Since the beginning of the Trump presidency, we’ve been witnessing a new era emerging in the world. This new era is most easily defined by the rising trade conflict between the United States and China.
Though true, it tells only part of the new realities. The context is much broader and deeper than that.
Of course, over the past several decades, the world has gotten used to leveraging China’s low-wage, high-output labor force. It has led to massive profits for thousands of companies, cheaper goods for billions of people, and an explosion of wealth for China.
Those days are over.
The New Realities
A few have recognized this fact, but many in Congress, the media, and academia have yet to accept the new reality: Trump is forcing nations of the world to decide with which nation they want to do business. More and more, nations are seeing that their long-term interests lie in expanding their relationships with the United States rather than China.
What’s more, China understands the changes that Trump is bringing about. That’s why China is doing all it can to shape the world’s opinion toward its grand One Belt, One Road (OBOR, also known as Belt and Road) initiative and away from the reality of its failing economy. Remarkably, as reported in the South China Morning Post, Renmin University Vice President Wu Xiaoqiu insists that China’s economy is healthy and the U.S. economy is the one in danger.
But the facts don’t support that assertion. The U.S. economy enjoys record performance in most of the key indicators. The United States is enjoying high employment levels and rising wages, a lofty stock market, a booming real estate market, as well as a resurgent manufacturing sector. Tariffs may change that picture a bit, or they may not.
Meanwhile, China’s economy is suffering from a very deep malaise. For instance, from January through March, the People’s Bank of China (PBOC) injected about $164 billion in new debt into the economy. That’s four times the debt it issued in the same time period in 2018.
China’s Economy in Meltdown
And yet, that debt has failed to stimulate the economy. In fact, it’s having a deleterious effect rather than a reparative one. A real estate bubble remains a serious risk for the Chinese economy, as does a stock market collapse. Plus, both massive public and private debt levels that have led to overproduce goods that many of China’s consumers neither want nor no longer can afford.
That’s a key indicator. Consumer confidence and spending have been negative for a few years and that trend is continuing, which will deepen China’s economic woes. Consumer belief in the Chinese Communist Party’s (CCP) leadership is fractured, if not shattered.
The essential fact is that the CCP has sucked the value out of its economy. For decades, it has been exchanging debt for value and then moving the value into bona fide offshore investments. The middle class, desperate and afraid, is trying to do the same. In short, the CCP is losing its self-described legitimacy by failing on its promise to deliver economic prosperity.
Falling Out of Love With China
What’s more, much of the world is falling out of love with China. It’s not just Trump’s America that is hammering it. Australia has led the way to banning Huawei, China’s huge but insidious telecom maker that allows it to steal and sabotage highly classified technical and government data. The European Union will likely follow Australia and the United States’ lead on banning it and other subsidiary Chinese telecom providers.
But it’s not just the United States, Australia, and Europe pulling back from China. Japan realizes that it must choose between working with the open and liberal United States or a dictatorial and vengeful China (World War II remains in China’s historical memory, as do the Opium Wars of the West). Even smaller nations in China’s backyard, such as Malaysia, are backing out of multibillion-dollar development deals, citing unfair and economically destructive terms from China.
Trump’s Energy Squeeze on China
Adding the United States’ tight sanctions restricting Iranian and Venezuelan oil exports puts the squeeze on China’s energy supply. Saudi Arabian production may make up the difference, but for how long?
It’s likely that Trump is trying to make arrangements with the Saudis to prevent that. The president’s short- and long-term goal is to put enormous and continuous pressure on China to force a reorganization of their economic, and perhaps even political, system.
The aggregate negative impact of these factors means that the geopolitical aspect must not be taken lightly. It’s worth recalling that in 1941, the United States blocked Japan’s access to much-needed oil. The attack on Pearl Harbor soon followed.
How will China react if put in a similar corner?
Trump is convincing consequential nations in Europe and Asia to adopt more and new trade positions in favor of the United States and against China. Meanwhile, China’s most reliable geopolitical relationships are with nations that are economic basket cases: Russia, Iran, and Pakistan. Turkey, another nation whose economy is in meltdown, may join these three nations and tilt toward China sooner than later. Essentially, sides are being chosen.
On the one hand, we’re seeing an axis of brutal, dictatorial regimes seeking to hold onto power and influence in the world, or gain more of it. On the other, the traditional powers of the United States, Europe, the United Kingdom, and Australia more or less align their trade policies when it comes to China, Huawei, and IP security.
Some warn of a new cold war between the United States and China. That would be unfortunate, but definitely preferable when one recalls what came before it.
James Gorrie is a writer based in Texas. He is the author of “The China Crisis.”
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.