China's export machine is really hurting
US tariffs are diverting a flood of Chinese goods to countries all around the world
One of the things I noticed in the months after Russia invaded Ukraine was the large number of Western analysts who made Russia out to be much stronger than it really is. These folks enthusiastically used the term “Fortress Russia” to describe the fact that Russia had built large foreign exchange reserves to wall itself off financially from the rest of the world, making it - supposedly - impervious to Western sanctions. All that stuff was nonsense. Russia is uniquely vulnerable to Western sanctions, as this year’s wave of US, EU and UK sanctions on the shadow fleet shows.
It’s similarly fashionable these days to extoll China’s superiority in the tariff war with the US. Arguments range from the lack of democracy, which supposedly allows Xi to play the long game, to the competitiveness and ingenuity of China’s exporters. These arguments - as in the case of Russia - are nonsense. Take the lack of democracy. That didn’t stop mass protests in late 2022 against COVID lockdowns, in the face of which the Chinese government caved. Maybe a trade war with the US is different, but there was no long game from China’s government back then.
As for China’s exporters, there is mounting evidence that US tariffs are seriously damaging them. I’ve written extensively about transshipment of Chinese goods to the US via places like Thailand and Vietnam. These transshipments are a sign of extreme stress on Chinese exporters, who are desperate to get goods out of warehouses to the US consumer. Another sign that China’s export sector is seriously hurting is that its goods are flooding to all kinds of other countries. These goods would really be going to the US - were it not for the substantial tariff hike - but are now going (most likely at a substantial discount) to consumers elsewhere.
There’s countless examples of Chinese goods flooding into all kinds of places. The panel of charts above gives a few examples. In all cases, the flood of Chinese exports is a statistical outlier, testament to the fact that US tariffs are really biting and forcing China’s export sector to have to divert their goods elsewhere (likely at a substantial discount). These export spikes are NOT a sign of Chinese ingenuity. They’re a sign that goods that would have gone to the US are clogging warehouses and need to be sold - with great urgency - to pretty much anyone that’ll take them. China’s export sector is in deep pain.
This post isn’t trying to make the case that one side or the other is stronger in the trade war. Instead, my point is that China is far from impervious and actually quite vulnerable. In the end, China is an export-based growth model, which is now under serious threat. All the chatter about how China has the upper hand - much like all the talk about “Fortress Russia” - borders on misinformation.
In principle, what you’re saying is that China — by willingly sacrificing part of its profits — managed to restructure its exports in no time. When you frame it like that, it’s undeniably impressive.
I’ve been casually observing China for decades. Their push to build a fully sovereign IT and telecommunications stack — from enterprise hardware to end-user applications — caught my attention early on. We laughed at them at first. But a couple of decades later, they’re the ones laughing at us.
When sanctions on microchips and related technologies hit them, the idea was to slow them down — first in consumer electronics, then in AI. My initial thought was, “Well, let’s see in 20 years if they’re still competitive.” I was dead wrong. It’s going to take them far less time to catch up.
And then we handed them a precious gift: cheap — no, heavily discounted — energy imports from Russia, all thanks to the sanctions we imposed on Russia. Meanwhile, we’re gutting EU's industry by importing overpriced energy from across the globe. The goal was to pressure Russia into stopping its war on Ukraine, and at the time, that seemed like a worthy sacrifice. But in reality, all we’ve done is push Russia into fully transforming into a war economy — making it even harder to stop this war, let alone the next one.
Once again, we’ve traded strategic objectives for immediate tactical gains.
Look — I don’t like the Russians. I remember firsthand the destructive influence they had on the Eastern bloc during my childhood. But that doesn’t mean I’m blind to the bigger picture. And the picture is clear: the U.S. needs China. China, ultimately, doesn’t need the U.S.
If the EU has even a shred of strategic thinking left, it will eventually ditch the U.S. (economy-wise) — a country that’s slowly sliding off an economic cliff. For decades, we’ve subsidized America. First as debtors, then as creditors. We delivered real goods and services while the U.S. just printed dollars.
Contrary to the bullshit we hear from Mr. Trump, we’ve paid far too much for our relationship with the U.S. And the return? Threats of invading Greenland. Exporting right-wing extremism — ipso facto, fascism.
Wake up.
Perhaps one should look at this less in absolute terms, but relative. And also from a geopolitical frame as well as from an economic one.
So if everything had stayed the way it was in 1H2024 (before the election), would the situation for the USA and China been better or worse from a trade and geopolitical perspective.
I'd posit that China is having discernible trouble on the trade front while the USA so far seems to be OK. This article is arguing that China is showing stress by changing export markets, perhaps by discounting or for transshipping. However, he believes inflation in the USA could be lurking.
Geopolitically, it's much harder to see what is happening. I think there is more sensitivity on China's geopolitical attitudes. The USA has convinced some of its traditional allies e.g. NATO, to step up. They are also engaging in trying to slow down China's ascent to geopolitical parity.