China & Chumps

His Magnificence King Donald will no doubt get bored eventually with this whole tariffs caper, but I reckon it’s timely to remind us all who started the international free trade regime, which has put China in its dominant economic position today.

Yeah, no drum roll needed, it was the victorious post war Americans, British allies and their minions who in 1947 set up a system to reduce or eliminate trade barriers, and signed up countries to the General Agreement on Tariffs and Trade, which quickly evolved into the World Trade Organisation. The world’s most famous twentieth century economist Keynes was not in complete agreement.

The Chinese Communist Party aka the Chinese government then got to work, in every sense of that word, to drag their agricultural economy into the industrial age in record time. Successive five year economic plans transformed society and alleviated mass poverty pronto. The lowest cost labour inputs then produced the goods, heaps of them, that we avaricious occidental consumers wanted at the lowest price possible. China’s export business model was set for decades.

Meanwhile, back in the good ‘ol US of A (and other Western economies), local manufacturing could not compete, factories closed and generational social dislocation followed. ‘Rust belt’ working class impoverishment has endured till today, and become the hard rump of MAGA believers, while the US trade deficit with China just kept growing bigger.

I don’t reckon that GATT boffins then or since had really thought through this whole interdependency paradigm, probably because they were (one-dimensional) economists, i.e. zealots and practitioners of the dismal science. In other words, they did not weigh the real world social consequences of handing this open trading system as a platform for modernising China, which was primed  and eager to make any sacrifice. The Chinese have simply nailed it!  

Successive Chinese governments have become champions at relentlessly increasing productivity in every sector, often with massive subsidies. Outgunning our so-called free enterprise system, making a mockery of free trade, and expanding exponentially what economists call their overwhelming comparative advantage. Look around your life and note the dominance of Chinese-made everything.

The Chinese economy has long been totally reliant on export growth, but now gravely accentuated by declining domestic consumption, their property market crash and tightening financial markets. Chairman XI has doubled down with his Made in China 2025 plan to ramp up production of goods in all sectors to levels which will far exceed world demand. Massive, wasteful over-capacity will churn on, and widespread ‘dumping’ on international markets will follow at below cost prices. China’s trade surplus will probably hit US$1.2 trillion this year.

I don’t think Trump’s tariff scampaign will make much of a dent in the bull-bar of the marauding Chinese industrial behemoth, as our economic co-dependency is too deep. The Americans have only themselves to blame for setting up the international ‘world order’ (no irony intended, apparently) to suit the Middle Kingdom so well.

Meantime, the planet burns baby, from all this stuff and our voracious appetite for sucking up the Earth’s resources, but that’s a discussion for another day.

By the way, Jung Chang* (best-selling author of Wild Swans, her memoir of growing up under Mao), reckons that Xi intends to make China a military superpower and dominate the world.  Just sayin’

(* her new book Fly, Wild Swans is sitting on my bookshelf awaiting attention)