TIOL - COB( WEB) - 951
DECEMBER 19, 2024

By Shailendra Kumar, Founder Editor

IF one digs for a significant beneficiary of the rapid pace of globalisation and post-Cold War global peace in the last three decades, China clearly sits alone on the top. Ironically, having achieved the status of being the factory of the world, China now wants to kick away the ladder so that no other country climbs up to challenge its ascendancy on the top! Yuck! And it's such trade policy attitude is going to kindle several tumults for the global economy in the coming years! I am certain that many global experts may feel tempted to put more names in the pack of beneficiaries but none has either economically or militarily eaten as many fruits of all-round development as China has - of course, at the cost of others in the race! China quietly followed the mantra of fortifying its economic muscles which, in turn, afforded it oodles of resources to strengthen its military sinews. Totally tubular, indeed!

Taking a cue from the US and EU, China has been spending an eye-watering percentage of its GDP on R&D and science and technology. For instance, it expended USD 668 billion as compared to USD 880 bn of the US last year. Everything was humming fine and perfect for it except a sudden tiff with Donald Trump over trade deficit during his first term. Then popped up the murderous COVID virus which not only upended its pace of economic growth but also its economic and geopolitical rivalry with the US. China, for two years, deserted the time-tested concept of diplomatic love-in to sort out bilateral issues. It hugged the policy of high-intensity military belligerence and boil-the-frog approach to deal with its rivals. How did the US react? Being more strategic and suss than his predecessor, the outgoing President Biden avoided direct confrontation but did not ease his feet on the tariff pedal designed by his predecessor. He also periodically kept on tightening the technology noose around China's neck. Export control rules framed to prevent transfer of advanced technology to Chinese entities have, for the time being, done the job for America which believes that their slack and perfunctory economic policies in the past have allowed China to ravage its manufacturing prowess and gained an edge over it. Secondly, growing sophistication of Chinese technologies has, of late, been worrying America too often. And it has nudged its army of think-tanks to jump out of the hammock and design innovative arrows to shoot at China!

Even though Mr Biden's regime is into its last leg, he has ignored the 'fig leaf theory' and revved up the technology war against China by restricting export of high-tech semiconductors and chip-making equipment. For the third time during his paling regime, the Biden Administration has put curbs on sale of more than 20 types of semiconductor-making equipment and also imposed sanctions on 140 Chinese companies for accessing American technology, recently. These controls are aimed at preventing China from creating the next generation of weapons and AI systems. What the US is trying to do is to slow down China's development of advanced AI-driven weapons which may be used against America and to undercut its home-grown semiconductor industry, which threatens the US national security and also of its allies. China, expectedly, lamented the move, accusing America of 'abuse' of export controls and posing threat to global supply chains. It also alleged that the US is unilaterally engaging in bullying actions. Interestingly, having gained supremacy in manufacturing, China has begun advocating free trade? Weird, the concept of free trade becomes more savoury only after one crescendos to the peak of dominance! The UK did it after the Great Depression in 1930, and the US did it post-WW-II! China is apparently doing the same! Anyway, breathing fire, the 'Dragon' has quickly retaliated by banning exports of the critical minerals to the US. These are gallium, germanium and antimony which have extensive military applications.

Stretching the 'rubberised' concept of national security, China also ordered end-use review of shipments of dual-use graphite exported to the US. Although the US is one of the largest markets for germanium and gallium, there was no shipment to the US in the October month. Similarly, the October shipments of antimony products dipped by 97% as compared to September month. China statistically accounts for about 50% of globally mined antimony - an essential input for making of nuclear weapons, ammunition, EV batteries, night-vision goggles, infrared missiles and solar equipment. Such a move has predictably ratcheted up the global prices of antimony trioxide. Having no choice but to undergird the official ban, the Chinese industry association has urged its members not to buy American chips as they are 'no longer safe' and source only local chips. This association has over 6000 companies as its members, cutting across a large swathe of the economy. To further aggravate the chip-war, Beijing has initiated an anti-trust probe against world's largest chip-manufacturer Nvidia.

What added more fire to the rising geopolitical temperature is the recent announcement of the President-elect that the US will impose 10% more tariff on the existing tariff against China unless it takes stern measures to stymie smuggling of fentanyl - a precursor chemical for making synthetic drugs, killing American youth in large numbers. Since Trump had pledged to impose 60% tariff on China during his poll campaign, Beijing is on edge, taking measures to insulate its economy from bone-crushing external shocks. Fearing a barrage of zeitgeisty economic sanctions from the incoming Trump administration, China is trying to steel itself against all possible bruising actions. It has hinted at adopting a moderately loose monetary policy in 2025. Its high-voltage economic politburo, last week, decided to unfurl a package of stimulus to boost domestic demand which was never a priority for Beijing tsars. China has always put its weight behind exports-led growth policy which has clearly antagonised not only the US and the EU but also many key economies in the Global South. Though the Chinese President Xi Jinping says that the trade war launched by America goes against economic laws, and there will be no winners but he is certain in his mind that China will eventually be a loser owing to the shrinking international markets for its products!

The Chinese economy has been sinking since the COVID days. It shrivelled further after the real estate bubble-burst. There have been rising graphs of flight of foreign capital and its millionaires too. American and European companies have been folding up their tents as they fear an accelerated pace of de facto decoupling. As per the survey conducted by the British Chamber of Commerce in China, 58% of companies are of the view that it has become quite thorny to do business in China. They also foresee a period of stagnation for China like Japan in the 1990s! Similar sentiments have been echoed by the Japanese, South Korean, and also many Asian economies. China has almost made it clear to foreign investors that it does not believe in perking up its domestic demand and it would also not dry up its subsidy bowls offered to exporting companies. Growing by dumping cheap goods anywhere and everywhere is going to be its key plank for future growth highway. Though one tends to see that Xi Jinping is trying to build bridges with the US allies, hoping that if Trump goes for universal tariff, some European countries may decide to hug Beijing for their business relations.

However, China's overproduction and dumping demeanours have antagonised many of the Global South countries - right from Pakistan, Thailand, Malaysia, Indonesia, South Africa to Brazil. Indian story is widely known to all! Emerging economies have registered more aggressive dumping by China as its trade and tariff wars gather momentum with the US and its trade suffers more erosion. In the Global South, Thailand has reported closure of close to 1600 factories in 2023. Indonesia has also banned Chinese app Temu which deluges cheap goods. Brazil has also resorted to anti-dumping measures against its several goods. Global South nations have designed more than 258 protectionist measures in the past two years and China will have to deal with the growing backlash in its backyard as well, leave aside the 'giant slayer' Trump! India also needs to brace up for a complicated and uncertain future trade canvas and equally volatile geopolitical waters! The world is indeed heading towards a ghoulish train wreck of the extant world order! Appalling bloodbath of global trade is on the cards! Voila!