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  • Writer's pictureRichard Murff

An Expensive Waste of Time


Part Three

Pushing the only people with money to splash around into neuvo-poor really is no way to stimulate a consumer society. The production part of the equation is easy enough to manage if you are willing to print the yuan to make it happen: Just tell the good people over at BYD to churn out more electric cars, subsidize the extra shifts and there we are – heaps of shiny, unsold BYD Seagulls.  The rub is that you can’t really force the wary, and poor, consumer to buy one. Or, if supply is going to meet demand, four of them.


You could just cut production, but then you’d have to lay people off and face the prospect of a bunch of unemployed men, without enough women to go around, on just enough sustenance welfare to start grumbling about “social contracts.” It must really miff the communists to go to all the time and trouble to create a society beyond rude capitalism to know that none of it works unless there is a capitalist out there, somewhere, will to buy your manufactures. That 5% growth they were advertising at the big communist “two sessions” get together is going to be achieved only by having the rest of the world absorb all that excess production.   


Unlike the last Cold War, the global order is an intricately interdependent one. So naturally when an economy the size of China starts thinking about dumping cheap, subsidized goods on the finely calibrated global market, the US feels compelled to stick its nose in the business. In early April, US Treasury Secretary Janet Yellen wrapped up four days of high-level talks in Beijing, and left carrying on about striking a “conciliatory tone” and putting the relationship between the world’s two largest economies on a more “stable footing.” Which is high-end diplomacy for “an expensive waste of time.” Well, Janet, most diplomacy is.


While Yellen was scolding her counterparts to quit flirting with Moscow, they were doing just that. Sergei Lavrov, Russia's Foreign Minister, was in Beijing at the time and was reportedly very grateful for the assist in rebuilding Russia’s hollowed military capacity. Nor did it help that while chewing the conciliatory bacon on the mainland, out in the South China Sea the US kicked off joint naval and air exercises with Japan, Australia and the Philippines – where the Chinese navy likes to pummel local ships with water cannon.


Unlike the rest of the dumpster fire that is global geopolitics, however, the rub with China isn’t really military – not yet at any rate. Beijing doesn’t want a war with America and given the way that Biden’s White House staff walks back anything he says about Taiwan, it isn’t likely to get one. The tension is over what the world sees as another round of “China Shock.” That’s where Beijing directs heaps of state money into ramping up manufacturing far beyond domestic demand and dumps a heavily subsidized surplus on the world at bargain basement prices. The last time they did this, in the early 2000s, it is estimated that it cost the US some 2mm manufacturing jobs.


The wheeze worked so well that you can hardly blame them for wanting to try it again, now that their economy is currently in the can. So we responded with 100% tariffs on those BYD EV’s and a host of other goods. True there are plenty of other markets in the world, but practically speaking, the “global south” doesn’t have the money. And that leaves Europe as the last gweiloson the planet rich enough to absorb Chinese overproduction.


The EU is less enthused about the plan. The European Commission has launched an anti-subsidy probe on a Chinese wind-turbine maker. With additional probes on subsidies in EV and solar panels coming as a flood of the Chinese solar panels has already shuttered several European green tech companies. Twenty years ago, the US could be philosophical about the loss of manufacturing jobs because we were flying-high on a pile of money and thinking that the dot.com bubble would take us to a place where we didn’t need those old economy jobs. After this century’s financial meltdown, migration crisis, covid lockdowns and the Russia getting expansive, a “China Shock” might take Europe to the point of no return. On the other hand, if Beijing can’t find another sucker to finance its economy and fiscal policy, it might find itself in a similar position.

 

Which is not to say that there isn’t a military component to all of this. China’s PLA Navy seems to get a kick out of bombarding hapless Philippine coast guard ships in the South China Sea. President Xi has repeatedly ordered the PLA to be ready to take Taiwan by force by 2027. In May, a week after Taiwan’s president was sworn in, China surrounded the island in a military simulation of an invasion to punish the country for electing a man who did NOT want to change the status quo. Military yes, but there is also an element of political theater here – why would anyone announce their intentions and then practice an invasion in front of everyone? I’m a Southerner, I went to the University of Alabama, and can attest that no SEC football coach worthy of the name – not even Tommy Tuberville – would let a rival coach in to watch squad practice. 


Given how theatrical politics have gotten, the guess here is that Beijing is trying to benefit from Vladimir Putin’s “he’s just crazy enough to do it” vibe while staying aloof from the dirty trenches of geopolitics for a long as it can. While the US ties up options trying to preserve the status quo, Beijing wants to preserve its range of maneuver for what it thinks is coming next. Which is a hell of a lot more military than economic.


Again, we come to another one of those baseline assumptions baked into communism – with Chinese characteristics or the original vodka and furry hat variety – is that the West must eventually be confronted if China is to prevail. Co-existence is not an endgame, but a pause to gather strength for the confrontation. The USSR abandoning the policy as fruitless by the late 1960’s is largely the reason for the Sino/Soviet split. So Xi Jinping, so far as the man can theoretically smile, thinks that he’s having the last laugh.


It’s not enough to be communist, you have to be anti-Western. Xi is convinced that the liberal world order is foreign, essentially Western concept (it is) that is stacked against China (it’s not), and so must be upturned. Yet his country is economically tied to that hated system. Or, to be more precise, its past meteoric success is from gaming the liberal world order to its advantage through asymmetrical trade barriers. The Goose that Laid the Golden Egg, it seems, is not in the Ancient Chinese Wisdom canon.


Xi isn’t appear to be after a coherent trade policy, fair or not. The man seems bent on revenge. His history is littered with what the Chinese call “The Century of Humiliation” wherein Western powers forced China to open its markets to European exploitation. He still seethes about the era’s “unequal treaties” and appears to want to force China’s own unequal treaties on the qweilos. He has over-estimated his ability to do so.


China’s economic outlook is going to get worse before it gets better, and that is assuming that its demographics don’t cause the whole model to collapse before then. There is one option that never really works as well as deranged leaders think it will, but it’s popular nonetheless. It’s worth remembering that at the close of the Two Sessions Xi said that the youth of China should learn to “eat bitterness” for the struggle ahead – and if that isn’t something you say to prepare for war, I don’t know what is.


 

Part Three: An Expensive Waste of Time

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