In a recent statement, Chinese leader Xi Jinping declared, "There are no winners in a trade war or a tariff war.
" If he is referring to his own nation, he is undeniably correct. The Chinese populace is set to bear the brunt of the fallout.
However, the narrative in the United States tells a different tale. According to Fox News, once the dust settles from President Donald Trump's tariff impositions, the lives of 340.1 million Americans will be significantly improved.
China's regime has been employing predatory and illicit trade practices for over forty years. For a variety of reasons, the U.S. and other nations have turned a blind eye. In 2018, during his first term, Trump fired a warning shot with his 25% tariffs. Regrettably, the Chinese regime failed to heed the warning. This month, Trump escalated the general tariff rate on Chinese goods to a staggering 145%.
The timing of Trump's trade actions could not have been more detrimental for Xi. His economy is faltering, with indicators suggesting that it is not growing at the reported 5.4% rate for the first quarter of this year.
Price data for March indicates that the country is spiraling into deflation, suggesting a contraction that is likely to persist.
The situation is set to worsen. Despite the assurances of his technocrats, Xi Jinping does not desire a consumption-based foundation for the Chinese economy. In fact, consumption's share of the gross domestic product, which was a low 38% last year, is now declining. In these circumstances, Xi's only recourse to salvage the increasingly dire situation is to increase exports.
However, Trump's heightened tariffs effectively shut the U.S. market to most Chinese goods. The U.S. accounts for over a third of global consumer spending.
To add insult to injury, Trump's tariffs are accelerating the end of the rapid globalization that characterized the post-Cold War era. "Due to many reasons, the world has been deglobalizing for years," trade expert Alan Tonelson told Fox News. "Now, the Trump Liberation Day tariffs are greatly speeding up the process, and further threatening the well-being of the Peoples Republic of China and other export-led economies."
As Tonelson, a blogger on trade at RealityChek, suggests, the world is de-integrating. "The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades," wrote Larry Fink in his March 24, 2022, letter to BlackRock shareholders.
The worlds largest asset manager, with $11.6 trillion under management, suggested that the Ukraine war ended globalization, which had already been weakened by the COVID pandemic's impact on global connectivity.
In this deglobalizing world, other countries will not allow China to inundate their markets with goods that would have otherwise been sold to America. These markets are not large enough to absorb those goods, and they will not allow China to devastate their local industries.
China is set to suffer. Already, export factories in southern China are closing due to lack of orders. Workers are returning to their hometowns, many to scrape a living on farms.
The downturn in the export sector coincides with the country experiencing its own version of 2008. In that year, Xis predecessor, Hu Jintao, decided to avoid a downturn by launching the largest stimulus program in history. This led to China accumulating a massive amount of debt. Today, Chinas total-country-debt-to-GDP ratio could be as high as an unsustainable 375%.
This has resulted in a series of high-profile debt defaults over the past four years, particularly in the property sector. Property prices in China have plummeted, a significant issue for social stability as approximately 70% of household wealth is tied up in property.
As if these challenges were not enough, Trump has chosen this moment to challenge Chinas powerful export sector with tariffs.
Xi Jinping's logical course of action would be to engage in dialogue with the White House. However, he has made it clear that he will not do so. "China wants to make a deal," Trump said last Wednesday. "They just dont know how quite to go about it."
Xi has structured the Chinese political system in such a way that only the most aggressive responses are deemed acceptable. As a result, he cannot back down or make concessions without risking a challenge to his leadership. There are already signs of dissatisfaction with his rule, particularly within the military's upper echelons.
Despite the mounting pressure, Xi remains defiant. "China does not flinch from any unjust suppression," he declared during his meeting with visiting Spanish Prime Minister Pedro Sanchez on April 11.
Xi has effectively cornered himself. He faces a lose-lose situation. If he refuses to compromise, the Chinese economy will collapse. If he compromises, his leadership will be undermined.
For Chinas obstinate leader, the choice is clear: He will not initiate talks with Trump. As a result, China will have to face the consequences.
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