy Hunt ventured last week.
Too late, Jeremy. Again, that ship’s sailed. Headlines like “Biden Doesn’t Want You Buying an EV From China” (in The New York Times on Monday) are commonplace. The deck on that article said it all: “The president wants to shift America’s car fleet toward electric vehicles, but not at the expense of American jobs or national security.” Another way to put it might be to say we could clean up the environment if we weren’t so obsessed with killing each other. But that still leaves the lost jobs.
Speaking of new cold war headlines, Bloomberg last week published one of the more ominous headers I’ve read in a very long time: “ASML and TSMC Can Disable Chip Machines If China Invades Taiwan,” it said.
A BYD Seagull costs $11,000 (prior to tariffs). A Tesla Model 3 starts at $40,000.
We will see what the American consumer wants!
Where could I buy one without tariffs? Asking for a friend….
Well, the current 50% tariff rises to just over 100% on August 1.
All of that could be over the second Xi decides it. All he has to say is:
“We renounce to invade Taiwan now and in perpetuity and recognize its de facto independence, until such time they willingly join us”
Do you really believe that all of the tariffs and trade restrictions are being imposed solely to defend Taiwan?
By and large, yes. There are 2 arguments for these tariffs.
1 – national security (see above)
2- industrial policy. Our elites have belatedly realised that cheap goods for consumers doesn’t quite compensate for job losses for industrial workers.
How 1 and 2 gets weighted by individual politicians/this administration is anyone’s guess. But my bet is that, if Xi unilaterally promises peace (and acts in accordance with that), a fair few of these tariffs/the levels would be adjusted.
That vague hope is not worth giving up their ultimate bargaining chip for.
Especially if Cotton or Rubio is the VP pick: it’ll be all China, all the time until November.
I’m not sure what you consider the ultimate bargaining chip here? Xi about Taiwan?
To be clear, I think a cold war between the West and China sucks for both and a hot war would be way worse. I don’t see any upside for anyone here as opposed to peace where both China and us could keep on reaping that peace dividend.
Now, a subtle point could be that what’s good for China isn’t necessarily what’s good for the CCP and Xi but…
I taught over 12,000 university students in business subjects over a 40 year career. Frankly, most of them were lazy and did little to create the foundation for a useful career. My elite students knew what they could do and worked accordingly. I helped make as many of them better off as they would allow me to. I, for one don’t see the value of the tradeoff you posit in #2 above. I had to earn every dollar I made. Our workers don’t deserve “money for nothin’ and chicks for free.” They should be offered work, which the unemployment rate seems to indicate they are, at a wage level that makes sense. We can’t guarantee high paying jobs for all if that makes our home-grown goods too expensive for service workers to buy. Companies will do everything they can to keep lowing costs and AI is going to eliminate a lot of the free riders in our workforce the same way offshoring has been doing for many decades. Its called economics, my friends. Between cheaper and more expensive, no business will willingly volunteer for the latter.
Forgive my ignorance, and I do at least know this isn’t an apples to apples comparison: but what is the difference between China’s “chip’s fund” and the US “chips act” or massive tax breaks/refunds, etc.?
There isn’t. Chips are the constrained variable, and constrained variables are one of the three most powerful forces in the universe.
Since I know you’re curious, the other two are compound interest, and exclusionary zoning.