GOOD MORNING FROM LONDON
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For some years The Economist, in its weekly publication, has echoed the familiar anti-China rhetoric. That was until the most recent issue when its summary of the China-U.S Trade War revealed a quite different assessment. The article is reproduced in full with Comments following.
“China Is Why Winning The Trade War”
“Donald Trump and Xi Jinping are due to meet in South Korea next week. However, it is uncertain whether they actually will. Such is the shocking state of the world’s most important relationship. For weeks, America and China have been lashing out at each other. America has tightened tech-export restrictions and threatened higher tariffs; China has wielded sanctions and restrictions on rare earths. The two sides communicate poorly. In the White House there is a belief that America has the upper hand in this test of nerves and pain-tolerance. Scott Bessent, the treasury secretary, says China is “weak”. But the reality is different.
China is winning the trade war. It has learned to escalate and retaliate as effectively as America. And it is experimenting with its own extraterritorial trade rules, thus changing the path of the world economy.
- China is using America’s own trade weapons to beat it.
When Mr Trump re-entered the Oval Office, the defence component of his China policy was ambiguous: was he prepared to defend Taiwan and American allies from Chinese military threats or not? The answer is still worryingly hazy. But his stance on trade with China was clear. He would ramp up the pressure campaign that he began in his first term. That meant more tariffs, more controls on high-tech trade and the enthusiastic use of sanctions. The administration’s aim was to hobble China’s manufacturing juggernaut, extract financial and commercial concessions and slow China’s technological development. Some in Team Trump even dreamed of a “grand bargain” in which China would pledge to reform state capitalism in return for America taking its foot off its throat.
After six months China is breathing more easily than America, for three reasons. First, it has proved able to withstand American coercion and deft at retaliating, achieving what is known in the jargon as “escalatory dominance”. Some of Mr Trump’s critics attribute this to TACO (Trump Always Chickens Out). It also reflects China’s underlying power, preparation and skill. The “Liberation Day” tariffs imposed by Mr Trump on China in April were reversed after Wall Street slumped. Recently, after China imposed limits on exports of the rare earths used in high-tech manufacturing, Mr Trump threatened 100% tariffs, only to back down again. His threats to cripple China through a near-total embargo are not credible because doing so would damage America, too. Those who assert that China is in crisis should note that this year its stock market has risen by 34% in dollar terms, double the rise for the S&P 500 index.
China has learned to retaliate skilfully. After Mr Trump imposed a levy on Chinese container ships arriving at American ports, it responded with its own port charges. China has threatened antitrust investigations to put pressure on American firms such as DuPont, Google, Nvidia and Qualcomm. Its refusal to buy American soyabeans—a $12bn market for midwestern farmers last year and America’s largest export to China—is beggaring a bloc of voters Mr Trump values. Although some American chokeholds on China remain, for example with aircraft engines, Mr Xi has pushed hard to rid Chinese supply chains of foreign inputs while making the country indispensable to the supply chains of others. On paper Mr Trump could up the ante by cutting China’s access to the dollar banking system. But he probably won’t; the resulting turmoil in financial markets would hurt America badly.
Amid all the tit-for-tat, China is developing, by trial and error, a new set of global trading norms. This is its second area of success. It wants to build a Chinese-led system on the ruins of the old liberal trading order, one which will rival Mr Trump’s empire of tariffs. Already China has shifted the geography of its trade: in the year to September its goods exports grew by over 8%, even as those to America fell by 27%. China’s threats to limit rare-earth exports inspire fear because it dominates the market and could cripple Western manufacturing supply chains. But they are also remarkable because they show China trying to impose a system of global licensing. That is a fiercer version of the playbook America has used to control the semiconductor industry. Expect more examples of China recasting the rules of trade as it exploits its position as a sophisticated manufacturer and the largest trading partner of 70-odd countries.
The final reason why China is winning is that the trade war has made Mr Xi and the Communist Party stronger, not weaker. Outsiders point to China’s huge problems, including its property hellscape, timid consumers, cowed entrepreneurs and the overcapacity and capital misallocation that its industrial policy creates. Yet to many Chinese Mr Trump’s bullying has vindicated Mr Xi’s 12-year project to prepare China for a hostile world by becoming a techno-industrial superpower. This week the Communist Party’s leadership met to discuss a new five-year plan. It is expected to double down on Mr Xi’s techno-nationalist approach.
Much could still go wrong for China. Redirecting exports away from America may prompt more countries to put up tariffs. Its nascent licensing regime could create a bureaucratic nightmare for itself and others. Just as America is discovering, using economic power as a cudgel is risky. The incentive quickly grows for other countries to diversify and innovate to reduce their dependence on you.
If Mr Trump and Mr Xi do meet in South Korea, it may be convenient for both to put on a show of de-escalation. There could be a pause in American tariffs in return for a delay in imposing the rare-earth controls, with some soyabean purchases thrown in and blessings for the proposed deal to sell TikTok, a Chinese-controlled social-media platform, to American owners. Yet make no mistake: the prospect unfolding is not of two countries overcoming their differences, but of belligerent giants weaponising their economic power. And even as China is winning Mr Trump’s trade war, the retreat from open commerce ultimately makes everyone a loser.”
GRAHAM PERRY COMMENTS;-
Nicholas Kristof is a lead writer on the New York Times. He reports
“At a conference over the weekend, I asked a large room full of international relations experts for a show of hands: Who thought the United States was winning the trade war, who believed China was winning and who thought it was too soon to tell? Overwhelmingly, people said China was winning and now holds the advantage.”
The winds of change are blowing through the corridors of world economic power. Even The Economist – a leading international opinion former – has come to realise that the Earth is round and not flat. Its change of heart is significant and the article – Why China Is Winning The Trade War” – merits attention.
Let’s recall exactly what Rare Earths are. The 17 rare earth elements (REE) are metals “critical for both human and national security,” the Brookings Institution wrote in 2022, adding, “They are used in electronics (computers, televisions and smartphones), in renewable energy technology (wind turbines, solar panels and electric vehicle batteries), and in national defense (jet engines, missile guidance and defense systems, satellites, GPS equipment and more).”
China is reported by Brookings to be responsible for 60% of global extraction of rare earth minerals and 85% of processing capacity.
China has come of age. Its long period of apprenticeship is over and its appearance on the world stage is for the long term. And that is the significance of recent events.
And it has been a process – not from 2012 (Xi comes to power) or 1977 (Deng reforms the economy) or even 1949 (the new People’s Republic of China is announced). This started in 1921 when the Chinese Communist Party came into existence. It has been that long but the significance is that hardly anybody outside of China – diplomats, academics, media, business people – sees this. They make the mistake of failing to view China from the perspective of China’s history.
In life you only understand things – issues, developments, moments in history, – if you step into the shoes of the person facing you. Fail to do that and your view on any topic is flawed. Nearly always – you will get it wrong and down the years repeatedly non-Chinese have made this mistake.
The critics just pillory China. They talk up its failings and negatives (and negatives do exist). They overlook the political momentum behind the development. And the consequence? You – the interested party – are misled. You are misinformed. You reach the wrong conclusions.
An example – the Rare Earths. What an Own Goal by the U.S which has thousands of experts in their universities monitoring the development of China. And yet they all were taken by surprise with the use of this commodity by China to drive a coach and horses through U.S. trade power. There are many red faces in the White House, the Pentagon, the U.S. Chiefs of Staff, The New York Times, CNN, Harvard. And in the UK – Newsnight, John Simpson, Sky News, Oxford and Cambridge Universities and the UK academic world. and more. You look in vain for a reliable, balanced, informed, up-to-date commentator.
The events of the last week should be a wake up call
Here is another point – nation after nation rushed to the White House and begged for tariff reductions. “China was the only country that matched the United States blow for blow,” said Zhu Feng, a professor of international relations at Nanjing University.
So China has come of age. They have landed some blows on the U.S. The U.S. has been warned and they have two choices – jaw-jaw or war-war. After the two leaders met, China’s Ministry of Commerce said in a statement that it would suspend for one year the restrictions –no mention of earlier controls announced in April.
The next 12 months will tell us whether the U.S. is going to confront China or co-operate with China. Trump is in a corner and his ego has been bruised but the prediction is that he will re-group and come out fighting – that is his mind-set, his inner mentality. MAGA is his rallying call. China is braced for more turbulence.
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EXTRACT #1
NIKKEI ASIA
INDONESIA BUYS 42 CHINESE FIGHTER JETS
“Indonesia has announced plans to purchase 42 Chinese J10 fighter jets for $9 billion, as well as missile boats and anti-ship missiles from Beijing. The decision is the latest element of President Prabowo Subianto’s military build-up with 65.5 trillion rupiah ($3.9 billion) budgeted for new equipment this year alone.
Indonesia’s decision to add J10s to the mix is linked to the jet’s reported success in shooting down French-made Rafale jets in May’s clashes between India and Pakistan. Indonesia ordered the latter in 2022, when Prabowo was defense minister. The J10 the long-range air-to-air combat capability,”
GRAHAM PERRY COMMENTS;-
All countries All focus on national defence. It is one of the key responsibilities for all governments – the defence of the realm. Indonesia is no exception. With a population of 285 million the country always focuses on security – domestic and defence. It is in this context that the country has purchased 42 Chinese Fighter Jets. Defence priorities are two fold;-
First;- The Jets are needed to protect the country’s airspace against intrusions into Indonesian airspace by Australia, the U.S., or Malaysia being countries with whom Indonesia has a long-running dispute over maritime boundaries.
Second;- The Jets will bolster the Indonesian military in its struggle with secessionist insurgents in West Papua, the Indonesian half of New Guinea island.
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EXTRACT #2
FOREIGN AFFAIRS
JONATHAN A. CZIN was Director for China at the National Security Council from 2021 to 2023. In the current issue of Foreign Affairs he writes;-
“China’s rise under Xi is challenging not just American power, but a foundational tenet of America’s open society—that openness to debate and inquiry is the foundation of a self-correcting system.”
GRAHAM PERRY COMMENTS
Czin is an experienced member of the U.S. Foreign Policy structure. He is no “Lefty” – no friend of China. And so, when he suggests that the Chinese political system is more open to self-criticism he deserves to be treated with respect.
In a recent article in the leading U.S. Foreign Policy publication – Foreign Affairs – Czin said “The painful irony for the United States is that under Xi, China’s opaque polity, in which officials have every incentive to obfuscate rather than admit mistakes, has proved adept at frankly acknowledging many of its weaknesses and taking steps to remedy them—arguably even more adept than the supposedly supple and adaptive American system.”
Czin is right. China has not reached its position of growing influence and power in the world today by being closed and authoritarian but by being open and frank especially about its mistakes. Many observers of China still suffer from a George Orwell 1984 mindset and, as a consequence, struggle to view China other than through tyrannical and oppressive lenses with the people submissive and subservient. But they have it wrong. China could not have succeeded in removing almost one billion of its people from extreme poverty or enable almost 200 million of its citizens to take holidays abroad if the society relied on unquestioning obedience and compliance.
Contrary to perceived opinions, the Chinese people are not lap dogs. They are curious, argumentative, critical and assertive and it is these basic requirements that have enabled their people to dig deep, and work hard and achieve for their country that which people abroad struggle to accept. By keeping its eyes closed the West is missing the essence of the progress that is taking place in China – as Czin has observed.
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EXTRACT #3
JAPAN STOPS PRODUCTION BECAUSE OF SEMICINDUCTOR SHORTAGE
NIKKEI ASIA
“Honda has suspended car production in Mexico on Tuesday local time, Nikkei learned on Wednesday. It is unclear when operations will resume.
The suspension stems from a shortage of parts linked to tensions between the Netherlands and China over Nexperia, a Dutch semiconductor maker owned by Chinese investors. This marks the first confirmed case in which the dispute over Nexperia has affected production at the Japanese carmaker.
Honda uses standard semiconductors made by Nexperia in some parts supplied by its business partners. The automaker told Nikkei that it is “making every effort to The minimize the impact” of the shortage.
GRAHAM PERRY COMMENTS;-
Is this significant? Am I dramatising an isolated one-off case of stalled plant production because of a disruption to the supply of semiconductors?
But this is not a “one-off”. In 2024 the production of cars in the U.S. was stalled because there was interruption to the Taiwanese supply of semiconductors to car plants in the U.S. And the U.S. remains concerned that a dispute with Taiwan over tariffs could spiral into a renewed ban by Taiwan of supplies to the U.S.
Back to Honda production in Mexico. These are sharp focus problems. The semiconductors must continue to flow; car production will again cease if there is a drying-up of supplies. Semiconductors – like rare earths – are indispensable to the productive process of cars, missiles, airplanes and a large range of military items.
The U.S. has been trying to foist “legacy” chips on China believing that China has to accept what it is offered. But China has refused to play the game. It has stood firm and banned the import of U.S. legacy semiconductors. It has called the U.S. bluff. Things may be patched up in Seoul between President Xi and President Trump. But China knows its strength. It has more cards to play than the U.S.
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EXTRACT #4
CHINA’S CIVIL SERVICE EXAMINATIONS
SOUTH CHINA MORNING POST
“About 3.7 million candidates have been approved to take China’s coming national public service exam, according to official figures – a record-breaking applicant pool, and the first since Beijing expanded the age limit for entry into the country’s civil sector, where jobs are known as “iron rice bowls” for their comparatively high level of security.
With 38,100 vacancies available at central government agencies and their affiliated institutions nationwide, the competition is fierce, translating to an average of 98 applicants in contention for each position.”
GRAHAM PERRY COMMENTS;-
“Competition is fierce”.
This has a knock-on effect so often overlooked by the Western media in their coverage of China. It means that the people who pass the exams are of the highest quality and this goes a long way to explaining the efficiency of government in China. Thomas L Friedman of the New York Times was quite overwhelmed at the manner in which the Government Civil Service positions are sought after in China’s soft labour market due to their stability relative to the private sector.
The exams will be held on November 29 and 30, with results scheduled to be released in January, and interviews taking place later.
This marks the first civil service recruitment drive since Beijing raised the maximum hiring age for some positions amid a shrinking workforce.
The upper age limit for general candidates sitting the public service exams has been raised to 38 years from 35, while the threshold for recent recipients of master’s and doctoral degrees has been raised to 43 from 40.
While the move offers slight relief to older workers – who have frequently complained of ‘a curse of 35’ limiting their prospects through informal avenues of age discrimination – it has also fuelled anxieties among young people who are already struggling to find positions in line with their skills and expectations.
Alice Xu, one of the 3.7 million, said she was worried the new policy could mean even lower chances of success.
“The number of people competing for each position has increased, and older candidates might be more experienced than us fresh college graduates,” said the native of Henan province who just earned her bachelor’s degree in law.
China has problems. Not the end-of-life variety that China’s critics wish upon the country. They only look for the negatives and cannot be relied upon. The standout issue is not The Problems but The Solutions. China is all about Trial and Error and Correction. It is progressing because it has a high success rate in correcting mistakes and refining targets and paths to be dispensed with paths to be adopted. It is the essence of China today.
NEXT ISSUE – WHATEVER HAPPENED TO S.W.O.T?
