China, Economic, United States

America’s economic battle with China risks global slump

GLOBAL ECONOMY

PRESIDENT Trump continues to show no mercy in his dealings with China. Emboldened by the robust American economy and the continuing rally on Wall Street, Donald Trump is convinced that tariff barriers will do more damage to Beijing than Washington, and that eventually his approach will force concessions.

The U.S. President’s decision to impose a 10 per cent tariff on £150bn of goods from China means almost half the products shipped from the People’s Republic to America – with the notable exception of some Apple items – are subject to tariffs, raising prices for US businesses and consumers.

These new measures are in addition to the £38bn of tariffs imposed in July and August.

China, led by President Xi Jinping, lost no time in retaliating by finding another £45bn of US goods to penalise. And the country’s best-known entrepreneur, Jack Ma, founder of digital champion Alibaba, said his promise to create up to 1m jobs in the US was no longer viable because of tensions.

 

DESPITE the threat of higher prices for Americans on goods ranging from textiles to electronics, Trump’s tough line will play well in “rust-belt” states as the Republicans seek to seize back the political initiative ahead of November’s mid-term elections.

The White House’s choice of trade as a weapon to curb Chinese influence and expansionism has been met with horror by the International Monetary Fund in Washington and the World Trade Organisation (WTO) in Geneva.

The Organisation for Economic Co-operation and Development (OECD) have also joined the chorus of critics, warning that world economic output was “hitting a plateau” because of US-China trade wars and fragility in emerging markets.

As the apostles of free trade, it argues that much global prosperity, notably in Asia and emerging markets, has been built on an open trading system.

The Great Depression of the 1930s was the result of nations imposing ever-higher barriers on vital trade such as commodities and farm produce. Despite the criticism there is a conviction in the White House that America’s hardline policy will produce dividends.

Larry Kudlow, the White House’s chief economic adviser, declared: “We are open to talks, if there are serious talks.” In May, China agreed to reduce the tariffs on imported American cars from 25 per cent to 15 per cent, to ease strained relations.

Mr Trump has also been encouraged to act tough after his success in bullying Mexico into accepting new rules for trading. Mexico now has to show that products it assembles contain at least 70 per cent of US content before they can move across borders.

The U.S. President has been able to take on China with some impunity because the American economy is going great guns. Growth has exceeded wildest expectations in the second quarter, at an annual rate of 4.1 per cent, creating jobs.

Farming communities have been hardest hit by Chinese retaliation, which has targeted soya bean production, pig products and beef. Trump has bought farmers’ silence with an increase of £9.1bn in subsidies.

So, what does this chest-beating machoism mean for other Western nations?

The big concern is that if the tit-for-tat war carries on for any length of time, Beijing might flood other countries with cheap goods. Complaints of Chinese dumping of cheap steel and aluminum on international markets have led to swingeing penalties being imposed by the countries where the steel is sold – while the cases are examined at the WTO.

The difficulty for Beijing is that it doesn’t import anything like £150bn of goods from the US though it can slow supply chains – such as components for the iPhone and personal computers.

The importance of better trading relations with neighbours has never been more critical. China recently sealed a far-reaching trade deal with India. In Europe, it reinforces the need for Britain to connect to the EU’s market of 500m people and not allow Brexit to damage relationships.

The biggest concern is that the US-China trade war comes at a moment of potential peril for the global economy. Rising US interest rates allied to domestic political upheaval are driving several market economies, including Turkey, Argentina and South Africa, to the brink.

When the financial inducements of Donald Trump’s tax cuts wear off and American retail prices rise – because of the higher costs of Chinese goods – economic conditions could deteriorate rapidly. The trade fracas might just prove to be the start of the next global slump.

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China, Economic, Government, Politics, Society

Essay: The West can no longer be complacent with China

CHINA

WHEN Xi Jinping was a child, his father – then, a high-ranking government minister – fell out of favour with the founder of the People’s Republic, Chairman Mao.

As part of his family’s humiliation, Xi, as an eight-year-old, was paraded on a school stage in a metal dunce’s cap. The audience raised their arms and shouted, “Down with Xi Jinping!” Even Xi’s mother was forced to join in the chanting.

Later, Xi was sent to be “reformed” in an impoverished, rural commune.

Earlier this week, in an extraordinary reversal of fate, that humiliated schoolboy was affirmed as the most powerful man in China since Mao when the People’s Congress in Beijing rubber-stamped a constitutional amendment. In effect, it abolishes the legal limit of two terms on China’s presidency. Xi is now the country’s leader in perpetuity – or as some might have it, dictator.

With cunning ruthlessness, he worked his way through the ranks of the party that treated his family so abhorrently, from local to national politics, and saw off rivals while establishing political and popular support with his war on corruption. And as a former peasant who toiled hard labour in the fields, his “man of the people” credentials have done him no harm.

He has already decreed that his own name and ideas are written into the nation’s constitution, as “Xi Jinping Thought” – an honour he shares only with Mao. We in the complacent West would do well to wake up to the vaulting ambition of the leader of the world’s most populous state. The lingering question now is whether power will go to his head.

We have become used to expansionist threats and sabre-rattling from countries such as Russia and North Korea, but we don’t really expect it from China, which is traditionally insular and inward-looking. It is, after all, the country that built a Great Wall around its borders to keep out foreign influences.

Xi is intent, however, on reversing that centuries-old trend. China has established itself as a global player in trade, is massively expanding its military and now wants global political influence to match. In some ways, this can benefit the West. For example, Xi has put pressure on North Korea’s unstable leader, Kim Jong-un, to halt his erratic missile tests and even to roll back Pyongyang’s nuclear programme. Donald Trump’s boastful remarks recently of a diplomatic breakthrough (with arms talks to come), would have been impossible without Xi’s influence.

If the world becomes a safer place in the short-term as a result of this new willingness on China’s part to play the role of a global power-broker, we should all sigh a sense of huge relief. But as this week’s declaration reveals, Xi isn’t interested in the short-term. His plans are for the much longer-term. He certainly has had several opportunities to get the measure of Trump: First at a meeting last April in Florida at the President’s Mar-a-Lago resort, later at the G20 talks in Hamburg, and then again when the two met in Beijing last November. Whilst they did seem to hit it off on strategic issues, the relationship between them is a strange one. Neither will feel comfortable in a partnership of equals.

President Trump has already asserted his independence by announcing serious trade restrictions on Chinese steel and other imports. Yet, China is not only a major trading partner of the US, but a colossal underwriter of American debt. The government in Washington could not function without borrowing hundreds of billions, financed largely by Chinese loans. If China withdraws that support, in direct retribution for Trump’s trade blockade, what will happen to the US economy?

And, if Xi stops applying pressure on North Korea, what happens to Trump’s much vaunted peace talks? The Chinese President has manoeuvred himself, not just into one commanding position, but into a whole array of them.

It is not only America that is suddenly uncomfortably aware of Chinese strength. India, too, is eyeing its immense neighbour with unease after Xi sent China’s new navy into the Indian Ocean. This none-too-subtle display was prompted by a dispute over international policies concerning the Maldives. China, which has committed huge investment into developing its naval fleet, knows the world will take notice of a fleet of modern battleships. Meanwhile, across Eurasia, Xi has been the driving force for a new Silk Road linking China’s factories to Western Europe via Putin’s Russia, making Moscow the willing junior partner of Beijing.

All this confirms Xi Jinping as the most powerful and ambitious man in Chinese politics since the death of Chairman Mao more than 40 years ago – with one significant difference. Mao wanted to break completely with China’s cultural past – the hallmark of the bourgeoise – Xi has a different strategy and wants to celebrate it.

XI is determined to restore the country’s links to its heritage and arts by fostering a new creed of nationalism in place of Communism. Chinese artworks and treasures, which were scattered to the winds during the Cultural Revolution of the 1960s, are being brought back from the West by Chinese multimillionaires who see themselves as nationalist champions. Xi’s own wife, Peng Liyuan, a singer who entertained the troops after the Tiananmen Square massacre in 1989, is at the forefront of this movement.

From the arts to geopolitics, trade wars to nuclear peace talks, Xi seems to have thought of everything. His carefully constructed powerbase may have one weak point: If he is president for life, then the ambitions of the country’s rising stars below him could be thwarted. That would risk political stagnation and infighting.

But for now, the West cannot risk complacency, especially now that China is controlled by the Thoughts of President Xi. If Mao gave China independence, and former leader Deng Xiaoping rebuilt the economy, then Xi is dedicated to making it a force to be reckoned with once more.

 

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China, Government, History, Politics, Society

China’s leader told he can rule for life

CHINA

PRESIDENT Xi Jinping has been given the go-ahead to rule China for the rest of his life.

The country’s parliament voted overwhelmingly earlier this week to abolish the 35-year-old law limiting leaders to two consecutive terms in power.

The decision marks a leap back in time, reversing the system of “collective leadership”. And it elevates Mr Xi to the same supreme position enjoyed by Mao Zedong, the dictator who ruled China from 1949 to his death in 1976.

The National People’s Congress backed the constitutional amendment by voting 2,958 in favour – with only two voting against and three abstaining.

Once the parliamentary ballot had been cast, to polite applause, the announcer declared: “The constitutional amendment item has passed.” Mr Xi, who would have had to step down in 2023, showed little emotion. The slide towards one-man rule will fuel concerns about a return to the excesses of autocratic leadership and the possible economic consequences.

Mr Xi’s confident leadership style and tough attitude towards corruption has won him popular support.

Now 64, the unchallenged leader of the world’s most populous nation worked his way up from the poverty of a rural commune. Mr Xi – married to soprano Peng Liyuan, 55, with whom he has one daughter – was appointed leader of the Chinese Communist Party in 2012 and has moved to concentrate power in his own hands. He has appointed himself to bodies that oversee security, finance and economic reform.

Critics fear the lessons of history are being forgotten. Zhang Lifan, a Beijing-based political commentator, said: “This marks the biggest regression in China’s legal system since the reform and opening-up era of the 1980s. I’m afraid that this will all be written into our history in the future.”

In a sign of the issue’s sensitivity, government censors have aggressively cleared social media of expressions ranging from “I disagree” to “Xi Zedong”.

Mr Xi’s control has crushed hopes for reform among China’s embattled liberal scholars and activists, who now fear even greater repression. China allows no political opposition and has relentlessly persecuted groups seeking greater civic participation.

The country’s growing economic power also means world leaders are unlikely to make too much of the developments.

Only last month Theresa May visited China in what was seen as the first step towards a post-Brexit trade deal with the country. Commercial deals worth a total of £9billion were said to have been signed during the trip.

Most powerful man since Mao

The vote makes Xi Jinping China’s most powerful ruler since Mao Zedong.

It also undoes the system of “collective leadership” introduced to avoid a repeat of Chairman Mao’s long and bloody reign.

The founding father of the People’s Republic of China, Mao ruled from when he seized power in 1949 to his death in 1976.

He introduced dramatic and disastrous reforms as he established his own brand of Communism.

The Great Leap Forward – a mass mobilisation of labour to improve production and output – resulted in famine and the deaths of millions.

In 1966 Mao launched the Cultural Revolution to purge the country of opponents. It crippled the economy and thrust China into ten years of turmoil, bloodshed and hunger. It also saw the imprisonment of a huge number of citizens.

His final years saw attempts to build bridges with the US, Japan and Europe, but his reputation could never be restored.

Such was Mao’s devastating impact that in 1982 a law was passed limiting presidents to two terms.

Its reversal will raise fears of a return to the horrors of Mao’s reign.

 

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