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A Second Great Recession?

Ten years ago this month the financial services firm Lehman Brothers filed for bankruptcy protection, triggering the 2008 Crash and the subsequent Great Recession from which the world’s economies have still not fully recovered. Will we look back on this month as the turning point when Donald Trump’s trade war with China unleashed the Second Great Recession?

In the past week the slow dribble of tariffs and counter-tariffs has rapidly grown into a full-fledged confrontation between the world’s two greatest economic powers.

In July the US imposed tariffs on $34 billion worth of Chinese exports to the United States, extending them to another $16 billion of Chinese goods in August. China responded cautiously, announcing roughly comparable tariffs on $50 billion of US exports to China in August.

Trump deemed that unfair, and on Monday he slapped a 10 percent tariff on another $200 billion of Chinese exports to the US, due to go into effect at the end of this week. He warned that if China retaliated again, he would impose a similar tariff on all the rest of China’s exports, another $267 billion.

Trump also threatened to raise the rate of the tariff to 25 percent if there is no US-Chinese deal that meets US requirements by the end of the year. Did he imagine that this threat would force an autocratic regime like China’s to back down and lose face? Who knows?

The Chinese replied hard and fast, announcing on Tuesday a new tariff on all the rest of America’s exports to China, worth some $60 billion. So if Trump fulfills his threat and hits the remaining $267 billion of Chinese exports as well, by next Sunday ALL America’s imports from China and ALL China’s imports from the United States will be paying tariffs.

China, trying to lower the temperature, is keeping its tariffs on US goods down to 5 percent for the moment, but it can’t hold that line forever if the US goes on ratcheting up the ones it has imposed on China. Trump has got the trade war he was clearly itching for, and it’s a much bigger deal than his spat with the European Union or his bullying of Canada.

We’re still not talking about cataclysms here: China’s trade to the US accounts for less than a quarter of its total exports, and its exporters will still get paid for what they sell. (It’s the importer who pays the tariffs.) The same goes for US exports to China, which are only one-sixth of total American exports.

In the long run higher prices for Chinese goods in the US might damage its market share there, with negative effects on employment in China, but that’s a slow process. The same applies to potential US job losses due to declining exports to China: they won’t happen fast enough to have any impact on November’s mid-term elections in the United States.

It’s the long term that counts, and this trade war will probably not be settled for a long time. Multi-billionaire Chinese businessman Jack Ma predicts that it could last 20 years, which sounds a bit pessimistic, but as long as it lasts, it will poison relations between the world’s two greatest powers.

Trump seems to think that China’s economy is now so wobbly that the tariffs will push it over the edge, forcing it to come to the US begging for mercy. It’s true that the Chinese economy is growing very slowly, if at all: nobody believes the official figure of six or seven percent annual growth. It’s also true that the Chinese financial system is as overloaded with bad debts as American banks were in 2008.

But China is only a sham capitalist economy. If lost exports to the US trigger a financial collapse in China – an unlikely but imaginable outcome – Beijing would slam the doors closed on international capital flows, bail out the Chinese banks, and flood the domestic economy with cheap credit. In this scenario, it’s international trade that would collapse, which wouldn’t be in anybody’s interest.

Meanwhile, Xi’s regime would be stoking Chinese nationalism and blaming the United States for all the domestic misery. Indeed, Xi and the Communist Party hierarchy are coming to the conclusion that Trump’s trade war is designed to “thwart China’s rise.” There can be no compromise with the United States if that is the case.

That’s not just Chinese paranoia. There really are those around Trump (and elsewhere in Washington) who are encouraging his obsession with the American trade deficit with China for exactly that reason. Yet his obsession is completely misplaced: 85 percent of the seven million American manufacturing jobs lost since 2000 were eliminated by automation, not by trade.

This nonsense is going to go on for a long time, and everybody will end up at least slightly poorer, but it probably won’t bring on the Second Great Recession. It may, however, start the Second Cold War.
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To shorten to 700 words, omit paragraphs 8 and 9. (“We’re…States”)

Gay Rights and the Global Culture

Is there really such a thing as a global culture? Consider gay rights.

Last Thursday the Indian Supreme Court decriminalised homosexuality. Last April a court in Trinidad and Tobago found colonial-era laws banning gay sex to be unconstitutional. And late last year, Australia became the umpteenth state to legalise same-sex marriage. There is a slow-motion avalanche going on.

Yes, 35 of the 63 Commonwealth countries, mostly in Africa or the West Indies, still make homosexual acts a criminal offence. Yes, some countries, including Nigeria and Uganda, have even tightened their anti-gay laws. And in the ultra-conservative Malaysian state of Terengganu last week, two women were lashed six times with a cane and fined $800 for ‘trying to have sex’ (whatever that means) in a car.

Change was never achieved easily, and it still isn’t. Section 377, the 19th-century law that made a same-sex relationship in India an “unnatural offence” punishable by a 10-year jail term, was struck down by the Delhi High Court in 2009. The Indian gay community, as big as anywhere else but more oppressed than most, celebrated, and many people came out of the closet, especially in the big cities.

Some of them paid a high price when the Indian Supreme Court then reinstated Section 377 in 2013, saying that only parliament could change the law. This year the very same court reviewed that decision and reversed it. Why did it do that? After all, the Indian Constitution hadn’t changed in the meantime.

Nobody on the Indian Supreme Court will admit this in public, but the real reason for the about-face was that the consensus global definition of human rights has expanded far enough to make its previous ruling untenable. No grown-up country that is fully engaged with the rest of the world wants to be embarrassed by laws that make it look medieval.

Conservative religious and political leaders in developing countries often condemn the repeal of anti-gay laws as an unwelcome import from the West, somehow contrary to the local culture, but they should (and often do) know better. It was Western countries that imposed anti-gay laws on their empires in the first place, in the 19th century, and it’s local activists, not foreign gays, that are struggling to get rid of them.

This is not to say that the situation of gays outside the West was good before the rise of the European empires. On the contrary, very few cultures, Western or otherwise, have ever accorded gays the same rights and respect as the rest of the population. The activists are breaking new ground in the West as much as they are in the developing world.

What we are really seeing here is the halting but probably unstoppable emergence of a global standard on human rights. It has been underway for at least 250 years and it may have another century to go, but gay rights belongs to the same category of social innovation as the end of slavery, the rise of feminism, and the abolition of the death penalty.

None of these changes are happening because they correspond to some natural law. They are being consciously created by people who want there to be more justice and more equity in the world. The activists are a small minority, but they are making progress because their ideas resonate with a much larger group in every society who share their ideals if not their energy.

This may sound overly optimistic at a time when there is a racist president in the White House, a cynical manipulator in the Kremlin, and a saner version of Chairman Mao running China. All of them trade in gutter nationalism, and none of them gives a damn about justice or equity. Not only that, but they are all quite popular at home.

Never mind. Progress is usually two steps forward, one step back, and we may be in for a slow decade in terms of progress on human rights, or even some back-sliding. But do you really think that people as shallow as Donald Trump and Vladimir Putin can turn the clock all the way back? (Xi Jinping may be a longer-term problem, but not for gays. There are no anti-gay laws in China.)

This is long-wave change. The rise of democracy was part of it. Decolonisation was part of it. The struggle against racism is part of it. The goal is equality of rights, and this decade is turning out to be the decade when the gays get it.

Or rather, it’s the decade when they get in legal terms, although they will have to wait a while longer before sexual orientation becomes a completely neutral attribute like hair colour. Basically, they have to wait until the older generation dies off. Most of the urban young get it already.

Meanwhile, you might like to note that with the change in India, five-sixths of the world’s people now live in countries where homosexuality is not a crime.
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To shorten to 725 words, omit paragraphs 11 and 12. (“This…China”)

China and the Uighurs

Two weeks ago Professor Gay McDougall, co-chair of the UN Committee on the Elimination of Racial Discrimination, alleged that up to a million people belonging to the Uighur and other Muslim minority groups in China’s northwestern province of Xinjiang have been detained in concentration camps to be ‘re-educated’ about religion.

Hu Lianhe, who shapes the Communist Party Central Committee’s policies on minorities, sternly denied it: “The argument that one million Uighurs are detained in re-education centres is completely untrue.”

He rather spoiled the effect of his denial, however, by telling the meeting that while China was not running a “de-Islamisation” programme in Xinkiang, “those deceived by religious extremists…shall be assisted by resettlement and re-education.”

Resettled where? In detention camps, perhaps? And if not a million, then how many? Half a million? Two million? The state-run Global Times then defended the detention camps that do not exist by claiming that Xinjiang had narrowly escaped a descent into mass violence and chaos.

“It is because of the Party’s leadership, a powerful China, and the courage of local officials that Xinjiang has been pulled back from the verge of massive turmoil. It has avoided the fate of becoming ‘China’s Syria’ or ‘China’s Libya’.” That is not a denial of the policy; it’s a justification of it.

You can’t have it both ways: China is detaining and ‘reprogramming’ Muslims in Xinjiang (we don’t say ‘brainwashing’ any more) on a very large scale. It is doing so because it fears that the sporadic terrorist attacks that have hit cities in Xingjiang and even China proper may escalate as Islamic State, defeated in Syria and Iraq, seeks to build support in other regions of the Muslim world.

Religion is not the root cause of Uighur unhappiness with Chinese rule; it is the deliberate effort to submerge their identity by settling millions of Han Chinese (the ethnic group who make up more than 90 percent of China’s population) in the province that was once known as ‘Chinese Turkestan’.

Xinjiang wasn’t even Chinese until the 1870s, when the Qing dynasty finally nailed down Chinese control over a crossroads region (part of the old Silk Road) that had been ruled by more than a dozen different mini-empires in the previous millennium.

It fell out of Chinese control again in the civil war of the 1930s and 40s, becoming a independent ‘East Turkestan’ republic backed by the Soviet Union. When the victorious Chinese Communist army took back control in 1950, 73 percent of the population were Uyghurs, with smaller Muslim ethnic groups like Kazakhs and Kirghiz accounting for perhaps another 6 or 7 percent.

Only one-fifth of Xinjiang’s population was Han Chinese in 1950; today almost half is. Han immigration was spontaneous in the early days, but in recent decades the Communist regime has encouraged and even subsidised it, in a deliberate attempt to create a loyal majority in the province. Muslim Xinjiang, like its neighbour to the south, Buddhist Tibet, is suspect because its religion gives it an alternative, ‘foreign’ loyalty.

As in Tibet, this attempt to make the population more ‘Chinese’ only stimulated resentment and resistance among the former majority population, and the first anti-Chinese violence in Xinjiang began in the late 1990s. Almost 200 people, mostly Han Chinese, were killed in ethnic riots in Urumqi, the capital, in 2009, and since then there have been numerous knife, bomb and vehicle attacks in Xinjiang and in China proper.

The official Chinese response has been repression. A vast surveillance apparatus, from facial recognition software to mass DNA collection, blankets the province. Xinjiang’s 20 million people are only 2 percent of China’s population, but the province accounts for 20 percent of the country’s arrests. And now, mass detention and ‘re-education’ camps.

The genius responsible for these policies is Chen Quanguo, who previously used some of the same methods to suppress ethnic nationalism in Tibet. The detention camps appeared and human rights abuses intensified after he was made Communist Party Secretary in Xinjiang in 2016, and he is now a member of the politburo in Beijing as a reward for his efforts.

It’s all so predictable and futile. Ignore the real causes of the anger. (The Uyghurs are much poorer than the Han newcomers and fear that they will lose their identity.) Treat the symptoms instead. (Blame the terrorism on religious fanatics who have been influenced by evil foreigners.) Take a leaf out of George W. Bush’s book and go attack the evil foreigners.

Qi Qianjin, China’s ambassador to Syria, recently told the pro-government Syrian daily Al-Watan that China is “following the situation in Syria, in particular after the (Assad regime’s) victory in southern Syria. Its military is willing to participate in some way alongside the Syrian army that is fighting the terrorists in Idlib and in any other part of Syria.”

And then they could invade Afghanistan. Everybody else has.
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To shorten to 725 words, omit paragraphs 8 and 9. (“Xinjiang…percent”)

America’s Trade War with China

The United States could probably extract major concessions from China in a carefully managed confrontation on trading issues, because the Chinese don’t want a trade war with their best export customer. But the US can’t win the trade war that Donald Trump is planning to wage, and it kicks off on Friday.

That’s when the first chunk of Trump’s new tariffs on Chinese exports to the United States – a 25% import tax on $50 billion of Chinese goods – actually goes into effect, and Beijing retaliates with similar tariffs on $50 billion of American exports to China. That’s just a drop in the bucket in terms of the size of either economy, but it’s also just the opening salvo in the war.

Trump has already said that Chinese retaliation would be ‘unfair’, and that if China goes ahead he will slap a 10% levy on an additional $200bn of Chinese goods. (He subsequently reduced that amount to $100 billion, but who knows?) And China has already said that it would respond with measures of a “corresponding number and quality” if the US goes ahead with that.

This is where the real tit-for-tat escalation starts, and it’s hard to see how it can be stopped. Trump is trapped by his own pugnacious rhetoric, and China’s President Xi Jinping is trapped in two ways.

One is that Trump has already imposed big new tariffs on exports to the United States by the European Union and by America’s closest neighbours, Canada and Mexico. They have all responded by imposing similar tariffs on American exports of equal value.

Xi can hardly do less, even if China’s real interests might be better served by not responding in kind to the new US tariffs. He would not wish to be seen as weaker than Justin Trudeau.

On 21 June in Beijing, according to the Wall Street Journal, President Xi Jinping met a group of chief executives of American and European multinationals and assured them that China would definitely strike back at US trade tariffs. “In the West, you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” Xi reportedly said. “In our culture, we push back.”

The other factor weighing on Xi’s decisions is that Beijing is starting to see American trade policy as part of a deliberate attempt to stop China’s emergence as a great industrial and technological power and a real peer rival to the United States. After all, there are undoubtedly people in Washington who would like to do exactly that.

Trump himself does not think in geo-strategic terms, but the Chinese may well see his actions on trade as inspired by those who do. If they come to that conclusion, their willingness to go all the way in a trade war may be greater than the financial experts think it is.

China’s exports to the United States amount to about 40% of its total exports, whereas only 5 percent of US exports go to China, so an all-out trade war between the two countries would obviously hurt China more. President Xi, however, is far more able to ignore the resultant job losses and higher prices than Trump is – especially because the Americans who were hurting worst would be his own political ‘base’.

Or, alternatively, China’s heavily indebted economy may turn out to be even more fragile than it looks – in which case a trade war could drive the country into a deep recession (with unpredictable political consequences at home), and drag the whole world economy down with it. That wouldn’t be much fun either.

There’s a reason that trade wars went out of fashion after the Second World War, and it wasn’t just because international trade tends to enhance prosperity overall. Back when trade wars were the normal way of doing business internationally, in the 16th-19th centuries, the European powers spent almost half their time at war.

The first great era of free trade, ca. 1870-1914, was also the ‘Long Peace’, when no European great power fought any other for almost half a century. That peace was destroyed by the First World War (so free trade does not prevent all wars), but the trade wars of the 1930s certainly deepened the Great Depression and facilitated the rise of fascism and a second world war.

And then came the Second Long Peace, from 1945 to the present, when once again free trade (or at least free-ish trade) reigns and the great powers never fight one another directly.

I’m not saying that Trump’s assault on free trade is going to lead us back down the path to great-power war again. Many other factors go into making such a catastrophe possible. But he may be putting one of the key factors back into place.
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To shorten to 725 words, omit paragraph 7. (“On 21…back”)