China is a huge economy, soon to overtake US. No, they don't lack natural resources. What they do lack is knowledge in some key areas (semiconductors) but they seem to be capable enough to just steal whatever they need.
What you seem to be forgetting is that US owes at least 1 trillion dollars to China and that overall, China holds over 2 trillion dollars in external debt.
More than that, US needs even more debt and there aren't many places at the moment where you can get a loan of the size that US needs.
Even more than that, US is currently incapable of producing much of the stuff they need and buying it from elsewhere (EU?) would cost a lot more.
I am pretty sure it would be US that would be critically wounded by the sanctions.
US companies are as much reliant on being able to offshore their work to China as Chinese companies getting that work from US.
The difference is, that these Chinese companies are able to produce stuff on their own vs most US based companies having no production capabilities of their own.
Thanks for the insight. Tiananmen 2.0 would definately cause massive sanctions sanctions. China probably don´t want to risk more sactions than the import tax in the US right now.
Perhaps an embargo on the US for (say) rare earths, special steels, etc. Perhaps a Chinese NED which would work to produce color revolutions in the US and NATO countries. Perhaps the kicking out of all US companies from doing any business in China.
Etc, etc, etc.
Don't forget that the US market (350 million)is only a quarter the size of the Chinese market (1400 million).
That ship sailed awhile ago - as was quite clear during the Trump admin, the US can't effectively apply sanctions to China, and even moderate trade disagreements didn't actually go the way the US wanted it to.
Additionally, if you want to see a crushing economic situation, imagine if China started to raise prices during already high USD inflation.
And China doesn't use sanctions or embargoes on anywhere near the same scale as the US does. Nobody does.
What meaningful sanctions has China imposed? The US has imposed very harsh sanctions against China, Russia, Iran, Syria, Venezuela, Cuba and many other countries. Because of the US dollar's position as the international reserve currency, US sanctions are highly effective. Huawei can barely even do business with other Chinese companies, because they're all afraid of getting hit by secondary sanctions.
The grandparent comment poses this as an issue of confronting a China that is behaving unfairly or erratically. That's not what this is about at all. Chinese policy has been relatively stable. In terms of how it treats foreign firms (for example, on IP protection issues), it's been getting progressively better. China doesn't want to rock the boat, because it is still developing and believes that things will go its way if it just smoothly grows its economy.
The real issue is that the US political class is panicking about being eclipsed as the world's top power. The panic began during the Trump administration, but it has now infected both political parties and is consensus in Washington. We'll see more and more disruptive moves like this until one of two things happens:
china biggest trade partner is europe and they are grooming Africa and other countries, so they with almost a modern economy will care little of sanctions. Maybe Us will get the kickback having to deal (aka subsidie)with unhappy lobbies
This time though the US plan on having a mechanism to allow them to swiftly punish china for using those abilities unlike before. Quartley reviews and what not with mandatory tariffs.
And the price for it is China being able to shut down a big chunk of your multi-trillion dollar economy with a few pen strokes.
Look for example how SMIC sanctions effectively shut down the car industry, and few others.
A murmur I heard is of US now backing off on SMIC because of the car industry, but that will send an even worse precedent.
It will mean that nobody else will come and fill the SMIC niche, and it will still have a chokehold on a very well moneyed, and full of lobbyists industry.
The next time, sanctions on SMIC may come not from US, but China itself.
Funny, when I read this initially my first thought was: it would be inconsistent for the US, as champion of the free market, to attempt to impose its will on a country such as China by itself acting contrary to free market principles.
Then I remembered: the US has not had a problem doing just this with/to other countries before; for example South Africa. There were not only the apartheid-era sanctions; there have also been the post-apartheid era "negotiations" (for example, 'halt your satellite development program or we will oppose your entry to GATT').
It seems fair to say the US has used "steamroller" tactics like this before. So maybe the question should rather be: why is the US handling China differently?
Maybe. So far, China has been able to get away with some stunningly protectionist policies. Keep in mind that there is a significant mercantilist/nationalist faction in the Chinese government that sees the US as a declining power with little leverage over China and a history of accepting one-sided trade with Asian states.
They are also playing the long game on this one. It may be enough for now simply to own the resources, and only exploit their control on specific issues like the recent spat with Japan and American pressure on their currency.
- The US needs access to China's goods to be viable. For half a century US companies improved their efficiency/competitiveness by moving their process to China. They now have too many dependencies in the form of Chinese manufacturing and development capabilities and do not have the skills/knowledge/talents/infrastructure in the US. Because of this China can dictate their rules with zero pressure (though India and other countries will surely be a difficult competition at some point, or maybe already are).
- China owns more than 1 trillion of US debt. In the past the country bought a massive amount of US debt to inflate USD vs RMB and boost their own economy. Currently China has no reasons to sell their reserve as that would impact their economy negatively. If the US blocks them they may start massively selling US debt, which would impact USD and the US economy.
Trade embargo is a possibility, and the US has done it before. But only to smaller countries; it's a strongarm tactic, and the US's trade arm is not strong enough to do more damage to China's economy than the US would suffer cutting those ties.
When an opposed nation is weaker than one's own, one can use sanctions and trade embargoes. When they're the same strength or larger? Trade embargoes cut one's own nation out of the international community. China has India and Russia right next door; they don't need the US's trade.
It's definitely an option. I don't think Americans have the stomach for it. The government that tries it will be voted out and replaced by a trade-friendly one.
China has always had incredibly high tariffs on US goods, strict nationality limitations on investment and ownership, and many industry-wide bans that prevent US companies from even competing. Latest moves by the US, despite the bluster and media narrative, are essentially reciprocal and even with the latest hikes are still no where near the barriers that China imposes.
Unless China can discipline its other trade partners, it can not effectively block export to the US. This is why over the years there is only US export control against China, not the other way around.
What the current US government want to achieve is not clear neither. You can't expect China to say nothing and just abide to whatever.
There's no long term view, China has quite a few things they can use to pressure the US and it will be stupid for them not to use those.
It's a self-harming game and the first one to bend will lose it. The longer US tarifs stays, the more some US companies that depends on those imports will be in trouble. China has plenty of cards to go the same route, controlling a huge part of the western companies production system. It feels to me that this is just a first card, and there's some more damaging ones to both China and the US to come.
And to be honest, with the current US behaviour, between this and Iran, the only thing it achieve is that most of the world will want to be as independant as possible of the dollar in the future
Classic tools that they may actually consider include:
Dumping US treasuries. Making life for American companies difficult through regulations and inspections. Limiting rare earth exports.
All of these have a cost on them as well (just like how most American tools on China have a cost on America), so they are careful to implement them.
reply