TanTan

[TanTan @Tan_Tan2054]

From the very beginning the US was a Constitutional Representative Republic, which has since morphed into a Plutocracy - a system where people with money have a disproportionate influence over the Government.

The word Democracy does not appear in Constitution, Bill of Rights or any other founding document.

[TanTan @Tan_Tan2054]

I think the answer to your question is broad and heavily rooted in history.

Every kid in China grows up learning about the Opium Wars, the Century of Humiliation, the unequal treaties, and the economic and social devastation caused by the West. The West’s attempts to colonize China largely stopped after WWII, when much of Europe was in ruins and China developed nuclear weapons. Even after that, though, the West kept trying to weaken China on a smaller scale by supporting separatist movements in Xinjiang and Hong Kong.

At the same time, the Chinese fully recognized and respected how far the West had come technologically, industrially, culturally, and socially — and the prosperity that came with it. So their approach became: learn from the West, adapt what works, but never fully trust it or give up independence.

The aggressive containment efforts under Trump’s first term showed China just how dependent it still was on the West. That pushed them to aggressively onshore critical supply chains and technology, and to stockpile key commodities like oil and copper. That’s a big reason they have relatively moderate import levels today.

In 2015 China launched the “Made in China 2025” plan to upgrade its manufacturing base and avoid the middle-income trap. The execution of that strategy has been remarkably successful — you can see the results all around us now.

Meanwhile the West has declined in a lot of areas — culturally, militarily, socially, industrially and in terms of governance — and is now in serious financial trouble.

My take is that China’s extraordinary export-led growth is the product of all these factors combined. I doubt even they imagined results this strong when they set the strategy in 2015. And like you pointed out, they’re now asking what comes next. This pace almost certainly can’t continue very long. China knows it’s become more dependent on the West than its own strategy intended. They’re shifting focus toward domestic economic development, but that transition will probably take the better part of a decade.

We are about to experience significant upheavals in this Darwinian world, but it is not clear at this time what form they will take.

[TanTan @Tan_Tan2054]

One cannot trivialize the confrontational approach the United States and its allies adopted during the first Trump administration. That policy was explicitly oriented toward the containment of China and included a wide range of measures: sweeping tariffs, sanctions, investment restrictions, open and covert support for the unrest in Hong Kong, and the high-profile arrest of Huawei CFO Meng Wanzhou. The list of adversarial actions is extensive.

In that context, China would have been remiss not to reassess its relationship with the United States and its allies and to prepare for sustained economic confrontation. It should therefore come as no surprise that China is now responding with sustained firmness.

Geopolitical Darwinism is real and unforgiving. The West initiated economic warfare under Trump I and is now suffering a series of serious setbacks.

[TanTan @Tan_Tan2054]

That is what happens when a large country (1.4 billion people) gets its act together. On a per capita basis (Grok), its exports ($2,700) are a fraction of Taiwan (26,800), Germany (21,200) and US ($6,200).

Geopolitical Darwinism is real and the West needs to start realizing that its competitiveness has declined substantially.

[TanTan @Tan_Tan2054]

That is what happens when a large country (1.4 billion people) gets its act together. On a per capita basis (Grok), its exports ($2,700) are a fraction of Taiwan (26,800), Germany (21,200) and US ($6,200).

Geopolitical Darwinism is real and the West needs to start realizing that its competitiveness has declined substantially.

[TanTan @Tan_Tan2054]

@AngelicaOung Yes, but since the US$ is overvalued by ~20% (GS IMF others) why would the US not devalue its currency? Might it have something to do with maintaining the US$ as the reserve currency and thus its global hegemony?

[TanTan @Tan_Tan2054]

@dunne_insights The obvious conclusion is that China sells better products at a lower price. This is a symptom of the general decline of the West, not the cause.

Geopolitical Darwinism is real and the West is losing.

[TanTan @Tan_Tan2054]

@Brad_Setser I think that the obvious conclusion is that China sells better cars at a lower price. This is a symptom of the general decline of the West, not the cause.

Geopolitical Darwinism is real and the West is losing.

[TanTan @Tan_Tan2054]

@Brad_Setser The US $ is overvalued by ~20% (GS, IMF, others). Yet the US is not being asked to devalue the $ because it is not considered to be in its best interest (Reserve Currency, inflation, equity markets etc.).

Why expect China to do something that is not in its best interest?

[TanTan @Tan_Tan2054]

@michaelxpettis Indeed. From a geopolitical perspective the US needs a Dominant Dollar to maintain Reserve Currency status, without which its hegemony could be seriously challenged. Therefore tariffs are preferable to devaluing the Dollar, which is estimated to be overvalued by 20%.

[TanTan @Tan_Tan2054]

Yes, except that I think realpolitik has been going on covertly for a long time. Under the neoliberal pretense of “building democracies” the West has attempted and succeeded in overthrowing many dozens of “non aligned” governments since WW II. Prior to this, colonialism and particularly the subjugation of China was conducted very overtly.

China now has a stable government with long term strategic plans and a national focus on harmony, meritocracy, innovation, family orientation etc. China has lots of challenges but the West is in no position to exploit those.

[TanTan @Tan_Tan2054]

Indeed, the problem is that the US is irreparably corrupt (after Citizens United ruling) and the EU government is dysfunctional, requiring 27 independent countries (or those with 60% of population) to agree on an issue. No meaningful progress can be made until a serious crisis erupts along with serious political (bordering on revolutionary) upheaval.

Geopolitical Darwinism is real and the West is not ready for it.

[TanTan @Tan_Tan2054]

@michaelxpettis Is this not precisely what the UK and the US did when they were early in their development?

[TanTan @Tan_Tan2054]

Let me tell you how the world should respond: become more competitive by creating and implementing productive and long term strategies, building a harmonious and meritocratic (non-woke) culture, investing in infrastructure and strategic industries (not unproductive wars), living within our means and reforming corrupt and otherwise dysfunctional governments.

Nothing fundamental is likely to happen but the “leaders” will continue to rearrange the deck chairs on the titanic by focusing on exchange rates and other such inadequate measures.

Geopolitical Darwinism is real and the West is in the process of finding out how painful it can be if you don’t focus on the fundamentals.

[TanTan @Tan_Tan2054]

@Brad_Setser The EU cannot move fast, these minutes from the June EC meeting on Chinese imports:

[TanTan @Tan_Tan2054]

@Brad_Setser This is only shocking if you haven’t followed China over the last few decades and compared its progress against that of the West.

Maybe this is the time to start looking at the broader reasons beyond exchange rates.

Geopolitical Darwinism real.

[TanTan @Tan_Tan2054]

It is all part of Geopolitical Darwinism which has been practiced over the centuries. Neo-liberalism existed in name only while the West covertly attempted the overthrow of 40+ regimes over the last 50 years and held many for ransom.

Now the tide is turning, the West is losing and slowly beginning to realize it.

[TanTan @Tan_Tan2054]

I totally agree. Darwinism has been governing Geopolitics throughout history. Read up on the Opium wars and the subsequent 100+ years during which the West brutally tried to subjugate China. China has a long memory, is now beating a declining West, which is complaining about "fairness".

Geopolitical Darwinism is real and can be very painful.

[TanTan @Tan_Tan2054]

@Brad_Setser Is the 21% undervaluation of the RMB not more than offset by the increase in US tariffs of ~25 to 35 PP over the last decade?

[TanTan @Tan_Tan2054]

@michaelxpettis Agreed. The EU has been dysfunctional for a long time. Only a deep crisis will force a restructuring - a U S of Europe or the exit of some (Northern?) countries. I the mean time its decline will continue.

Geopolitical Darwinism is real and will be very painful.