China's debt trap tactics and the trade war with the US

Great Debates
1

I haven’t seen many threads talking about China, so thought I’d put some questions out for debate to see what 'dopers think. The first one is, what do you think of China’s debt trap tactics? Basically, China uses massive loans to very poor countries as the bait, and when they can’t pay the money back extracts things like control of a port or a new military base as repayment. Now, to head the ‘but what abouts’ off at the pass, I would like to see the discussion focus on China today and what they are doing, not talk about the US (or any other country) and what they have done in the past. If you think what China is doing is fine because colonial powers in the past did the same thing, they say that if you must…then say that you are cool with those colonial powers in the past doing it as well and we can move on.

But does this tactic worry you? Do you think it’s actually a good thing for those countries getting an infusion of capital…sometimes far above what they actually need? Should other regional powers (not the US) be worried? And, long term, is this going to actually work in China’s favor? After all, this is costing China a hell of a lot of capital up front. Of course, as they are using Chinese labor in most cases (and as they expect to get possession of something they think they need strategically), it helps them in other ways. But they are really building up their debt.

That brings us to another aspect of this…the trade war between the US and China. I’m surprised this hasn’t been talked about more on the board. But this escalating of tariffs seems to be headed towards the US imposing basically a tariff on everything the US imports from China (it started at just 10% but the Trumpster et al are indicating it could be ramped up to 20 or even 25%). How will this effect China? Do you think it will have a great effect or minor effect? How will it impact their belt and road initiative and the debt mentioned in the first part of the OP? What will China do to mitigate this? What can they do, aside from imposing reciprocal tariffs on the US (though they have already reached the limit of that, since we export a lot less than they do wrt the US)?

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One little corner of the discussion:

A “trade war” can also be viewed as more of a war and less of a metaphor. In that regard, China has a far bigger army (all of its citizens), with far better soldiers in it (Chinese citizens do as they’re told, under credible and draconian threats), and a far smarter and far more ruthless commander-in-chief.

I can’t conceive of a believable short-term scenario in which China loses even a single economic battle with the US.

3

China has been through one trade war and preparing for the current one since 1949. The US has been preparing for a trade war since the Trumpster said “trade wars are easy to win.” I’m not sure there is more to say?

China exports something like 70% of it’s production capacity and uses 30% internally. But the world is not aligned against China, so that dilutes a united front. Blowing up the World Trade Organization isn’t exactly helping. Europe (cough cough airbus cough cough) seems more than happy for the US to achieve a pyrrhic victory. TPP would have been in the right direction but Trump torpedo’d that. To be sure, China will take pain as well but can easily substitute with Airbus, Brazilian soy beans, Australian wine, European fashions, etc. At least much more easily than a US soybean farmer trying to find a new market or changing what they planted (back in the Spring).

Debt trap is a form of colonialism. Loan money for development, then acquire that development during default = profit!

4

In terms of sports, on one side it’s the wily veteran coach (president Xi) with a huge, loyal-by-force, and effective front office, scouts who have the power to draft anyone in their whole country at a moment’s notice, hundreds of expert assistant coaches who mercilessly whip the players into shape and enforce unbelievable levels of team discipline by threatening the players, and players who will agree to ridiculously low wages because the alternative is starving.

On the other side is the arrogant rookie coach who intentionally keeps his front office off balance and disorganized, scouts have ethics guidelines to follow, the new coach hates assistant coaches because they cramp his style, and the highly-paid players chose him because he promised to block non-native players from joining.

Oh, and the first team is four times the size of the second one.

5

Trade war will be disastrous for both China and the U.S. I expect President Xi to agree to putting the Trump name on a few resorts and Trump to declare victory and call off the war.

If you look just at trade figures the war is asymmetric but China has other tools in its weapon-kit. Foreigners do much business in China; expect Europeans to face less red-tape than Americans. McDonald’s hamburgers and Coca Cola soft drinks aren’t included in trade figures, but both stocks are among the Dow-Jones 30 which Americans worship and China is a growing market for each. More iPhones are sold in China than in any other country; are they really irreplaceable and uncloneable?

But don’t worry. While top GOP thinkers like Limbaugh and Hannity are gung-ho for trade war, saner advisers, e.g. John Bolton(!), oppose it. Trump will call off his war as soon as Xi gives him an excuse to call victory.

:confused: “In the past”?? Isn’t U.S. economic imperialism in the late 20th- and early 21st-century comparable to anything China is doing? Was that so long ago? Feel free to ask Mods to delete this paragraph if it’s against your rules but here’s a complaint against the U.S. for economic imperialism in El Salvador as recent as 2013.

Powerful U.S. corporations now deploy the same tactics they used against developing countries against the 50 states themselves. This example, where California was prohibited from alleviating traffic congestion reminds me of Bangkok a few decades ago: The largely foreign-owned company that operated the Airport Tollway sued to prevent improvements to competing Vibhavadi-Rangsit Road.

6

It might be costing them capital, but it might be an investment in land, territory, resources. As with all things, it’s how they decide to utilize and capitalize on the gains that matters. I don’t really have an opinion on the ethics of an agreement between China and its partners. There are hazards of doing business with an ambitious partner like China.

It’s hard to tell how this will unfold for both countries, but I have a feeling that both countries are going to wish that they had done more to avert this. I could see anything from a stalemate that leads to a small dip recession in both countries…to a large scale economic disaster for one or even both countries. Both China and the US have their strengths and vulnerabilities.

If there’s one reason why I think China might end up ‘winning’ - whatever winning looks like - it’s because they don’t have to worry about 2 major election cycles in the next 2 years. The impact of the trade war may not be felt by November, but it almost surely will be by the time presidential campaigning gets underway next summer.

Another problem is that Trump has picked multiple fights, with multiple countries, and it’s not at all clear what he expects to get for his troubles. That’s the real problem, and it’s a problem that doesn’t necessarily end after a truce is declared. International leaders are increasingly reaching the conclusion that Trump is too erratic to do business with. There are consequences for that.

That being said, China absolutely faces some perils of her own. A an all-out trade war is not good news for China. Supply chains can be rerouted to other countries. Some American farmers can sell their products to other buyers. The Chinese stock market has been battered, which puts pressure on their entire financial system. Chinese money has been flying out of mainland banks the last few years and the government has been struggling to stop it. Everyone is well aware that the Chinese own lots of treasuries and have lots of investments in the US, including real estate. But America’s attack on China’s economy has exposed the degree to which China depends on the US for its continued economic stability. Investors are going to re-evaluate both countries and it will produce political and economic consequences which are unknown at this point.

7

It’s worse than that. For the debt trap and influence on third world countries, I don’t think Trump even knows there is a war on, or if he does, what the impact will be.

It was hard enough before - now we are going to get creamed.

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It ain’t just what people think of as “third world countries,” Montenegro’s “highway to nowhere” is a pretty good case study to consider for this thread.

9

China might have misplayed Trump because they thought he was a buffoon and that, being a Republican and all, his fellow Republicans would put him on a leash. In fact, China has generally liked working with Republicans more than Democrats over the years, as Republicans have been more pro-trade and cared less about human rights. They never imagined a Republican running and winning on populism, much less forcing much of the formerly pro-trade party to do an about face. What Trump’s team is doing is not just selling this as a trade war, but as China containment. That’s how Trump can gain political traction on this, and he just might be able to convince enough people in congress - drawing from both sides of the aisle - to commit to a policy of economic suicide in the name of misguided nationalism and neo-imperialism.

But China is not going to back down. There is too much of their national pride at stake. The Chinese nation of 1949 was born out of fierce nationalism and has stood in defiance of imperialism and hegemony ever since. Even though the communist party has engaged in disastrous economic experiments, their will to defend their sovereignty should never be questioned, and they are willing to pay a very heavy price to defend it. This is the country that lived with the humiliation of being dominated by numerous smaller countries in the late 19th and early 20th Centuries, and they’re determined to stand their ground to the bitter end in the face of challenges such as this one. And as someone posted up thread, they’ve been preparing for a potential trade war and backlash against their piracy for years. They’ve already thought about how and where they would strike back. They’ve made it clear to administration after administration that fighting China would have consequences across different sectors of the economy, and there are many, many weapons in their arsenal.

In the short term, yes, a trade war could be very bad for China, and perhaps even worse for them than for us. But China will make adjustments, and then they will commit to making the US pay dearly. They will withdraw investment from the US. And once the economy here slows - and it will - the US will have a major, major national debt problem on their hands, and the amount that taxpayers have to pay on the US debt will surge.

“What’s that, America? You want to borrow more money to pay for your social security, medicare, and military? Go fuck yourself.” That will kick off a highly contentious debate about the future of these programs, with Republicans almost certainly arguing that we can no longer afford them and that we need to make immediate and drastic cuts, which will cause political uproar at home.

Meanwhile, China’s markets remain closed to US farmers. Chinese investment in US real estate sends real estate markets plunging, along with weakening fundamentals in the broader economy. Major US companies that need to do business in China in order to attrac more investment suddenly find it very difficult to do business there, making investments much less attractive.

What Trump does not realize is that China is not Iran. Their government would appear to be pretty stable despite some inner rumblings of dissent toward X from within the party. If there was a perception that this was some policy disagreement toward Xi and that replacement Xi or forcing him to retreat would end the conflict, that would be one thing. But I’m assuming that China now understands that this is not just a dispute over trade but a direct challenge to China’s ascendant and it’s a containment strategy. This is unacceptable to China. I suspect that China will get rattled and their financial system is going to be stressed, but they will weather the storm because they must. That’s a dangerous position to put a powerful country like China in.