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Why the anti-China protectionism

There are three ways to promote GDP growth: consumption-driven, investment-driven, and export-driven.   In other words, you build the stuff, you consume the stuff or you sell the stuff.   There is no other way!

For over 40 years China has been an investment-driven economy.   In 1990 China had zero high-speed train network, in 2024 it had like 30,000 miles of railway.   However, the demand for the high-speed railway is finite.   The same goes for housing.  We have seen it all over Europe, Spain, Portugal, and Italy all suffer from overabundant homes so that in parts of all these countries you can buy a house for a dollar.  Even Germany has nearly 2 million vacant homes (as opposed to underutilized ones) it was in their most recent census.

Since 2021 the CCP has realized that the investment route for GDP growth was no longer working.   More buildings would not solve the problem, and the second plank to raise consumption is impossible.  More debt will not solve the problem.   Higher wages have already been tried, in the past 20 years average wage has risen by 15x, so the Chinese government was left with only one option, to export its way out of trouble.   

What would have been more or less feasible in 1980 or 1990 is now impossible because China accounts for 17% of the world GDP and 30% of trade, it is the world's workshop, so even a small increase in sales abroad would be noticeable.   For example, in Europe, the sale of vehicles from China rose threefold.  The first, to react was the US government, both Trump and Biden are fundamentally protectionist, but again trade in America accounts for a very small percentage of GDP, outside of Mexico and Canada it's less than 5%.   So that meant that the target had to be Europe, and European companies as screaming murder. The governments are listening.

There is an excellent example on YouTube; a German company makes small brass components, in the manufacturing process the COST of the unprocessed brass is 0.26 euro per component, and the manufacturing cost is about 0.07 euro per component.   The Chinese are selling the component for 0.24 Euro, less than the cost of the brass stock.   BTW brass is brass, it's not like aluminum or other metals there is only one composition.  The Chinese are producing goods and selling them below cost, not to kill competition but to export their GDP growth, and create jobs at home.  

The protectionism is driven by a desire to stop China from using the export markets as a GDP growth engine.  Not only that, but China doesn't really have much room to manoeuvre in a trade war because it has largely stopped the imports of finished goods into China.  Even luxury brands now are hard to find in China.   

That's why the Chinese reaction to the massive trade barriers has been muted, there are no solutions.


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