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Great article. I worked at a Forex trading firm and this is a great way to explain China's dilemma. Really, this is kind of what happened to every other east A

by socrates1998 7y ago

Great article. I worked at a Forex trading firm and this is a great way to explain China's dilemma. Really, this is kind of what happened to every other east Asian economy the past 60 years. They grow at a rapid pace for about two decades, then hit a ceiling as their low currency value becomes a hindrance rather than a benefit. Like the author explains, this is the Japanese model. And every country who has copied it as done so less effectively than the Japanese. First Japan, then Korea, then Taiwan, now China. For me, the fundamental advantage in this trade war with the US is that the Chinese are replaceable for the American economy. Sure, there will be some pains as companies move their factories from China to Vietnam (or wherever), but ultimately, there are other places in the world with cheap labor. There is no other America in the world. China's number one customer is America and China doesn't seem to realize this. If you don't keep your relationship good with your number one customer, then you will lose them eventually. And that's what's happening. The Chinese have to get better at international relations or they will be more isolated as time goes on. No one wants to deal with a partner who bullies them around. Especially when there are better deals on the table.

andrewksl 7y ago
Could you elaborate more on why you think China is being a bully, as opposed to responding to a trade war they didn’t start? Or why you think they don’t realize the nature of their relationship with the US?
- drak0n1c 7y ago
  China has always had incredibly high tariffs on US goods, strict nationality limitations on investment and ownership, and many industry-wide bans that prevent US companies from even competing. Latest moves by the US, despite the bluster and media narrative, are essentially reciprocal and even with the latest hikes are still no where near the barriers that China imposes.
  - bduerst 7y ago
    >China has always had incredibly high tariffs on US goods Before the trade war, which US goods had tariffs in China and how high were they?
    - socrates1998 7y ago
      Cars are a big one. But, also, just by keeping their currency low compared to the US Dollar, the Chinese put a naturally high tariff on everything. The Chinese, by being labeled a "developing country" in the WTO agreement are allowed to have unequal tariffs on imported goods. Really, it's not one thing with China, it's a list of problems: 1) Artificially controlled (and low) currency, making Chinese goods cheaper than American goods. 2) Specific tariffs on American goods (cars) 3) Industrial espionage of technology (Huawei) 4) Trademark theft (Apple and other luxury brands have literally fake stores all over China) 5) Intellectual property theft (DVD's, movies, ect..) 6) Geopolitical rivals. They often refuse to cooperate with US led efforts around the world. 7) Domestic Chinese political oppression. China is a police state and getting worse. I think Americans are finally done with it. Why should we put up with all this? For cheaper cell phones? What we can get from China, we can get from other countries without all the bullshit.
      - chillacy 7y ago
        We'll trade with someone else, they'll slowly get richer, we'll say they were cheating us, and the cycle will continue. Happened with the Japanese, the Germans (in the UK), the Americans (UK), etc.
- socrates1998 7y ago
  China has violated the WTO agreements for a decade and a half. There are countless examples of industrial espionage as well as trademark theft. The Chinese refuse to do anything about it. Americans finally wised up to this and the Chinese are now scrambling to find a solution, but the CCP has painted themselves into a corner. Any concession to the US will be seen as an ultimate slap in the face to Chinese pride. The CCP has propped up it's legitimacy by blaming all their problems on "foreign influence". The US and the Japanese being the main two antagonists. Well, if you tell your people that the US is fucking you, then you give in to them, then that makes you look weak and ineffective. And it will hurt the CCP's political situation very badly.
La-ang 7y ago
How is China bullying the US? xD
- socrates1998 7y ago
  China isn't necessarily bullying the US, it bullies other countries. My point was that China isn't good at international relationships. They have squandered the relationship with the US and have bullied other smaller countries to the point that even Vietnam would much rather deal with the US than with China. Look at the India relationship, it's awful. China has no clue how to create positive and mutually beneficial relationships around the world. It sees everything as a zero-sum game. The US, despite it's flaws, is excellent at building and maintaining deep economic and political relationships around the world. Europe, Mexico, Canada, Japan, Korea, and Taiwan, all have had benefited massively from their relationships with the US. China's CCP has had 50 years to develop ties with Vietnam and the Vietnamese hate the CCP.
  - Synaesthesia 7y ago
    China and Vietnam have always been historic enemies. Sure they might not have great relations, at least they didn’t invade and destroy the place! I think you’re overlooking the entire history of western colonization and US empire there. Belt and Road initiative? China is helping many African countries develop infrastructure, and doing so in a mutually beneficial manner.
    - aksss 7y ago
      The Belt and Road initiative has been a debt trap for African nations, and countries are increasingly skeptical of signing on. This has been a recurring topic in the Economist for the last year at least.
      - mattrp 7y ago
        I’m curious what happens when Africa defaults on all these loans. Who picks up those pieces and acts as the backstop?
rossdavidh 7y ago
You were going great until that very last part. But, it is clearly true that China's current position is not unlike that of Japan in the 90's, or South Korea not long after. I think China's advantage is that they are big enough to create a large consumer market themselves. The U.S. was once in this position, as was the U.K. before them, and they both managed to make the transition from selling to other, richer markets to selling to themselves. The big problem is, that both the U.K. and the U.S. had periods of internal stress during that transition, and because they were democracies they could blow off steam with electoral "revolts" instead of the literal kind of revolt. Perhaps China has the internal stability to be able to avoid this problem, but perhaps not.
- simonebrunozzi 7y ago
  Well, not so fast. You are correct that China is indeed different, but if you look at hard data [0], the internal consumer market in China is not substantially larger than Japan, and certainly way smaller than US. Furthermore, the consumer market data includes food, which by a large extent has to remain a domestic product. If we assume that food is 11% of the market (based on "$1.46 trillion worth of food in 2014." in the US [1]), then: US domestic market (without food): $13.32T ($11.85T) EU domestic market (without food): $9.61T ($8.55T) China domestic market (without food): $4.7T ($4.18T) Japan domestic market (without food): $2.76T ($2.46T) As you can see, China is not big enough, by a large margin. [0]: https://en.wikipedia.org/wiki/List_of_largest_consumer_markets# https://en.wikipedia.org/wiki/List_of_largest_consumer_marke... [1]: https://www.ers.usda.gov/topics/food-markets-prices/food-service-industry/market-segments/ https://www.ers.usda.gov/topics/food-markets-prices/food-ser...
  - Aperocky 7y ago
    If the world stay where it is today forever, sure. You could well bring up that 30 years ago China is about as wealthy as Africa, and that it is a total non-factor in the world economy. The bottomline is this, China had 1.4 billion people, they will consume, even if they consume 1/4th as much individually, the market will be the same size as of the US. It probably already happened, just that services in China is much cheaper. Out of the 13T consumption that is the US market, how much of it is in the form of goods? You'll probably get the same level of service in China for 1/4 the price. The growth of consumption in China has been consistently greater than the growth of the economy as a whole for the past 10 years, and it'll likely happen in the foreseeable future as China's export shrink and infrastructure spending halts.
mytailorisrich 7y ago
> There is no other America in the world. China's number one customer is America and China doesn't seem to realize this. The EU is a larger economy than the US, or at least has the same size. The US might be the largest export market for China, but they only account for 20% for Chinese total exports. China knows that while the US do not seem to always realise that China is their largest customer in a number of industries (ask soybean farmers or chipmakers). As for the currency, well if you work in Forex you know that the yuan is actually over-valued (not under-valued!) so China does not have to devalue, they just need to do what the US ask them to i.e. let the market decide (that's what they've just done to send a message to the US). > No one wants to deal with a partner who bullies them around. Isn't that exactly what China should be thinking right now? This is not as one-sided as you suggest. A good recent piece on this by Paul Krugman in the NYT: https://www.nytimes.com/2019/08/08/opinion/trump-china-trade.html https://www.nytimes.com/2019/08/08/opinion/trump-china-trade...
- MuffinFlavored 7y ago
  > well if you work in Forex you know that the yuan is actually over-valued Why do you believe the Forex industry agrees the yuan is over-valued?
- jackmodern 7y ago
  US GDP is larger than EU GDP.
emptysands 7y ago
China is now not really a low cost labour source. It is mainly a supply chain nexus.
- tabtab 7y ago
  Indeed. Vietnam and Africa are the new "cheap labor" hot spots.
platz 7y ago
If China hadn't helped re-float the dollar after 2008, the American economy would've been in ruins.
chrischen 7y ago
But Trump is doing the trade war at the false promise that somehow Chinese labor is replaceable with American labor—but it's not. It'll be replaced with Indian, Southeast Asian, or robotic labor before Americans are called upon.
Bayart 7y ago
>No one wants to deal with a partner who bullies them around. Especially when there are better deals on the table. That's also something America might need to hear in relation to other partners...

andrewksl 7y ago

Could you elaborate more on why you think China is being a bully, as opposed to responding to a trade war they didn’t start? Or why you think they don’t realize the nature of their relationship with the US?

drak0n1c 7y ago
China has always had incredibly high tariffs on US goods, strict nationality limitations on investment and ownership, and many industry-wide bans that prevent US companies from even competing. Latest moves by the US, despite the bluster and media narrative, are essentially reciprocal and even with the latest hikes are still no where near the barriers that China imposes.
- bduerst 7y ago
  >China has always had incredibly high tariffs on US goods Before the trade war, which US goods had tariffs in China and how high were they?
  - socrates1998 7y ago
    Cars are a big one. But, also, just by keeping their currency low compared to the US Dollar, the Chinese put a naturally high tariff on everything. The Chinese, by being labeled a "developing country" in the WTO agreement are allowed to have unequal tariffs on imported goods. Really, it's not one thing with China, it's a list of problems: 1) Artificially controlled (and low) currency, making Chinese goods cheaper than American goods. 2) Specific tariffs on American goods (cars) 3) Industrial espionage of technology (Huawei) 4) Trademark theft (Apple and other luxury brands have literally fake stores all over China) 5) Intellectual property theft (DVD's, movies, ect..) 6) Geopolitical rivals. They often refuse to cooperate with US led efforts around the world. 7) Domestic Chinese political oppression. China is a police state and getting worse. I think Americans are finally done with it. Why should we put up with all this? For cheaper cell phones? What we can get from China, we can get from other countries without all the bullshit.
    - chillacy 7y ago
      We'll trade with someone else, they'll slowly get richer, we'll say they were cheating us, and the cycle will continue. Happened with the Japanese, the Germans (in the UK), the Americans (UK), etc.
socrates1998 7y ago
China has violated the WTO agreements for a decade and a half. There are countless examples of industrial espionage as well as trademark theft. The Chinese refuse to do anything about it. Americans finally wised up to this and the Chinese are now scrambling to find a solution, but the CCP has painted themselves into a corner. Any concession to the US will be seen as an ultimate slap in the face to Chinese pride. The CCP has propped up it's legitimacy by blaming all their problems on "foreign influence". The US and the Japanese being the main two antagonists. Well, if you tell your people that the US is fucking you, then you give in to them, then that makes you look weak and ineffective. And it will hurt the CCP's political situation very badly.

La-ang 7y ago

How is China bullying the US? xD

socrates1998 7y ago
China isn't necessarily bullying the US, it bullies other countries. My point was that China isn't good at international relationships. They have squandered the relationship with the US and have bullied other smaller countries to the point that even Vietnam would much rather deal with the US than with China. Look at the India relationship, it's awful. China has no clue how to create positive and mutually beneficial relationships around the world. It sees everything as a zero-sum game. The US, despite it's flaws, is excellent at building and maintaining deep economic and political relationships around the world. Europe, Mexico, Canada, Japan, Korea, and Taiwan, all have had benefited massively from their relationships with the US. China's CCP has had 50 years to develop ties with Vietnam and the Vietnamese hate the CCP.
- Synaesthesia 7y ago
  China and Vietnam have always been historic enemies. Sure they might not have great relations, at least they didn’t invade and destroy the place! I think you’re overlooking the entire history of western colonization and US empire there. Belt and Road initiative? China is helping many African countries develop infrastructure, and doing so in a mutually beneficial manner.
  - aksss 7y ago
    The Belt and Road initiative has been a debt trap for African nations, and countries are increasingly skeptical of signing on. This has been a recurring topic in the Economist for the last year at least.
    - mattrp 7y ago
      I’m curious what happens when Africa defaults on all these loans. Who picks up those pieces and acts as the backstop?

rossdavidh 7y ago

You were going great until that very last part. But, it is clearly true that China's current position is not unlike that of Japan in the 90's, or South Korea not long after. I think China's advantage is that they are big enough to create a large consumer market themselves. The U.S. was once in this position, as was the U.K. before them, and they both managed to make the transition from selling to other, richer markets to selling to themselves. The big problem is, that both the U.K. and the U.S. had periods of internal stress during that transition, and because they were democracies they could blow off steam with electoral "revolts" instead of the literal kind of revolt. Perhaps China has the internal stability to be able to avoid this problem, but perhaps not.

simonebrunozzi 7y ago
Well, not so fast. You are correct that China is indeed different, but if you look at hard data [0], the internal consumer market in China is not substantially larger than Japan, and certainly way smaller than US. Furthermore, the consumer market data includes food, which by a large extent has to remain a domestic product. If we assume that food is 11% of the market (based on "$1.46 trillion worth of food in 2014." in the US [1]), then: US domestic market (without food): $13.32T ($11.85T) EU domestic market (without food): $9.61T ($8.55T) China domestic market (without food): $4.7T ($4.18T) Japan domestic market (without food): $2.76T ($2.46T) As you can see, China is not big enough, by a large margin. [0]: https://en.wikipedia.org/wiki/List_of_largest_consumer_markets# https://en.wikipedia.org/wiki/List_of_largest_consumer_marke... [1]: https://www.ers.usda.gov/topics/food-markets-prices/food-service-industry/market-segments/ https://www.ers.usda.gov/topics/food-markets-prices/food-ser...
- Aperocky 7y ago
  If the world stay where it is today forever, sure. You could well bring up that 30 years ago China is about as wealthy as Africa, and that it is a total non-factor in the world economy. The bottomline is this, China had 1.4 billion people, they will consume, even if they consume 1/4th as much individually, the market will be the same size as of the US. It probably already happened, just that services in China is much cheaper. Out of the 13T consumption that is the US market, how much of it is in the form of goods? You'll probably get the same level of service in China for 1/4 the price. The growth of consumption in China has been consistently greater than the growth of the economy as a whole for the past 10 years, and it'll likely happen in the foreseeable future as China's export shrink and infrastructure spending halts.

mytailorisrich 7y ago

> There is no other America in the world. China's number one customer is America and China doesn't seem to realize this. The EU is a larger economy than the US, or at least has the same size. The US might be the largest export market for China, but they only account for 20% for Chinese total exports. China knows that while the US do not seem to always realise that China is their largest customer in a number of industries (ask soybean farmers or chipmakers). As for the currency, well if you work in Forex you know that the yuan is actually over-valued (not under-valued!) so China does not have to devalue, they just need to do what the US ask them to i.e. let the market decide (that's what they've just done to send a message to the US). > No one wants to deal with a partner who bullies them around. Isn't that exactly what China should be thinking right now? This is not as one-sided as you suggest. A good recent piece on this by Paul Krugman in the NYT: https://www.nytimes.com/2019/08/08/opinion/trump-china-trade.html https://www.nytimes.com/2019/08/08/opinion/trump-china-trade...

MuffinFlavored 7y ago
> well if you work in Forex you know that the yuan is actually over-valued Why do you believe the Forex industry agrees the yuan is over-valued?
jackmodern 7y ago
US GDP is larger than EU GDP.

emptysands 7y ago

China is now not really a low cost labour source. It is mainly a supply chain nexus.

tabtab 7y ago
Indeed. Vietnam and Africa are the new "cheap labor" hot spots.

platz 7y ago

If China hadn't helped re-float the dollar after 2008, the American economy would've been in ruins.

chrischen 7y ago

But Trump is doing the trade war at the false promise that somehow Chinese labor is replaceable with American labor—but it's not. It'll be replaced with Indian, Southeast Asian, or robotic labor before Americans are called upon.

Bayart 7y ago

>No one wants to deal with a partner who bullies them around. Especially when there are better deals on the table. That's also something America might need to hear in relation to other partners...