The end of fake ‘issues’?
The human rights ‘issue’
President-elect Trump chose Senator Marco Rubio as his Secretary of State despite the fact that, in 2020, China imposed sanctions on Senator Rubio for drafting and sponsoring the Uyghur Forced Labor Prevention Act and the Hong Kong Human Rights and Democracy Act.
This week, President Xi warned the G20 away from China’s four red lines: Taiwan, democracy, human rights, China’s path and system, and its right to develop. The following day UK PM Keir Starmer, addressing President Xi directly, challenged his human rights record1 and laid claim to Britain’s ‘shared interest in Hong Kong’.
The trade deficit ‘issue’
Beijing runs a manufactured goods surplus with the US but,says Glenn Luk, but runs trade deficits of $909B primary imports (food, minerals); $241B services (foreign travel/tourism/IP licenses); $386B foreign firms’ profit operating in China; $258B factoryless manufacturing. Subtracting these figures gets us back to the official surplus of $211B, or 1.2% of GDP. Exports’ share of China’s economy is 20%, compared to Australia’s 27% and Germany’s 51%.
But while the supply of fake issues – fake famine issues, fake massacre issues, fake statistics issues – is endless, Beijing’s patience is obviously not.
What if Beijing is fed up?
What if its leaders are as fed up with these taunts as they were in 1951, when they
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handed the US the worst defeat in modern military history? After all, China is the world’s leading economic, military, social and diplomatic power now. So what if Xi gets tough(er)? Will he deal with Secretary Rubio at all? Require him to withdraw his allegations? Relegate him to vice-ministerial meetings? In the meantime, let’s recall how Trump’s first trade war harmed American, not Chinese, exports. Trump overestimates both China’s reliance on US demand and his bargaining leverage. He also underestimates how far China has come since his first term and how much damage it could do if Xi chooses to retaliate..
Retaliation
Let us count the ways:
Tariffs on Key U.S. Exports like soybeans, aircraft, vehicles, and technology, targeting agricultural communities, aerospace2 industries.
Export Controls on Rare Earth Elements would disrupt U.S. high-tech manufacturing, electronics, green technology, and the military.
Retaliatory Sanctions against U.S. companies or individuals in finance, tech, or defense to limit their access in China.
Intellectual Property Restrictions or enforcement favoring Chinese companies.
Investment Restrictions: Prohibiting US investments in the world’s biggest, fastest-growing economy.
Diversion of Trade to other nations, isolating the US market.
Subsidizing Domestic Industries to make them more competitive.
Global Alliances to pressure the U.S. through mechanisms like the BRI and BRICS.
Financial geopolitics: The PBOC just issued $2 billion dollar-denominated Chinese sovereign bonds3 in Saudi Arabia to replace the debts of countries at risk of $ loan defaults with loans payable in RMB. Though the bonds earn 0.1% more than US Treasuries, the offering was oversubscribed twentyfold, which means that China could have sold $40 billion of its bonds if it wished to. China will use the dollars it raised to buy gold, silver, soybeans and corn in the U.S.
The effectiveness and repercussions of any of these strategies will depend on the economic climate, other nations’ responses and the resilience of America’s economy, but this time, China has the upper hand.
Further Reading
China is Ready for the Era of Great Rivalry. Blueprint for its New Reality, by Prof. Jin Canrong.
Bloomberg: Before Starmer had finished speaking, Chinese officials ordered British journalists out of the room and when Starmer’s entourage resisted, the Chinese physically removed them.
30% of the integrated circuits in America’s leading fighter jet, the F-35, are made in China because China is their sole source.
Sovereign bonds are guaranteed by the nation issuing them. In this case, China.
