Trump’s Trade War with China: Undermining China’s Dependence on Neoliberalism

The unexpected ascension of Donald Trump to the US presidency caught the Chinese leadership off guard and his launching of a trade war against China is undermining its strategy for global dominance, argues Prof. Minqi Li

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Story Transcript

PAUL JAY: Welcome to The Real News Network. I’m Paul Jay.

The Financial Times chief economic columnist Martin Wolf has called Trump’s trade wars with Europe and Canada, but obviously the big target is China, he’s called this a war on the liberal world order. Well, what does this mean for China? China’s strategy, the distinct road to socialism which seems to take a course through various forms of state hypercapitalism. What does this mean for China? The Chinese strategy was developed in what they thought would be a liberal world order. Now it may not be that at all.

Now joining us to discuss what the trade war means for China, and to have a broader conversation on just what is the Chinese model of state capitalism is Minqi Li, who now joins us from Utah. Minqi is the professor, is a professor of economics at the University of Utah. He’s the author of The Rise of China and the Demise of the Capitalist World Economy, and the editor of Red China website. Thanks for joining us again, Minqi.

MINQI LI: Thank you, Paul.

PAUL JAY: So I don’t think anyone, including the Chinese, was expecting President Trump to be president Trump. But once he was elected, it was pretty clear that Trump and Bannon and the various cabal around Trump, the plan was twofold. One, regime change in Iran, which also has consequences for China. And trade war with China. It was declared that they were going to take on China and change in a fundamental way the economic relationship with China and the United States. And aimed, to a large extent, trying to deal with the rise of China as an equal, or becoming equal, economy, and perhaps someday in the not-too-distant future an equal global power, certainly as seen through the eyes of not just Trumpians in Washington, but much of the Washington political and economic elites.

So what does this mean for China’s strategy now? Xi Jinping is now the leader of the party, leader of the government, put at a level virtually equal to Mao Tse-tung. But his plan for development of the Chinese economy did not, I don’t think, factor in a serious trade war with the United States.

MINQI LI: OK. As you said, Trump was not expected. Which meant that Trump in fact was not the consensus candidate of the American capitalist class back to the 2016 election. So with respect to these economic policies, especially about his trade protectionist measures, these new tariffs imposed on the Chinese goods, let’s put it this way: These are not, certainly not the traditional kind of neoliberal economic policy as we know it. So some sections of the American manufacturing sector [capitalists] may be happy about this. But I would say the majority of the American capitalists probably would not approve this kind of trade war against China.

Now, on the Chinese part, and we know that China has been on these parts, there was capitalist development, and moreover it has been based on export-led economic growth model and with exploitation of cheap labor. So on the Chinese part, ironically, China very much depends on these overall what Martin Wolf called liberal global order, which might better be called the model of global neoliberal capitalism. So China actually much more depends on that.

And so you have, indeed there are serious trade conflicts between China and U.S. that will, of course, undermine China’s economic model. And so far China has responded to these new threats of trade war by promising that China, despite whatever happened to the U.S., China would still be committed to the model of openness, committed to privatization and the financial liberalization. The Chinese government has declared new measures to open up a few economic sectors to foreign investment.

Now, with respect to the trade itself, at the moment the U.S. has imposed tariffs on, 25 percent tariffs on the worth of $34 billion of Chinese goods. And then Trump has threatened to impose new tariffs on the additional $200 billion worth of Chinese goods. But this amount at the moment is still a small part of China’s economy, about 3 percent of the Chinese GDP. So the impact at the moment is limited, but certainly has created a lot of uncertainty for the global and the Chinese business community.

PAUL JAY: So given that this trade war could, one, get a lot bigger and a lot more serious, and/or even if they kind of patch it up for now, there’s a lot of forces within the United States, both for economic and geopolitical reasons. Economic being the discussion about China taking American intellectual property rights, becoming the new tech sector hub of the world, even overpassing the American tech sector, which then has geopolitical implications; especially when it comes to the military. If China becomes more advanced the United States in artificial intelligence as applied to the military, that starts to, at least in American geopolitical eyes, threaten American hegemony around the world.

There are a lot of reasons building up, and it’s certainly not new, and it’s not just Trump. For various ways, the Americans want to restrain China. Does this start to make the Chinese think that they need to speed up the process of becoming more dependent on their own domestic market and less interested in exporting cheap labor? But for that to happen Chinese wages have to go up a lot more significantly, which butts into the interests of the Chinese billionaire class.

MINQI LI: I think you are right. And so for China to rearrange towards this kind of domestic consumption-led model of economic development, the necessary condition is that you have income, wealth redistribution towards the workers, towards poor people. And that is something that the Chinese capitalists will resist. And so that is why and so far China has not succeeded in transforming itself away from this export-led model based on exploitation of cheap labor.

PAUL JAY: You know, there’s some sections of the left in various parts of the world that do see the Chinese model as a more rational version of capitalism, and do see this because they’ve maintained the control of the Chinese Communist Party over the politics, and over economic planning, that do see this idea that this is somehow leading China towards a kind of socialism. If nothing else, a more rational planned kind of capitalism. Is that, is there truth to this?

MINQI LI: Well, first of all, China is not socialist at all today. So income of economic sector, the [space] sector accounts for a small number, a small fraction of the overall economy, by various measurements.

And then regarding the rationality of China’s economic model, you might put it this way: The Chinese capitalists might be more rational than the American capitalists in the sense that they still use most of their profits for investment, instead of just financial speculation. So that might be rational from the capitalist perspective. But on the other hand, regarding the exploitation of workers- and the Chinese workers still have to work under sweatshop conditions- and regarding the damage to the environment, the Chinese model is not rational at all.

PAUL JAY: My understanding of people that think this model works better, at least, than some of the other capitalist models is that there’s a need to go through this phase of Chinese workers, yes, working in sweatshop conditions, and yes, wages relatively low. But overall, the Chinese economy has grown by leaps and bounds, and China’s position in the world is more and more powerful. And this creates the situation, as more wealth accumulates, China is better positioned to address some of the critical issues facing China and the world. And then, as bad as pollution is, and such, China does appear to be out front in terms of developing green technologies, solar, sustainable technology.

MINQI LI: OK. Now, Chinese economy has indeed been growing rapidly. It used to grow like double-digit growth rate before 2010. But now China’s growth rate has slowed down just under 7 percent in recent years, according to the official statistics. And moreover, a significant part of China’s growth these days derives rom the real estate sector development. And so there has been this discussion about this growing housing market bubble. And it used to be that this housing price inflation was limited to a few big cities. But for the first half of 2018, according to the latest data, the national average housing price has grown by 11 percent compared to the same period last year. And that translates into a pace of doubling every six years.

And so that has generated lots of social resentment. And so not only the working class these days are priced out of the housing market. Moreover, even the middle class is increasingly priced out of the housing market. So that is the major concern. And in the long run, I think that China’s current model of accumulation will also face the challenge of growing social conflicts. Worker protests. As well as resources constrained and environmental damage. And regarding the issue of China’s investment in renewable energy, it is true. China is the largest investor in renewable energy development, in the solar panels. And although China is of all the largest investor in about everything.

And so China is still the largest emitter of greenhouse gases in the world, accounting for almost 30 percent of the total carbon dioxide emissions in the world every year. And then China’s own oil production in decline, but China’s oil consumption is still rising. So as a result, China has become the world’s largest oil importer. That could make the Chinese economy vulnerable to the next major oil price shock.

PAUL JAY: And how seriously is climate change science taken in China? If one takes the science seriously, one sees the need for urgent transformation to green technology. An urgent reduction of carbon emission. Not gradual, not incremental, but urgent. Did the Chinese- I mean, it’s not, it’s so not taken seriously in the United States that a climate denier can get elected president. But did the Chinese take this more seriously? Because you don’t get the same, any sense of urgency about their policy, either.

MINQI LI: Well, yeah. So like many other governments, the Chinese government also pays lip service to the obligation of climate stabilization. But unfortunately, with respect to policy, with respect to mainstream media, it’s not taken very seriously within China. And so although China’s carbon dioxide emissions actually stabilized somewhat over the past few years, but is starting to grow again in 2017, and I expect it will continue to grow in the coming year.

PAUL JAY: I mean, I can understand why, for example, Russia is not in any hurry to buy into climate change science. Its whole economy depends on oil. Canada also mostly pays lip service because the Alberta tar sands is so important to the Canadian economy. Shale oil is so important to the American economy, as well as the American oil companies own oil under the ground all over the world. But China is not an oil country. You know, they’re not dependent on oil income. You’d think it’d be in China’s interest to be far more aggressive, not only in terms of how good it looks to the world that China would be the real leader in mitigating, reducing, eliminating the use of carbon-based fuels, but still they’re not. I mean, not at the rate scientists say needs to be done.

MINQI LI: Not at all. Although China does not depend on all on oil for income, but China depends on coal a lot. And the coal is still something like 60 percent of China’s overall energy consumption. And so it’s still very important for China’s energy.

PAUL JAY: What- Minqi, where does the coal mostly come from? Don’t they import a lot of that coal?

MINQI LI: Mostly from China itself. Even though, you know, China is the world’s largest coal producer, on top of that China is either the largest or the second-largest coal importer in the world market as well. And then on top of that, China is also consuming an increasing amount of oil and natural gas, especially natural gas. And so although natural gas is not as polluting as coal, it’s still polluting. And so it’s expected China will also become the world’s largest importer of natural gas by the year 2019. So you are going to have China to be simultaneously the largest importer of oil, natural gas, and coal.

PAUL JAY: The Chinese party, just to get back to the trade war issue and to end up with, the idea of this Chinese nation standing up, Chinese sovereignty, Chinese nationalism, it’s a powerful theme within this new Chinese discourse. I’m not saying Chinese nationalism is new, but it’s got a whole new burst of energy. How does China, if necessary to reach some kind of compromise with the United States on the trade war, how does China do that without looking like it’s backing down to Trump?

MINQI LI: Well, yes, difficult task for the Chinese party to balance. What they have been right now is that on the one hand they promise to the domestic audience they are not going to make concessions towards the U.S., while in fact they are probably making concessions. And then on the other hand the outside world, and they make announcement that they will not change from the reform and openness policy, which in practice means that they will not change from the neoliberal direction of China’s development, and they will continue down the path towards financial liberalization. And so that is what they are trying to balance right now.

PAUL JAY: I said finally, but this is finally. Do the Americans have a case? Does the Trump argument have a legitimate case that the Chinese, on the one hand, want a liberal world order in terms of trade, and open markets, and such? On the other hand are not following intellectual property law, property rights and law, the way other advanced capitalist countries supposedly do. Is there something to that case?

MINQI LI: Well, you know, let’s say the Chinese government right now, even though is led by the so-called Communist Party, is actually much more committed to the neoliberal global order that the Trump administration in the U.S.- but I don’t want to make justifications for the neoliberal global order. But let’s put it this way: The Trump administration of this trade protectionist policy, although not justified, it reflects fundamental social conflicts within the U.S. itself, and that probably cannot be sorted out by the Americans’ current political system.

PAUL JAY: So the crisis- you know, when you look at the American side and the Chinese side, including the deep debt bomb people talk about in China, there really is no sorting out of this crisis.

MINQI LI: So the overall neoliberal regime has become much more unstable.

PAUL JAY: All right. Thanks for joining us, Minqi. I hope we can pick this up again soon.

MINQI LI: OK. Thank you.

PAUL JAY: Thank you for joining us on The Real News Network.