It’s April 30 as I write this and China hasn’t lost the trade war yet. But it’s a foregone conclusion. For Americans, we fret over the economic powerhouse built on the resilience, teamwork and sacrifice of the Chinese. However, as beautiful as the people and the culture are, the only option they have is to manage their inevitable defeat. Here are a few reasons why:
-The Chinese are savers, causing deflation. The Chinese Communist Party needs the Chinese citizen to start consuming. But the Chinese culture, to its credit, is one of prudence and modesty. In America we eat ultra-processed food until we need Ozempic. In China, they eat bitterness in this generation to pave the way for the next. They are an export-only economy where the US is 26% of their income. The Chinese consumer will never fill that gap.
-They import the bare necessities. 40% of every Chinese plate is imported every single day. They import 30% of their oil and they are the largest importer or Liquified Natural Gas. And they have to buy these imports with dollars. They don’t get dollars by converting their currency into dollars, they do it by trade.
-Youth Unemployment is over 16%. Assuming the Chinese government is reporting the truth, these are still terrible numbers. Their economy was already headed towards or was already in a steep recession last year. Before the tariffs, there weren’t enough jobs. Now the tariffs have shut down 35% of factories, these numbers are worse. They were over capacity before the tariffs with nowhere to turn.
-Their banks are insolvent. After only twenty years of banking they are leveraged at 3 to 3.5 times their own Gross Domestic Product (GDP). https://www.ceicdata.com/en/china/leverage-ratio By comparison, the United States is leveraged at 1.2 times. A banking system based 40% on real estate and infrastructure was great in 2005, but ghost cities and Evergrande are shifting sands.
-Their neighbors distrust their expansionism. Obviously Taiwan is no fan of the CCP. But the South China Sea is an area of hot dispute with the Philippines, Vietnam and Malaysia. India and China are still thawing from military skirmishes in 2020 that left both sides with casualties. And these are the same countries that are more than happy to replace China as the new exporter to the United States.
-They steal intellectual property. Necessity is the mother of invention. In China, they have never developed a system that rewards invention. If I invent a better mousetrap, the CCP will take it from me and nationalize the profits. In fact, when you move your American factgory over their to build your better mouse trap, they will also steal that from you and make a cheap knock off. The slave labor they provide has been the trade-off. However, after losing trillions to IP theft, the world is waking up.
-Trump has two more levers to pull. If and when the CCP dig their heals in, Trump has two more weapons. First, Trump can simply move to delist their stocks. He’ll claim they aren’t transparent in their financial filings and he’d be correct. This would send them to the financial dark ages and wreck their economy. Second, he can ban Chinese nationals from US universities and laboratories as a matter of national security (See Intellectual Property above.) This would be a morale killer in China and a kill shot to an honor-based society. I don't have any source for this
There’s probably more that I haven’t thought of but that’s enough for now. While the US economy is far from perfect, China is considerably worse off. Considering the last 100 years of what the Chinese people have suffered through, I am in awe. They have built a gleaming, first world nation from the ashes of autocratic hegemony. I’m not sure if we’ll see another Glasnost or another Tiananmen Square, but time will tell.