On Saturday the Chinese government released a statement of its “position opposing U.S abuse of tariffs” and People’s Daily will run a commentary in the Monday, April 7th edition of the paper titled “Focus on Doing Our Own Things Well and Strengthen Confidence in Effectively Responding to U.S. Tariff Impacts 集中精力办好自己的事 增强有效应对美关税冲击的信心”. The commentary is an important read as an internal message to project resolve and confidence in the face of American “containment and suppression 遏压”, it hints at policy responses to soften the impact on the Chinese economy, and previews the domestic and external propaganda messaging around these new tariffs. The commentary is more interesting than the statement. In this short post I have included a full translation of the People’s Daily April 7th Commentary and an excerpt from the statement.
"Our exports to the US as a percentage of total exports have decreased from 19.2%." I suppose they mean value. The quantities may have remained the same....
Policies don't replace income. Numerous SME face ruin and will fire workers. These workers can't feed themselves and their families with "policies."
....people betting Trump is going to backtrack on tariff soon are going to have their asses handed to them. Agreed. Trump has a year to not worry about the tariffs impact on the US economy before the US midterms. He will get through this okay. Not so sure about Xi.
China is still very much dependent on the U.S. market, much more than the reverse. Yes China direct export to the U.S. are down but much China exports now are redirected via other countries. Other exports are from Chinese subsidiaries in other countries which are heavily supplied with intermediate goods. The April 2 tariffs particularly hit SEA countries which are more tied into the China supply to US chain. Where is China going to make up for that demand? The EU is stagnant, Latin America is pushing back on China already, Africa demand is small and partly derived from export of raw materials to China which is fast disappearing, Russia GDP is 5% of the EU, SEA internal demand is also pushing back at China. Chinese internal demand never does well when external demand is down. No one wants to spend when the economy doesn't look healthy. Add to that the wealth effect of declining property values and the demographic effect of a population that is on average about 50 years old, i.e. above the prime 25-50 age group. I doubt China has much stimulus left in the tank. How could they when they aren't even paying local employees on time. This looks to me like a crash coming. Where am I wrong? China has provided massive loans to support EVs, batteries and solar panels. How are those loans now going to be repaid. The green revolution in Europe and the US is now looking like a bust, the rest of the world doesn't have the cash or the infrastructure for that boondoggle. Financial crises have one and only cause, malinvestment. Welcome to China's future.
I don’t think the 15% figure is far out, looking as I do at container volumes. The Asia-Europe trade lane outgrew the trans-Pacific twenty years ago and is far more important now.
I tend to think it will be difficult to make up the loss of the American market. Practically all nations are net exporters. No one wants a trade deficit and no one likes its currency to gain on the dollar. It should be interesting to see who steps up on the global stage to take over consumption during this rebalancing. My guess is no one and there will be a global recession. In such instances the US economy will fare the best.
I understand that the % of their sales to the US have dropped but 1) The total value of their exports has jumped in last 4-8 years so total $sales to US has risen and 2) I think that the profit margin they get here is a lot higher than in Russia and the global South.
Talk about hopium … emerging markets have tremendous potential for Chinese exports? US is only 15% of the total? Chinese exporters produce 75% of their inventories for the local market? Stimulus will make up for the loss? The US is too dependent on Chinese products? None of this holds up to scrutiny. In any case, we will see soon enough. Jan-Feb trade numbers were already a disaster, expect more to come.
and "In recent years, despite internal and external pressures, we have persisted in doing difficult but correct things, continuously resolving risks in key areas such as real estate, local government debt, and small and medium financial institutions. Currently, these three major risks have been effectively controlled and have been effectively contained and are subsiding"
"Our exports to the US as a percentage of total exports have decreased from 19.2%." I suppose they mean value. The quantities may have remained the same....
Policies don't replace income. Numerous SME face ruin and will fire workers. These workers can't feed themselves and their families with "policies."
....people betting Trump is going to backtrack on tariff soon are going to have their asses handed to them. Agreed. Trump has a year to not worry about the tariffs impact on the US economy before the US midterms. He will get through this okay. Not so sure about Xi.
China is still very much dependent on the U.S. market, much more than the reverse. Yes China direct export to the U.S. are down but much China exports now are redirected via other countries. Other exports are from Chinese subsidiaries in other countries which are heavily supplied with intermediate goods. The April 2 tariffs particularly hit SEA countries which are more tied into the China supply to US chain. Where is China going to make up for that demand? The EU is stagnant, Latin America is pushing back on China already, Africa demand is small and partly derived from export of raw materials to China which is fast disappearing, Russia GDP is 5% of the EU, SEA internal demand is also pushing back at China. Chinese internal demand never does well when external demand is down. No one wants to spend when the economy doesn't look healthy. Add to that the wealth effect of declining property values and the demographic effect of a population that is on average about 50 years old, i.e. above the prime 25-50 age group. I doubt China has much stimulus left in the tank. How could they when they aren't even paying local employees on time. This looks to me like a crash coming. Where am I wrong? China has provided massive loans to support EVs, batteries and solar panels. How are those loans now going to be repaid. The green revolution in Europe and the US is now looking like a bust, the rest of the world doesn't have the cash or the infrastructure for that boondoggle. Financial crises have one and only cause, malinvestment. Welcome to China's future.
I don’t think the 15% figure is far out, looking as I do at container volumes. The Asia-Europe trade lane outgrew the trans-Pacific twenty years ago and is far more important now.
I tend to think it will be difficult to make up the loss of the American market. Practically all nations are net exporters. No one wants a trade deficit and no one likes its currency to gain on the dollar. It should be interesting to see who steps up on the global stage to take over consumption during this rebalancing. My guess is no one and there will be a global recession. In such instances the US economy will fare the best.
I understand that the % of their sales to the US have dropped but 1) The total value of their exports has jumped in last 4-8 years so total $sales to US has risen and 2) I think that the profit margin they get here is a lot higher than in Russia and the global South.
Talk about hopium … emerging markets have tremendous potential for Chinese exports? US is only 15% of the total? Chinese exporters produce 75% of their inventories for the local market? Stimulus will make up for the loss? The US is too dependent on Chinese products? None of this holds up to scrutiny. In any case, we will see soon enough. Jan-Feb trade numbers were already a disaster, expect more to come.
and "In recent years, despite internal and external pressures, we have persisted in doing difficult but correct things, continuously resolving risks in key areas such as real estate, local government debt, and small and medium financial institutions. Currently, these three major risks have been effectively controlled and have been effectively contained and are subsiding"
Sure they have … controlled and contained and subsiding.
Like a stone.