Gordon Chang returns today, expressing opinions critical of China, this time at the Daily Beast and about China’s prospects for victory in a trade war:
In 2016, a stunning 68.0 percent of China’s overall merchandise trade surplus related to sales to the U.S. In 2017, that figure increased to 88.8 percent. Trade-surplus countries, as history shows, generally suffer more in trade wars.
Beijing, therefore, is generally vulnerable to being pushed around by Washington. “If trade is so unimportant to China, why has China’s trade predation lasted so long and taken so many different forms?†Alan Tonelson, an independent Washington, D.C.-based trade analyst, asked, in comments to The Daily Beast over the weekend.
Second, the American economy is far bigger than the Chinese one. Beijing claimed gross domestic product of $12.84 trillion in 2017. America’s economy, by way of contrast, clocked in at $19.39 trillion last year.
China’s GDP numbers are surely overstated because, especially during the last two years, the country’s growth was less than half that reported by the official National Bureau of Statistics. America’s larger economy is, at the moment, in fact growing at a faster clip than China’s.
It should go without saying that big economies push smaller ones around, especially when the gap is this large.
Third, the American economy, for all its faults, is stable, and China’s, by most accounts, is on the verge of a debt crisis. China’s debt-to-GDP ratio looks like it is somewhere, depending on the amount of so-called hidden debt, between 350 percent and 400 percent.
Chinese concern about the state of the economy led to extraordinary capital flight in 2015 and 2016, with net capital outflow probably reaching $2.1 trillion in the two-year period. Only the imposition of draconian capital-control measures beginning in the fall of 2016 stopped the outbound torrent of capital.
I do not know how China would weather an actual trade war. Trade war with China might be disastrous for the rest of the world or it might be benign—it could cause China to look inwards, the direction in which it must look for future economic growth. It could cause China to open its economy rather than close it further. A man’s reach must exceed his grasp, etc.
Even the most dictatorial autocrat faces political pressures and, since we know so little about China’s high level politics, we can’t assess the pressures that Xi faces. We can only speculate from the actions he’s taken lately that he faces pressures. Where those pressures may lead him we can’t possibly know.
The only other observation I can make is that a weathervane loses its usefulness when, regardless of which way the wind is blowing, it always points in the same direction. While I am anti-Chinese regime, I am not anti-China. I consider the evidence and I express my opinions but I am not ideological.
I don’t know a trade war comes out for us or China. I think the author makes good points, but on the other side I don’t think the US has much willingness or ability to tolerate privation in any sense. If we don’t make small engines, just making an example, and they mostly come from China, then we cant have small cars w/o those engines from China. I could see us caving pretty quickly, especially if we were in a vulnerable part of the election cycle.
Steve
They come mostly from Japan and South Korea but I’m guessing that the supply chain for them runs through China.
What if you start a trade war and nobody fights, or the wrong side wins?
We will soon find out who is right. If there is a trade war and the US loses, the free-traders gain little, but if there is no war or the US wins, free-trade is dead.
Hubris is thinking you are Lucy pulling the ball but learn you are Charlie Brown lying on your back.
Another option is that China will lash out in desperation similar to Japan in 1941. If a trade war threatens to destabilize the present power structure in China, then it’s leaders may look for alternative ways to maintain legitimacy. Considering the promotion of nationalism within the country, a conflict is certainly possible.
Dave- Just using that as an example. My point is that I am not sure who has more staying power in a trade war. Given our two year election cycle I have doubts about our abilities to sustain. The Dems lost in a big wave election over the ACA. If the economy goes south will the GOP tolerate a similar wave election?
Steve
Just to add to my point, we had a 700 point drop in the stock market Friday over trade war concerns. So this weekend and today we get the Wh sending out its people to soft pedal this. If we can’t tolerate a single day stock correction, how would we weather an actual trade war? I have a hard time seeing the wealthy folks in Trump’s administration and his constituents putting up with this.
Steve
What the stock market takes on Friday, it gives back on Monday. Does that mean that investors are no longer free-traders?
Here’s, to coin a phrase, a shiny new dime that says US manufacturers would adapt to product need far more rapidly than comments in this thread would indicate.
I’ve been there.
That’s certainly my view. For one thing the lead time and capital investment required for a 21st century factory isn’t what it was for a mid-century factory.
“adapt to product need far more rapidly than comments in this thread would indicate.”
So a couple of months? Anything longer than that and not sure how well everyone else tolerates it.
Steve
I remember when China imposed punitive tariffs on corn products. Agriculture came to a stand-still and there were lamentations across the land, and oh, the lamentations of the NY Times were the most lamentable of all. And then Trump got them lifted and everyone rejoiced, but throughout all the soft winds still shook the corn.