China’s tariffs as a Mike Tyson knockout punch to America

If China pulls off the tariff-consumption retaliatory combo, it could be a fatal blow to US relevance in the global economy

by Han Feizi

April 6, 2025

Yo, Canibus, your main objective out here

Is to do nothing but eat, eat, eat, eat MCs

For lunch, breakfast, dinner; that’s your agenda, baby

Your agenda to consume them

Their whole existence, they can’t exist in your presence

The Canibus is here to rule forever, Mike Tyson, on the def

– Canibus with Mike Tyson

Mike Tyson’s most dangerous combo was a right hook to his opponent’s left kidney followed by a snap uppercut to the chin. Correctly executed, the right hook to the body momentarily stuns the opponent causing him to double over, exposing the chin to the uppercut follow-up.

China just went big, implementing a 34% across-the-board tariff on imports from the US, export restrictions on a range of rare earth minerals and sanctions on 11 American companies. Mike Tyson has just delivered a right hook to the body.

China also went first. A parade of economies, Vietnam most publicly, has been making calls to the White House to negotiate away crippling tariffs. The pusillanimous strategy would have been to wait and see.

If China’s strategy were to salvage as much trade as possible, a wait-and-see strategy would be appropriate. The whole world would be jockeying for advantage as everyone takes cues from everyone else and winds up with similarly lousy deals, namely large reductions in tariffs and/or commitments to purchase sizeable quantities of American goods.

By going out big with a retaliatory tariff, China signaled that it is not trying to meet President Donald Trump halfway. Mike Tyson wants to brawl and is going for a knockout.

Only China (maybe the EU, but come on, who’re we kidding?) can go big. If China had waited, many smaller economies would have capitulated, forcing China to either match or twist in the wind – retaliation at that point would be pointless and self-isolating.

By going out first and going out strong, China just improved everyone’s negotiating position. Now, smaller economies (and the EU, e.g. Airbus) know China will not undercut them in negotiations. Going out early provides cover for other economies to drive a harder bargain, magnifying the impact of China’s retaliatory body blow.

Previously, Han Feizi lamented the tragic political economy that prevented America from reindustrializing, writing:

Reversing globalization would involve a massive derating of US asset prices as sales to foreign buyers are artificially restricted. Effects on GDP could theoretically be contained, but the wealthy would have to become poorer in hopes of bringing low-income folks back into the middle class as investment bankers become process engineers and Uber drivers become factory workers.

For a political economy that couldn’t figure out a mechanism to pay them off as globalization created immense riches, how likely is it that the immensely rich will stomach becoming significantly poorer?

Evidently, Han Feizi underestimated President Trump’s stomach for chaos. On many levels, we should all applaud Trump. He has blown a hole right through America’s tragic political economy and threw rich people under the bus – something no president, Democrat nor Republican, has had the cajones to do.

Unfortunately, these tariffs are a confused muck-up and will leave the US a much reduced economic power. It is unclear what the Trump administration is trying to accomplish. Is he trying to raise revenue, reindustrialize America or strong-arm trade partners?

The entire rollout, from the Mickey Mouse tariff formula to slapping tariffs on penguin-inhabited islands, was an embarrassment. We will not belabor what a dumpster fire this ill-conceived expression of Trump’s 1980s “Japan is eating our lunch” mind rot this all is and instead focus on what China and the rest of the world can do in response.

The US ran a US$1.2 trillion trade deficit in 2024 on $4.1 trillion in imports. Han Feizi is of the belief that there is no such thing as unbalanced trade – by definition. That’s why it is called “trade” and not “robbery” or “theft.”

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The world sold more goods to the US than it purchased. The world didn’t supply these excess goods out of the kindness of their hearts. Nor did they get bamboozled into accepting worthless paper from the printing presses of the US Federal Reserve.

The world made up the difference by accepting American assets in lieu of goods. Paper currency and US government debt are just claims on American assets. And foreigners have been claiming American assets. About 40% of the market cap of US stocks is now held by foreigners – up from less than 5% in 1965.

The greatest event in economic history was the opening of the North American continent for capitalist exploitation. The US has always traded assets for labor, whether through settler colonialism, pioneers, slavery, immigration or trade.

The political economy of America’s asset and labor allocation has made trade “deficits” all but unavoidable. What should have been avoided was concentrating the spoils of this assets-for-goods business model in so few hands.

Trump has just implemented import tariffs which rends asunder this assets-for-goods business model. Unfortunately, America is short $1.2 trillion per annum of goods production and conjuring up much capacity domestically is highly unlikely in the short term.

The rest of the world, however, is presented with a different but altogether more favorable conundrum. Goods, formerly exchanged for American assets, will now have to be exchanged for other goods, the productive capacity of which already exists.

China, to nobody’s surprise, is a major manufacturer of bass boats. The non-American market for bass boats is essentially zero. It should be far less costly to convert bass boat production to other products (scooters, jet skis, flying cars, who knows?) than to build the capacity from scratch in the US — the factories, engineers, machinists and technicians already exist in China.

Reshaping the market so that existing productive capacity finds buyers should be a lesser hurdle than creating this capacity where none exist. This is the “increase domestic consumption” strategy.

The more ambitious strategy would be to create a new set of assets to replace American ones. The new asset class of the world’s ultimate fantasy is surely Global South infrastructure. This is the holy grail of rational economic development and the theoretical basis for President Xi Jinping’s Belt and Road Initiative.

Well before Trump’s tariff temper tantrum, Chinese policymakers have long understood that capital flowing from less-developed Asia to fund consumption in more developed America — the Lucas Paradox — was highly problematic.

The BRI project was devised to correct this unnatural development model for the Global South, where capital from a richer China flows to less developed economies to fund infrastructure construction. In this case, our bass boat factory can be retooled to make excavators or cement mixers to build power plants in Nairobi or Ashgabat.

There are, of course, obstacles to this model on top of retooling bass boat factories. To date, the BRI project has shelled out $1.2 trillion, with a significant slowdown in recent years.

The Covid recession has damaged China’s BRI portfolio, forcing outstanding loans to be restructured, often extending tenures or taking haircuts which, given China’s surging exports and growing economic integration with the Global South, may be justified.

For the BRI to significantly offset a diminished US market, the Global South will need to demonstrate more consistent creditworthiness.

These two strategies – increase domestic consumption and reaccelerate BRI – can be the uppercut follow-up. China has been loath to fund direct consumption stimulus beyond modest car and appliance rebate programs.

The government has leaned heavily on investment, the benefits of which flow to consumers as better infrastructure, lower prices and more innovative products.

Over the long term (10-40 years), this investment strategy has increased China’s household consumption more than any other economy – all 194 of them and twice as fast as second place South Korea.

This time, however, China may just need to lean into stimulating domestic consumption. China (and Hong Kong) exported $477 billion of goods to the US in 2024 with another $100-200 billion in transshipments through third countries like Vietnam and Mexico with the goods skewed towards consumer products. Stimulating another round of investment will soak up steel and cement capacity but not electronics, furniture and appliances.

Announcing a consumption stimulus takes the heat off of global markets, which have been bracing for a flood of Chinese goods redirected to their shores, preventing tariffs from cascading across the world.

Not only would it backstop the deflation induced by the Trump tariffs but exacerbate American inflation, putting the Federal Reserve in a stagflation bind.

But can China make up for lost American demand? Does China have the financial firepower? While not the path favored by the Chinese Communist Party’s conservative style, the fact that the government has not been profligate suggests that there is ample financial firepower.

Various agencies have pegged China’s debt-to-GDP ratio at a high 300% – above that of the US which, in recent years, has been inflated down to 275%.

This is far off the mark. Like in many other calculations, consensus Western economists are using the wrong denominator. China has been reporting GDP on a completely different basis for decades (see here) and as such, its debt-to-GDP ratio is closer to 150% or even lower.

Hong Kong

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Simplistically, there are 500 million Chinese consuming at developed world levels – these are the people who make China the world’s largest market for cars and luxury goods.

And 900 million who are consuming at Southeast Asian levels – these are the people who will be moving into developed world consumption patterns in the next 20 years. So yes, there are plenty of people who can pick up the slack.

If China successfully pulls off the one-two Mike Tyson combo, it could be a knockout blow to the relevance of America in the global economy. China would have created a global trading system that not only does it lead but also leaves the US isolated.

If China plays its cards correctly, the Trump tariffs could go down in history as a far greater debacle than Brexit. Donald Trump has committed an unforced error and presented China with an opportunity that will not be seen in centuries.

While the modern Communist Party has generally been a conservative steward of national interests, it has been known to take wild swings. Zhu Ronji laid off 30 million SOE employees in the late 1990s. Hu Jintao unleashed an epic investment stimulus after the 2008-9 Global Financial Crisis.

Mike Tyson just delivered the first punch with the matching 34% tariff. Will he follow up with the massive consumption stimulus uppercut?

(http://www.autoadmit.com/thread.php?thread_id=5706098&forum_id=2...id.#48820250)

https://asiatimes.com/author/han-feizi/

They suck CCP dick even more than TT

(http://www.autoadmit.com/thread.php?thread_id=5706098&forum_id=2...id.#48820282)