China's Manufacturing Ambitions: A Collision Course with the U.S. and My Patience

A Disturbance in the Trade Force

I sense a great disturbance in the Force as if millions of voices cried out in free trade... and were suddenly silenced. President Trump desires a return to domestic high tech manufacturing a noble goal. But China like a rebellious Padawan insists on its own path a path filled with... advanced manufacturing. This 'Made in China 2025' plan is a blatant attempt to become a leading high end manufacturer. They seek to dominate even electric vehicles semiconductors and... robots! This ambition is... troubling.

Xi's Unwavering Hand on the Assembly Line

President Xi Jinping much like the Emperor Palpatine is determined to control his galactic... I mean economic destiny. He preaches self reliance in advanced manufacturing as the 'backbone' of China's economy. But such rigid adherence to a manufacturing led growth as the world sees it only deepens global trade imbalances. The manufacturing sector accounts for over 25% of China's GDP. Such reliance on industry is… a weakness easily exploited. It reminds me of the Death Star's reliance on a single thermal exhaust port!

The Emperor's Subsidies Strike Back

The U.S. complains of China’s unfair subsidies to its companies distorting competition. A 2022 report estimates that China spends at least 1.73% of its GDP on funding favored industries – significantly higher than the U.S. Ironic isn't it? The Republic the supposed bastion of freedom and fairness complaining about government intervention. I know a thing or two about order and control and frankly a little strategic investment never hurt anyone... except maybe my enemies. State subsidies are strong with these Chinese firms. Perhaps too strong...

Tariffs: A Powerful Weapon But Not All Powerful

Despite the subsidies China missed several key targets from its ten year plan. It’s like trying to destroy the Rebel base with a single TIE fighter squadron: ambitious but ultimately ineffective. The U.S. Treasury Secretary hopes for a middle ground but some experts anticipate tariffs to hold at around 40%. As Treasury Secretary Scott Bessent stated we need more manufacturing they need more consumption so there is a chance to rebalance together we'll see if that's possible.' Indeed it seems we'll see...

A Galaxy Divided: Dumping Anxiety Spreads

China's industrial push has the rest of the world trembling. The specter of tariffs looms large and even Santa Claus figurines have been redesigned to appeal to European consumers. Pathetic. Such blatant attempts to circumvent trade barriers will only fuel the fires of resentment. The G7 nations are already discussing steps to curb China's export saturation. Delays in licensing and exclusion from local incentive schemes are possible. The Force is indeed strong but not stronger than a well placed trade embargo.

The Deflationary Shadow: A Silver Lining?

Some suggest that China's excess capacity could offer a silver lining by easing price pressures. China may be exporting deflation. A welcome consequence for inflation weary economies by easing price pressures to markets with limited manufacturing bases like Australia. Economists call for China to shift to a consumption led model but such transitions are slow. China’s trade surplus hit a record high of $992.2 billion. Retail sales growth slowed revealing a reluctance to spend. Strategic decoupling is inevitable on national security concerns. All too inevitable...