How Elon Musk and Taylor Swift can resolve US-China relations

I just spent a week in Beijing and Shanghai, meeting with Chinese officials, economists and entrepreneurs, and let me get right to the point: While we were sleeping, China took a great leap forward in high-tech manufacturing of everything.

Trump’s nickname on Chinese social media today is “Chuan Jianguo” — meaning “Trump the (Chinese) Nation Builder” — because of how his relentless China-bashing and tariffs during his first term lit a fire under Beijing to double down on its efforts to gain global supremacy in electric cars, robots and rare materials, and to become as independent of America as possible.

“China had its Sputnik moment — his name was Donald Trump,” Jim McGregor, a business consultant who lived in China for 30 years, said. “He woke them up to the fact that they needed an all-hands-on-deck effort to take their indigenous scientific, innovative and advanced manufacturing skills to a new level.”

“Trump the (Chinese) Nation Builder”: The US president-elect’s tough stance on China has unintended consequences.Credit: AP

The China that Trump will encounter is a much more formidable export engine. Its advanced manufacturing muscles have exploded in size, sophistication and quantity in the past eight years, even while consumption by its people remains puny.

China’s export machine is so strong now that only very high tariffs might really slow it down, and China’s response to very high tariffs could be to start cutting off American industries from crucial supplies that are now available almost nowhere else. That kind of supply-chain warfare is not what anyone anywhere needs.

The Chinese experts I spoke with during my trip two weeks ago would like to avoid that battle. The Chinese still need the US market for their exports. But they will not be pushovers. Both Beijing and Washington will be much better off with a bargain — one that imposes a gradual increase in US tariffs, while both do what they needed to do long ago.

‘China will account for 45 per cent of all global manufacturing, single-handedly matching or outmatching the US and all of its allies.’

Blogger Noah Smith

What is that? I call it the “Elon Musk-Taylor Swift paradigm”. America would use higher tariffs on China to buy time to lift up more Elon Musks — more homegrown manufacturers who can make big stuff so it can export more to the world and import less. And China would use the time to let in more Taylor Swifts — more opportunities for its youth to spend money on entertainment and consumer goods made abroad, but also to make more goods and offer services that its people want to buy.

But if we don’t use this time to respond to China the way we did to the Soviet Union’s 1957 launch of Sputnik, the world’s first artificial satellite, with our own comprehensive scientific, innovative and industrial push, we will be toast.

You have to go to China to see it, but a lot of people in Washington have missed the country’s staggering manufacturing growth.

Here’s what Noah Smith, who writes about manufacturing, posted the other day, using data from the United Nations Industrial Development Organisation:

In 2000, “the United States and its allies in Asia, Europe and Latin America accounted for the overwhelming majority of global industrial production, with China at just 6 per cent even after two decades of rapid growth.” By 2030, Smith wrote, “China will account for 45 per cent of all global manufacturing, single-handedly matching or outmatching the US and all of its allies.

“This is a level of manufacturing dominance by a single country seen only twice before in world history — by the UK at the start of the Industrial Revolution, and by the US just after World War II,” Smith wrote. “It means that in an extended war of production, there is no guarantee that the entire world united could defeat China alone.”

Let me offer a few examples of the scale of what we’re talking about: In 2019, as Trump was finishing his last term, net lending by Chinese banks to domestic industries was $US83 billion ($129 billion). Last year it swelled to $US670 billion, according to the People’s Bank of China. That is not a typo.

When I visited China in 2019, before COVID, Xiaomi and Huawei were only Chinese smartphone companies. When I returned a few weeks ago, both were now also electric car companies — each leveraging its battery technologies to make really cool electric cars.

In an effort to export its large inventory of cars, China has begun construction of a fleet of 170 ships capable of carrying several thousand automobiles at a time across the ocean. Before the pandemic, the world’s shipyards were delivering only four such vessels a year. That is also not a typo.

Because China has essentially a national electric grid, it has installed charging stations all over the country, which is why more than half of new car sales in China are of EVs. Apple talked for 15 years about making an electric car. Has anyone driven an Apple car?

But don’t worry, folks, help is on the way. Trump has vowed to make America great again by doubling down on drill-baby-drill petrol guzzlers and ending US government subsidies for Americans who purchase electric cars.

So what do you think is going to happen? The rest of the world will gradually transition to Chinese-made self-driving EVs, “and America will become the new Cuba — the place where you visit to see old gas-guzzling cars that you drive yourself,” as Keith Bradsher, the New York Times Beijing bureau chief and an auto industry specialist, said.

If that happens, one day we’ll wake up and China will own the global electric vehicle market. And since fully autonomous driving technology only really works with EVs, that means China will own the future self-driving-cars market as well.

An assembly line for electric cars at NIO’s factory in Hefei, China.Credit: The New York Times

Here’s another way the China that Trump will face in 2025 looks a lot different from his last go-round. If Trump were even to tell China “hey, I’ll let you off the hook on tariffs, if you build more factories in America”, it might not be such a vote-getter.

Because here is what China would say: “Sure, how many factories would you like? Forty? Fifty? But the assembly lines will all be staffed by robots, and we can even operate them remotely.”

Dark factories

I learned a new term on this visit: “dark factory.” A retired Chinese official mentioned to me in passing that she wanted to buy a new high-tech bed and decided to go see the offerings at the factory. When she arrived, though, she found it was a “dark factory” — so the lights were turned on just for her. It was dark because it was so fully roboticised that the company doesn’t waste electricity keeping the lights on for any humans, except for the engineers who come to clean or adjust the machines once a day.

But there is another reason for China’s headlong rush to robotisation: demographic necessity. In America, strong trade unions and a growing population make robots the natural enemy of working people. China’s population collapse and its heavy restrictions on trade unions make introducing more robots to factory floors both economically essential and politically easier.

In the past seven years alone, the number of babies born in China halved to 9 million. The latest projection is that China’s current population of 1.4 billion will decline by 100 million by 2050 and possibly by 700 million by the end of the century. To preserve its standard of living and be able to take care of all its old people, China will drive the robotisation of everything for itself — and the rest of the world.

In his first term, Trump — and Joe Biden, too — was right to impose tariffs on China as long as it didn’t give us reciprocal access. China has consistently violated World Trade Organisation trade rules to avoid giving reciprocal access to its major trading partners, and it has greatly subsidised its companies. China has historically bought $1 from America for every $4 America bought from China; much of that is soybeans and other agricultural products.

My advice to my friends in China is that an economy this unbalanced is not sustainable.

But here’s what’s scary: We no longer make that many things China wants to buy. It can do almost everything at least cheaper and often better.

We fool ourselves if we believe that China’s growing strength in advanced manufacturing is only from unfair trade practices. It is also because it has lots of people still burning to work, as they say, “9-9-6” — that is 9 am to 9 pm 6 days a week to make a better life, and because Beijing deliberately suppresses consumer spending and has a seemingly endless supply of students majoring in engineering — and not so many in sports management, sociology and gender studies.

So China’s going to bury us? That is not at all inevitable.

I left as impressed with China’s weaknesses as much as with its strengths. I don’t want to see instability in China. It’s important to the world that China continues to be able to give its 1.4 billion people a better life — but it cannot be at the expense of everyone else.

China has billions of dollars in domestic savings that could stimulate its economy, but people will spend those savings only if they have confidence in their government and faith in the future. But the government’s bad performance at the end of COVID shook that confidence, and the lack of transparency about China’s future direction has kept savers cautious.

Their reluctance to spend is compounded by youth unemployment above 17 per cent. In addition, the persistent housing crisis, born of immense overbuilding, has left many Chinese feeling house-poor.

Most important, the government’s prioritising of Communist Party ideology and state-owned industries is driving some of China’s most talented innovators to quietly move their money, families or themselves to Japan, the United Arab Emirates and Singapore. That is not a good trend for China.

My advice to my friends in China is that an economy this unbalanced is not sustainable. It will eventually generate a global trade alliance against them. The world will not let China make everything and import only soybeans and potatoes. China needs more nurses to provide good health care at home — and fewer engineers to design more cars for abroad.

Elon Musk at his best is the one American manufacturer the Chinese fear and respect.Credit: AP

As for my neighbours in America, I have a confession. I caught a virus in China that I never imagined I’d get: “Elon Musk appreciation.”

I’d become so disgusted with the way Musk had been using his X megaphone to bully defenseless people and fawn over Trump that I just wanted that Elon Musk to shut up and go away. But there is another Elon Musk. The genius engineer-entrepreneur who can make stuff, big stuff — electric cars, reusable rockets and satellite internet systems — as well as anyone in China can, and often better.

Musk at his best is the one American manufacturer the Chinese fear and respect. It is crazy to me that Trump is wasting Musk on shrinking the US bureaucracy — under the acronym DOGE, for the informal “Department of Government Efficiency” — when he should be leading another DOGE, a government office for enabling more Americans to “do good engineering”.

In sum, America needs to tighten up, but China needs to loosen up, which is why my hat is off to Secretary of State Antony Blinken for showing China the way forward. On April 26, as Blinken was en route to the airport after a visit that included a meeting with China’s president, Xi Jinping, Reuters reported, he popped into the LiPi record store in the Chinese capital’s arts district.

Blinken bought two records — one was an album by Chinese rocker Dou Wei. The other was Taylor Swift’s 2022 record Midnights. Swift’s Lover album in 2019 had more than 1 million combined streams, downloads and sales in China within a week of its release — a record for an international artist.

The demand from Chinese consumers is there. It’s time for China’s leaders to let their people have more of the supply. It would be good for both countries.

This article originally appeared in The New York Times.