Over the past few weeks, we have featured a few pieces on the sheer strength of Chinese manufacturing and how the world’s lack of relative competitiveness and hence dependence on it will define geo-politics as well. Here’s another piece which endorses that view, except it also focuses on China’s weaknesses which if fixed will likely better define global geo-politics in a more collaborative way. The author of this piece is Thomas Friedman, the Times’ foreign correspondent, a three-time Pulitzer winner and author of seven books including The World is Flat that defined the era of globalisation.
First, Friedman talks about how Donald Trump’s first term policies fuelled Chinese excellence in science and technology:
“His nickname on Chinese social media today is “Chuan Jianguo” — meaning “Trump the (Chinese) Nation Builder” — because of how his relentless China bashing and tariffs during his first term as president lit a fire under Beijing to double down on its efforts to gain global supremacy in electric cars, robots and rare materials, and to become as independent of America’s markets and tools as possible.
“China had its Sputnik moment — his name was Donald Trump,” Jim McGregor, a business consultant who lived in China for 30 years, told me. “He woke them up to the fact that they needed an all-hands-on-deck effort to take their indigenous scientific, innovative and advanced manufacturing skills to a new level.”
The China that Trump will encounter is a much more formidable export engine. Its advanced manufacturing muscles have exploded in size, sophistication and quantity in the last eight years, even while consumption by its people remains puny.
If I were drawing a picture of China’s economy today as a person, it would have an awesome manufacturing upper body — like Popeye, still eating spinach — with consuming legs resembling thin little sticks.
China’s export machine is so strong now that only very high tariffs might really slow it down, and China’s response to very high tariffs could be to start cutting off American industries from crucial supplies that are now available almost nowhere else. That kind of supply-chain warfare is not what anyone, anywhere needs.
The Chinese experts I spoke with during my trip two weeks ago would like to avoid that battle. The Chinese still need the U.S. market for their exports. But they will not be pushovers. Both Beijing and Washington will be much better off with a bargain — one that imposes a gradual increase in U.S. tariffs, while both of us do what we needed to do long ago.
What is that? I call it the “Elon Musk-Taylor Swift paradigm.” America would use higher tariffs on China to buy time to lift up more Elon Musks — more homegrown manufacturers who can make big stuff so we can export more to the world and import less. And China would use the time to let in more Taylor Swifts — more opportunities for its youth to spend money on entertainment and consumer goods made abroad, but also to make more goods and offer more services — particularly in health care — that its own people want to buy.”
The piece goes on to elaborate on these two dichotomous aspects of the Chinese economy and its implications for the global economy.
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
