{"id":78065,"date":"2023-02-27T06:00:32","date_gmt":"2023-02-26T19:00:32","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=78065"},"modified":"2023-02-24T18:16:16","modified_gmt":"2023-02-24T07:16:16","slug":"is-china-better-placed-than-the-us-to-survive-an-economic-split","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/is-china-better-placed-than-the-us-to-survive-an-economic-split\/","title":{"rendered":"Is China better placed than the US to survive an economic split?"},"content":{"rendered":"
<\/figure>\n

The United States was sharply critical of Germany\u2019s energy dependence on Russia, imposing sanctions on the construction of pipelines carrying Russian gas beneath the Baltic Sea to Germany (if not, as a now-refuted<\/a> report by investigative journalist Seymour Hersh recently claimed<\/a>, getting its navy divers to blow them up).<\/p>\n

However, the US\u2019s economic dependence on China runs far deeper, and severing the link\u2014for example, in the event of conflict between the two nations\u2014would be far more disruptive.<\/p>\n

A provocative report<\/a> by economist and former Greek finance minister Yanis Varoufakis suggests China could more easily break free of the relationship of mutual dependence than the US.<\/p>\n

Varoufakis relates that a Chinese official described to him the \u2018dark deal\u2019 China struck in the 1970s under which its manufacturers would send their excess production (that is, their output beyond China\u2019s domestic needs) to the US and reinvest the bulk of their US-dollar profits into America\u2019s \u2018FIRE\u2019, or finance, insurance and real estate sectors.<\/p>\n

\u2018It ensured that the dollar\u2019s supremacy was just as functional to the interests of US rentiers as it was to Chinese capitalists,\u2019 he says. Of course, the losers in the transaction were the US domestic manufacturers (and their workers) who went out of business under the pressure of Chinese competition.<\/p>\n

Varoufakis says the dominance of the US dollar in international finance is a function of the huge US trade deficits, which mean there\u2019s a constant outflow of the currency into world markets. The ability of the US to continue running such large deficits turns on the willingness of its suppliers to accept US dollars and to recycle them.<\/p>\n

His insight is that the recycling has been to the enormous benefit of the politically influential US financial and real estate sectors. The recycling goes far beyond the more generally understood Chinese purchase of US Treasury bonds.<\/p>\n

\u2018Without the dollar\u2019s global reign, America\u2019s de-industrialization would not have accelerated, and Chinese capitalists would not have been able to extract colossal surplus value from Chinese workers and stash it in America\u2019s rentier sector.\u2019<\/p>\n

Amid the deteriorating political relationship between the two nations, China has been increasingly concerned about its exposure to US assets. Chinese authorities were shocked by the seizure of the Russian central bank\u2019s foreign exchange reserves following the invasion of Ukraine. In the event of a Sino-American conflict, Chinese assets would similarly be vulnerable to expropriation.<\/p>\n

The most contentious element of Varoufakis\u2019s analysis is his assertion that the size and sophistication of China\u2019s \u2018fintech\u2019 sector could enable it to break free of its addiction to US dollars.<\/p>\n

\u2018As America\u2019s new cold war threatens to squeeze Chinese conventional capitalism, China could end the Dark Deal that keeps it tied to US hegemony by mobilizing its homegrown cloud finance and pursuing a growth model that no longer relies on the US trade deficit.\u2019<\/p>\n

The idea is that China would redirect manufacturing towards its domestic market instead of the US and shift the source of demand in its economy away from business investment and towards domestic consumption.<\/p>\n

\u2018Globally, China\u2019s decoupling from the US trade deficit would permit its cloud finance, ably assisted by the People\u2019s Bank of China\u2019s own\u00a0digital currency<\/a>, to offer the rest of the world a renminbi-denominated, cloud-based payment system that bypasses fully the currently dominant dollar-denominated and US-policed payment system.\u2019<\/p>\n

As Varoufakis admits, such a shift would involve \u2018ditching the industrial model at the heart of China\u2019s economic miracle, incurring the wrath of China\u2019s traditional capitalists, who crave access to the US trade deficit and to dollars\u2019.<\/p>\n

For the US, there is no clear path to resurrect its domestic manufacturing. US firms such as Apple, with manufacturing centred in China, would have no good options.<\/p>\n

University of Peking finance professor Michael Pettis commented on Twitter that while Varoufakis\u2019s analysis was one of the \u2018more thoughtful\u2019 pieces on China\u2019s role in the global trading system, he disagreed that such a shift in Chinese policy would raise the profile of the renminbi as a global currency.<\/p>\n

For the renminbi to become a global currency, China would have to be willing, as part of its reform, to run large trade deficits. Pettis notes that in the early 1990s there were expectations that Japanese yen would become a global currency, but it didn\u2019t happen because the economic adjustment required to run a deficit, with a sharp fall in domestic savings, would have been too great.<\/p>\n

China has greatly reduced the importance of exports in its economy over the past 15 years. Exports peaked at a massive 36% of GDP in 2006, but were down to 20% by 2021. China\u2019s exports have continued growing, but not as fast as its economy. China has gone much further in \u2018deglobalising\u2019 than any other nation.<\/p>\n

However, the \u2018dual circulation\u2019 economic model of President Xi Jinping still includes an important role for exports. In a key speech on economic priorities<\/a> in December, he said exports should continue to play a vital role. \u2018We must accelerate the building of a strong trading nation,\u2019 he said.<\/p>\n

The US relationship with China has become increasingly adversarial over the administrations of Donald Trump and Joe Biden; however, Varoufakis\u2019s \u2018dark deal\u2019 has continued to shape the course of trade between the two countries.<\/p>\n

The Trump administration\u2019s efforts to narrow the US deficit by imposing steep tariffs on imports from China and negotiating a deal under which China promised to lift its purchases from the US had little effect, either at the time or subsequently. The trade has enabled China to become manufacturer to the world, responsible for around a third of global manufacturing output.<\/p>\n

US imports from China reached US$537 billion last year, almost matching their 2018 record and up by more than US$100 billion from 2020 levels. US imports from China are more than three times greater than US exports in the other direction.<\/p>\n

While Beijing asserted the dominance of the Chinese Communist Party over the private sector throughout 2022 with tougher regulatory controls on sectors including technology, real estate, education and video games, it has never seriously upset the earnings of the export sector or tackled the far-reaching reform that would be required to shift resources from the business to the household sector.<\/p>\n

However, in the event that conflict deepens between the two superpowers, Varoufakis\u2019s analysis suggests that China may have more options than the United States.<\/p>\n","protected":false},"excerpt":{"rendered":"

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