Trump’s tariffs are permanently ruining the Chinese economy, because American businesses are packing up and leaving the country. Once gone, these businesses are unlikely to return:
China seems to be playing hardball, trying to wait out the Trump administration in the hopes that a new administration will return to complacency toward China’s rampant trade abuses. But that’s a long time to endure the pain that Trump’s tariffs are already inflicting on the Chinese economy.
For example, the president’s recent delay gives American companies that are in the process of transitioning their manufacturing out of China more time to complete that transition. Big tech companies are already taking their manufacturing out of China. Retailers are pulling out as well.
According to the Nikkei Asian Review and The Wall Street Journal, Apple is considering moving 15% to 30% of its production capacity from China to Southeast Asia as part of “a fundamental restructuring of its supply chain.” When announcing the recent tariff delay, the president noted that Apple CEO Tim Cook made a “very compelling argument” for delaying the tariffs as they would aid Apple competitors such as Samsung, which manufactures its products in South Korea.
Once supply chains move out of China, it will be difficult to get them back. Moving production out of a country can be expensive and time consuming — as can moving it back.
This flight out of China presents a severe long-term challenge for its totalitarian government, which relies on rapid economic growth and rising living standards to provide some legitimacy for its dictatorial rule. But, as the Chinese Communist Party has increasingly scaled back the free market reforms that got its economy going in the first place, it has been forced to prop up its economy with its escalating “techno-nationalism” and outright theft of technology from American companies.
I am less and less impressed with Xi Jinping as time goes on. He doesn’t seem to have been able to adapt to the Trump Administration’s change in policy. China’s economy has been built entirely on the West voluntarily encouraging investment in the belief that economic growth would cause China to develop friendlier relations with the rest of the world.
This hasn’t happened, and a US president has finally done the logical thing and started to withdraw support. Another problem China faced at the same time was rising wages, which was already causing many businesses to consider new locales like Vietnam and Bangladesh. Trump greatly sped up this process.
The Chinese economy is facing a slowdown right as these US businesses are leaving. As I’ve covered in other articles, a banking crisis may also be brewing as well. The US economy has also been much more resilient than expected. Even if Xi Jinping were to sign a trade deal with Trump today, I am not sure that would stem the outflow of Western businesses from China.
Xi Jinping should have understood this and acted appropriately to come to some agreement with Trump once he realized Trump was serious. He failed to, and by all accounts he is still failing to.