By Tom Clifford in Beijing
It seemed too good to be true, an economic version of the Arthurian legend.
Let it not be forgot that for one brief shining moment there was a place called Camelot.
The modern version might go like this… Our destiny in the distance shone, it was Amer-ina standing alone.
America and China (Amer-ina), a united economic front, an inviting destination for the global economy, the city on the hill.
Not too long ago this portmanteau seemed to sum up an oft-used phrase, a new world order.
It was meant to work like this. US companies would set up shop in China where goods could be made cheaply, then exported for sale in the US and Europe. The US consumer got cheap goods, the Chinese got employment, tech knowledge and skills. And most importantly, social calm. A marriage made in tian (heaven).
There are still strong trade links. As divorcees know, it takes time to decouple. American companies sold China $4 billion in electronics, aircraft and aircraft parts and just under $3 billion in both machinery and agricultural goods in the year to date. Chinese exporters had a bigger reason to smile: their smartphones and electronics to the US amounted to roughly $20 billion in the same period, while toys and furnishings were each worth around $3 billion.
This was despite the 125 percent tariffs on most Chinese imports imposed by Donald Trump, sparking an equivalent response.
Now, Chinese duties on US goods will be lowered to 10 percent, while the US tax on Chinese goods will be lowered to 30 percent. That is because the US tariffs include a 20 percent rate imposed by Trump before the latest trade war, which the president said was due to China’s role in the fentanyl crisis in the US.
Fu Linghui, spokesperson of China’s National Bureau of Statistics and the director general of its Department of Comprehensive Statistics said that although trade with the United States has declined, China’s foreign trade has diversified – with faster import and export growth with Asean and Belt and Road Initiative partner countries. “A significant reduction in tariffs between China and the United States will be beneficial for bilateral trade growth and also conducive to global economic recovery,” Fu said in a bid to sound conciliatory.
In short China has been looking for new markets and is having some success especially in southern Asia with large ethnic Chinese populations.
Non-tariff measures were also imposed on the US by China. These included the reduction of export of critical minerals that are essential to US manufacturing of hi-tech goods. China is a major supplier of rare earths.
In a visit to Inner Mongolia in 1992, the late Chinese leader Deng Xiaoping, economic reform mastermind, understood the significance of the soil beneath his feet: “The Middle East has oil and China has rare earths.”
China accounts, according to the International Energy Agency, for about 60 percent of rare earth production and 92 per cent of their processing. These rare earths, mostly extracted from mines in China’s Inner Mongolia region make the modern world work. They are vital for smartphones, aircraft and electronics. They are dirty to mine, exact a huge environmental toll, which is why they are no longer dug up in the west.
One other vital component of international trade is missing: The trust has gone.
Jamieson Greer, the US trade representative, claimed that China’s retaliation to Trump’s tariffs had been disproportionate and amounted to an effective embargo on trade between the world’s two biggest economies.
Much of the world’s media, not surprisingly has been focused on the US. China in many respects remains a closed country to the world’s media but it has played a weak hand very well. The Party has long believed that growth below 5 per cent threatens social stability and ultimately its grip on power. Consequently, with the economy obviously in the doldrums, growth is still forecast at, that’s right, 5 per cent. You don’t have to travel far in Beijing to see this is, well, wishful thinking. Anli Lu a major thoroughfare in the city’s north, close to the Olympic stadium, is bordered by shuttered shops, closed businesses. A testimony to a bygone more optimistic age.
The urban jobless rate in China was at its highest in two years at 5.4 per cent according to figures released on Monday.
China stopped reporting the data for youth joblessness in June 2023 for months (it resumed in January 2024 with statistics more favorable to Beijing) after the unemployment rate for 16-24-year-olds hit a record 21.3 percent.
The urban jobless rate for this group grew to 16.9 percent from 16.1 percent in January, according to the National Bureau of Statistics.
Crucially, the jobless rate does not account for those who gave up searching for work and rural areas are not included either.
China’s real estate bubble popped some years ago damaging economic performance and public faith in the government. Solvency issues emerged among several major real estate developers basically sapping the economy of much of its zest. The hukou system (household registration) is meant to ensure that employment and state benefits are only paid to the recipient in their home residence.
Nonetheless, in the leadership compound of Zhongnanhai, just off Tiananmen Square in Beijing there is no disguising the sense of triumph. In Beijing’s eyes Trump has backed down giving the Party wriggle room to blame Washington for its economic woes. American credibility has undoubtedly suffered. Beijing has huge economic problems and instances of social unrest are growing. But the contract with the Chinese people remains intact, just. This states that the people forego political choice for economic prosperity. It is hardly surprising that in the teashops of Beijing Trump is often referred to as the best president they ever had.
It’s no Camelot, but Trump has given the Party a bogey man worthy of any legendary scenario.
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