The West should stop blaming China for its economic woes

If a cure for cancer were discovered, wouldn’t it be a cause for celebration? Not if China discovered it. At least that’s the view of the congressionally appointed US-China Economic and Security Review Commission. “Imagine they [the Chinese] cure cancer. A shock would go through the system as we’ve never seen – our approach would have failed,” Commissioner Leland Miller told a public forum earlier this year. “We want someone to cure cancer, but we don’t want China to control the pipeline for that cure. If China has enormous success in AI, quantum, and biotech, it shows we are failing on the national security side. I’m not against cooperation, and obviously, everyone wants cancer cured. But if there’s going to be a winner in that race, US industry – which funds enormous R&D – should be it.” So a Chinese cancer discovery would be a threat to US national security. Any Chinese success, no matter the obvious public benefits it would bring, automatically means an American failure. What Miller really means is that the US should discover the cure for cancer, control “the pipeline for that cure” and if necessary, weaponise it against other countries, notably China. At least Miller was being honest. Sadly, though, this is typical Washington thinking: what is good for China is bad for the US. Vice-President J.D. Vance, for example, has repeatedly blamed the rise of the Chinese middle class for the decimation of the American middle class. Global Impulse, a current affairs YouTube channel, provides a good summary of Vance’s absurd claim. In the commission report released to the US Congress late last year, this whole China threat is framed as “China shock 2.0”. “While China professes to be a responsible steward of the global economy, in practice it has continued to flout international trade rules even as it is the biggest beneficiary of those rules. Its heavily state-distorted economic model has resulted in systemic dumping and massive excess supply,” it said. “Left unchecked, this wave of predatory overcapacity threatens to hollow out not only developing economies but also key segments of US and allied manufacturing – eroding the industrial base essential to national security.” You know something is up when the same spurious claims and arguments are suddenly repeated ad nauseam by think tanks, pundits, politicians and supposedly independent academics. “China Is Sabotaging the World That Enables Its Rise: Beijing’s Risky Bet Against the West”, which appears this month in Foreign Affairs, repeats virtually all the points made in the commission report; more on this below. The European Union is now threatening a trade war citing the same arguments almost point by point. Chinese state subsidies – subsidies are practically what the EU is built on – trade surplus, overcapacity and unfair competition are no longer just economic malpractices but direct threats to national security and industrial survival. That’s rich, considering the current American political regime poses a far more direct economic and security threat to the EU and Nato than China. Writing in his newsletter, Global Currents, Jostein Hauge, an associate professor in development studies at the University of Cambridge, offers an excellent summary and critique of “the China 2.0 narrative”. “The largest industrial subsidy programme in modern history is the US Chips and Science Act – roughly US$280 billion, signed in 2022 by a country that championed free trade only as long as it was convenient,” he wrote. “The EU has its own defence-oriented industrial strategy that seeks to mobilise up to €800 billion [HK$7.14 trillion] in public and private funds to strengthen Europe’s defence infrastructure and innovation.” In absolute terms, China’s export volumes result in the world’s largest trade surplus. But that’s only because of the size of its economy and population. In per capita terms, China’s exports rank only around 104th globally. “[It’s] well below Germany (26th), the UK (42nd), and the United States (63rd),” Hauge wrote. Other economists have pointed out that China’s export-driven economy is the slip side of America’s deindustrialisation and financialisation of its economy. This is the Faustian bargain the two countries have made with each other. Neither can extricate themselves from it despite the destructive fallouts. China shock 1.0 was about cheap Chinese goods flooding Western markets. China shock 2.0 is really the West’s unhappiness that China has moved up the hi-tech value chain and flooded their markets with advanced but affordable goods from EVs to robotics and drones. “When China moved up that chain, the West decided the rules of trade were no longer fair,” Hauge wrote. This is a description of a hierarchy, not a rules-based order, and the complaint is that China refused to stay in its assigned tier.” Korean economist Chang Ha-joon has called such Western critics “bad Samaritans”. The Foreign Affairs article repeats one such argument made (in)famous by Michael Pettis, a Beijing-based economist. It is that “suppressed consumption and excess domestic savings have forced China to export both goods and capital, requiring other economies – historically, above all, the United States – to absorb Chinese surpluses through trade deficits and capital inflows,” it said. “European analysts are now extending this argument to the EU.” So, Chinese consumption suppression leads to Western trade deficits. If ever there is a simplistic economic claim that borders on caricature, this is it. As many economists have pointed out, deficits and surpluses are accounting items; they are the results of complex trade dynamics, not the causes. Anyone who has been to a shopping centre or humongous supermarket in a Chinese city may find it hard to believe the Chinese consumer is suppressed. I live in Canada and I am more financially repressed (high taxes) and consumption-suppressed (highly inflated shop prices) than my relatives in China. It’s impossible to determine whether a nation’s consumer-citizens are suppressed. Should they amass unrepayable debts to fuel consumption, as many do in the US? In fact, post-Mao, the Chinese population has experienced the largest and fastest sustained expansion of the consumer economy and living standards in modern history. What Western critics are really unhappy about – because that has been the ambition of the West ever since Britain’s Lord Macartney’s failed sales pitch to the Qing Emperor Qianlong – is that they couldn’t make Chinese their consumers. The US is so deindustrialised and EU so uncompetitive that they will not be able to meet the demands of Chinese consumers if the mainland market is flung open to them.

The West should stop blaming China for its economic woes

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US is so deindustrialised and EU so uncompetitive that they will not be able to meet the demands of Chinese consumers if the mainland market is flung open to them