Trump and China’s huge economic problem

The world is starting to grasp the magnitude of the Chinese economic problem. What is not appreciated is, arguably, Donald Trump as US president played an enormous role in creating China’s problems.

Trump helped change the distribution of global manufacturing away from China, not only to the US but Europe and other parts of the world.

In the US, not only did Trump reverse the rust bucket decline in many US cities, but he also changed the power structure of American politics.

Republicans appear likely to ignore all the baggage Trump carries and renominate Trump as their candidate in the November presidential election.

This support is triggered by many forces, including the US manufacturing resurgence, migration and less reliance on large corporate money.

In 1978, China’s ‘paramount leader’ Deng Xiaoping initiated significant economic reforms aimed to move China away from a centrally planned economy. China also created special economic zones to offer favourable conditions for foreign investment, such as tax breaks and less regulation.

Chinese President Xi Jinping. Picture: Noel Celis/AFP

The combination attracted numerous US multinational corporations to take advantage of China’s relatively low-cost labour.

At the time, my Chinese friends were stunned Americans would allow huge segments of their enormous manufacturing base to be shifted to China, leaving rust bucket cities and towns in the US to suffer in their wake.

It took China a long time to understand how the American system worked. American corporations suddenly enjoyed a surge in profitability because their cost of manufacturing fell so sharply.

Along with the profitability surge came increased donations to both the Democrats and the Republicans. But, it was the Republicans who enjoyed the biggest fruits of higher profitability. Nevertheless, both parties became dependent on multinational funding, so no US President was prepared to reverse Chinese manufacturing dominance and the rewards (including low-cost goods) it delivered.

Donald Trump broke the nexus between US multinationals and the Republicans with a series of moves to shift manufacturing back to the US. It started as a slow process, but when President Joe Biden continued the Trump policies, the pace quickened and manufacturing spread around the world.

It was helped by higher-cost Chinese labour.

The former close links between the Republicans and the multinational companies is now finally broken by the wave of support for Trump.

Republican Americans voting in the primaries currently appear to be prepared to ignore Trump’s personal weaknesses. They have not forgotten how he broke Chinese world manufacturing domination, boosting rust bucket cities, and, more importantly, was able to control migration in a way President Biden and his deputy have not been able to duplicate.

Chinese economic statistics indicate the government’s normal stimulatory response via capital works has not performed its past magic, because China is being hit on three fronts.

First, there is still the aftermath of Covid-19. Then comes a very serious set of property crashes which have damaged consumer confidence and the construction industry. Then, thirdly, comes all the drama associated with a substantial market share loss in manufacturing.

Prices have fallen. Exports and imports have plummeted. Unemployment has risen. The nation’s biggest property developer, Evergrande, has been ordered to liquidate.

Former US President Donald Trump’s manufacturing policy are partly to blame for China’s economic decline. Picture: Mandel Ngan/AFP

Foreign investors have started to understand China is facing a deeper decline than was previously thought, and this month the Shanghai index hit a 12-month low — down twenty per cent on the 12-month peak of last September.

Many of China’s tech giants are still making large profits but are laying off thousands of workers. More Chinese people are taking on a second job.

Here in Australia, our manufacturing has not responded in the same way as other countries, so we are enjoying excess China capacity via lower import prices.

This will help control our inflation, although the biggest problem now is the cost of services, particularly government services, which suffer through bad administration.

How does China escape the problem? The great fear sweeping the world is China will take advantage of events in Israel and Ukraine to invade Taiwan. This is obviously a risk, but there is also a new twist to the China tale.

China is making enormous strides in technology, partly through its defence spending. It is a world leader in low-cost carbon free energy, using molten salt-cooled thorium reactors which are now not only powering submarines but surface ships.

To illustrate China’s advanced technology thrust, it is erecting the world’s largest telescope which will be much larger than previous largest — the European telescope in the Antarctic which observes electromagnetic spectrums.

China’s telescope will be the world’s largest neutrino detector. When completed, it will have an estimated volume of 7.5 cubic kilometres and will be anchored to the seabed 3.5 kilometres below the surface of the Western Pacific Ocean in the South China Sea.

Unlike telescopes gathering light, the China giant will be hunting for neutrinos — subatomic particles with almost no mass and no electrical charge.

While this research will help solve some of the mysteries of the universe, it will have local applications, including in defence.

This thrust into new technology by China will trigger a new era, and if China is not interrupted by a war, Australia will need to understand what is happening in its largest trading partner.

Meanwhile, Trump is planning ten per cent tariffs on all imports if he gains office.