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How The United States Is Waging Economic War On China

Political economists Radhika Desai and Michael Hudson analyze how the United States is waging an economic war against China.


RADHIKA DESAI: Hello and welcome to the 26th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our times. I’m Radhika Desai.

MICHAEL HUDSON: And I’m Michael Hudson.

RADHIKA DESAI: And working behind the scenes to bring you our show every fortnight are our host, Ben Norton, our videographer, Paul Graham, and our transcriber, Zach Weisser.

In our last two shows, we looked at China’s economy and where it was headed, busting major Western myths about it, and highlighting the differences between the Chinese and US economies that explain the dynamism of the former and the productive decline of the latter.

We spoke about how China was embarked on engineering the next industrial revolution through a major structural transformation, not only to continue its high growth, but also to improve its quality, technologically and in human terms. And in doing this, China is increasingly taking the technological lead in more and more frontier sectors, including green technology, artificial intelligence, and nanotechnology.

In today’s show, we look at how the United States is responding to this structural transformation of China’s economy. Our short answer is: badly. It keeps military and diplomatic tensions high, continues provocative visits of high-ranking officials to Taiwan, and tries to stoke up trouble between China and its neighbors, and rings China around with new military alliances. It continues its economic provocations against China that fill the headlines these days, interrupted only, as with the recent phone call between Presidents Biden and Xi, and visits of Secretaries of Treasury and State to China by shows of attempting to cooperate with China.

The fronts of the economic attack are proliferating. The Asian Infrastructure Development Bank, Huawei, TikTok, electronic vehicles, solar panels, steel and ship building, and the matter of China’s consumption and the world market’s overcapacity. No doubt, there will be more.

The fundamental cause is pretty clear. The United States had sought to engage China in the closing decade of the last century under the delusion that such engagement would result in the complete and snug subordination of China’s economy to U.S. capital. However, by the end of that decade, the BRICS thesis already signaled problems, and halfway into the first decade of the new century, the economic war with China had begun.

President George Bush slapped 30 percent tariffs on Chinese steel. This was followed by President Obama’s pivot to Asia, President Trump’s trade and technology war, and now President Biden’s widening hybrid war on China. As National Security Advisor Jake Sullivan frankly admitted in a speech last April, the U.S. has had to contend with the reality that a large non-market economy has been integrated into the international economic order in a way that posed considerable challenges.

Of course, President Bush was forced to rescind his tariffs less than a year later, and the U.S. corporate capitalist class remains highly divided on the exact policies to adopt towards China. Over the brief decade or so of engagement, substantial parts of the U.S. corporate capitalist class had become deeply reliant on China, on its workers, on its suppliers, and even on its markets. No complete break is really possible.

This is finessed in public discourse by splitting hairs, such as, for instance, shifting from talking about decoupling to talking about de-risking.

However, those for continued engagement are opposed by two powerful forces. There are the sectors of the capitalist class that are threatened by China’s technological advances, such as Google and Meta, and they are leading the anti-China charge. On the other hand, U.S. ruling circles, which continue to pursue corporate neoliberal policies designed for their benefit, need to offer the vast majority of working Americans who are suffering under these policies an explanation for their misery, and nothing is more useful than blaming China.

So the technological and hybrid war continues, and today we want to discuss some of the key elements. And Michael and I thought we would begin by talking about Huawei. Michael, why don’t you take that away?

MICHAEL HUDSON: Well, the beginning really is what America means by a non-market economy. It means an economy that is better at competing internationally than the United States. It’s not a market economy if the United States can’t gain control of it and do something better.

And that’s the problem that the United States had with Huawei ever since the U.S. began to move its industry under the Clinton administration to China. The United States can’t compete in industrial products, and it only has a few raw materials—oil, gas, and agricultural exports—to support the balance of payments. That leaves only one way that the United States can balance its payments enough so that it can afford all of the 800-plus military bases that it has all over the world and can afford to fight in Ukraine, in Palestine, and in the China Sea.

So the solution is it needs economic rent. It needs to monopolize some high growth area of the economy that other countries are not allowed to compete in. Well, one of the great growth areas is, of course, the move towards 5G communications technology. And Huawei is way ahead of the United States there. That’s why it was being adopted everywhere.

What could the United States do? It couldn’t really compete. So it asked Canada to place under arrest the daughter of the head of Huawei and said, well, we’re essentially going to keep you under home arrest until you agree to let us have this technology. We don’t want anyone else to have a technology that is growing that we can’t control because that’s a threat to our national security. And Huawei was a threat to national security because if the United States can’t get its market, how is it ever going to have a market enough to support the balance of payments and be the unique country?

And Huawei was sort of the first symptom of all of this. And in fact, it’s just posted its largest and fastest growth on record. And from the U.S. point of view, the U.S. investors don’t control it. And U.S. bankers are not making the loans to it. So there’s no way that the United States can benefit from Huawei. The problem is that the beneficiary is Chinese. And that is not what America had in mind under Clinton when it thought of the grand opening to China. China was supposed to let American companies come in and to rely on American banks to expand. And that’s not what Huawei has done.

So the umbrella legal and political excuse for trying to exclude Huawei and to bring pressure on the European countries and America’s NATO allies not to use Huawei is national security. And the Energy and Commerce Committee of the United States issued a report a little while ago. And it said, quote, foreign adversaries have used access to data to disrupt America’s daily lives, to conduct espionage activities, and to push disinformation and propaganda campaigns in an attempt to undermine our democracy and gain global influence and control.

Well, the problem is that control is the key. Huawei did not let the National Security Agency and the CIA have a backdoor into its products. And if the United States cannot listen to what people say over Huawei, it gets very insecure. We don’t know what other people are saying. It’s sort of like silk-making. The West tried a long time to get silkworms from China so that you could bring it to Europe. And finally, some priests brought some silkworms. And Italy’s silk industry started all that. Well, the United States would like to do the same thing with Huawei, to turn technology into a rent-extracting monopoly, intellectual property privilege. And it wants to steal China’s platform, to make a long story short.

RADHIKA DESAI: No, this is so true, Michael. And I just thought I would make a couple of few points, really, to reinforce what you’re saying. Because as you say, the United States is insistent on keeping its monopolies. And this insistence arises from the fact that increasingly the leading sectors of the U.S. economy rely on the sort of political imposition of monopoly. It is not a natural monopoly in the sense that it’s arrived at through out-competing, you’re successfully out-competing rivals. So if you think about what are the leading sectors of the U.S. economy, there’s the military-industrial complex, there’s the finance, insurance, and real estate sector, there’s big pharma, and there’s information and communication technology.

And if you think about it, the military-industrial complex requires essentially the creation of an artificial U.S. monopoly by the expansion of NATO and the imposition of its interoperability requirements, which keeps expanding the market for the U.S. defense producers, no matter how bad they may be, how bad the quality of their products may be. Similarly, the FIRE sector relies on the international dominance of the dollar, which is, of course, threatened. But nevertheless, the United States keeps trying to do everything in its power to continue it. Big pharma and ICT rely on patents and copyrights and, you know, basically intellectual property rights.

And those scholars who study intellectual property rights have pointed out that the United States is actually pursuing the wrong policy. If you want to keep and maintain a technological lead, you don’t do it by trying to consolidate your existing technology or trying to back your existing technology with intellectual property rights. You do it by continuously innovating. And this is, in fact, doing the first is actually counterproductive to doing the second, because you’re trying to retain an existing advantage rather than constantly developing new technological advantages. So in that sense, this is the wrong strategy. The United States is pursuing that strategy rather, and I would say that China is pursuing the other.

And the other thing is that, you know, when the United States securitizes everything, so, you know, in the name of national security, the United States wants to give subsidies to all sorts of corporations to develop their products and R&D and what have you. And the fact of the matter is that this strategy, which really sort of confuses the issue, is far less effective. And therefore, the United States is losing the technological lead than the strategy that China adopts, which is really to focus on developing the technologies, whether security or civilian or whatever.

And that’s why, as you rightly pointed out, Michael, Huawei has not spent much time worrying about the ways in which the United States wants to restrict it by restricting the export of various types of chips and so on. Huawei has continued to innovate, and I have no doubt that even with the recent bad, the chip wars and so on, the Chinese are actually going to not take very long before they will out-compete technologically, the US technological lead on chips.

So, and finally, you’re so right, you know, when you pointed out that the United States wants to spy on everyone, which is why it does not want China, Chinese companies, which will not allow them to spy on the rest of the world, to have any share of the world market in technologies where you can collect big data, et cetera, because the United States government and all the major US ICT corporations are already cooperating with one another. The United States has access to our data and the US just does not want anybody else to have the same access. So, this is what we are looking at.

And of course, associated with this is the whole issue of TikTok. TikTok has also been named as a security threat, et cetera. So, Michael, why don’t we talk a little bit about TikTok?

MICHAEL HUDSON: TikTok exemplifies the distinction between what you call the wrong strategy and the right strategy. Your idea of the right strategy is long-term research and development, but for the financial sector in the United States, that’s the wrong strategy, because if you spend money on research and development, you cannot use it to pay dividends and to buy stock buybacks. The financial sector lives in the short term. So, you’re really saying that the US follows a short-term financial strategy and China follows a long-term strategy of research and development. Well, that’s what led to TikTok, which China says has a much more sophisticated platform strategy than the United States platforms have. And that’s why TikTok threatens Silicon Valley’s monopoly on its platforms, and it also steals the hopes to monopolize the social media.

The United States hoped that Facebook and X and the other platforms would be monopolized. And what you call intellectual property rights are really monopoly rights. And they just don’t like to call it because monopoly is a bad word, but that’s what America wants. And America cannot have a monopoly right if people are having the free choice to choose TikTok because it’s created a better overall system. And it’s in 150 countries, it has a billion people and 170 million Americans, and the United States can’t control it, just like with Huawei. That’s what upsets Washington.

So, the question is, how do you make these 170 million Americans when your technology can’t be used to use a backdoor? What they did was a number of things. They’ve accused China and TikTok of somehow being a threat to national security, because that’s an umbrella that can cover absolutely anything that you want. Well, TikTok has spent a billion and a half dollars with an American firm to ascertain that there’s no way in which China can have access to this. The United States simply ignores this because the facts don’t matter. It’s a danger to the dollar and hegemony.

And so, the platform disturbs Washington for a number of reasons, and that’s because of what can be said on it. The government of Israel has especially complained to the United States that there’s much more opposition to the war in Palestine on TikTok than there is on Facebook and on X. And in fact, Facebook has censored any defense of the Palestinians. And for every three posts of support for Palestine on TikTok, there’s only one on Instagram or the others. So, Israel has told Biden that this is a national security threat to the duopoly between Biden and Netanyahu for the war to drive out the Palestinians who control the Near Eastern oil. And if you accuse Israel of genocide, then that’s a threat to U.S. national security. And where are these accusations? They’re on TikTok because they’re all censored on the other platforms, and the United States doesn’t have censorship powers over TikTok. So, that’s why it says you’ve got to sell to the United States or go out of business.

Well, China has said we’d rather go out of business and lose the money that we are making in the United States and give you the billions and billions of dollars that we’ve developed for the programming for TikTok so that you can use it and take away our markets. You know, this is not going to be another case of the silkworms being lost to the West.

And a number of far-right Republicans are saying that TikTok’s a spying operation, and it doesn’t matter what the reality is. They’re just accusing them. And of course, you have Steven Mnuchin, the Treasury Secretary under Trump, saying that he’s putting together a group of buyers to try to buy TikTok. He thinks he’ll be able to make it a killing. And obviously, that’s not going to happen.

And what’s certainly not going to happen is the United States is sending Yellen to China now to say, why don’t you send ByteDance, the overall worldwide operations? That’s what we want. Well, the United States has nothing to offer in exchange. It’s just making the demand. And all that it can really do in the end is to close TikTok. And we’ll see what the political effects of all that are, because obviously, many of the younger people who already are disapproving of the Biden administration say, well, we want free speech. As long as the United States is leading the world fight against free speech, then—

I’ll let you finish. What the hell does that mean?

RADHIKA DESAI: No, no, exactly. I mean, I think that what the United States would really like, as you say, is to totally monopolize social media, because then the ability of the United States to essentially dominate the information space would be vastly enhanced, because all the social media companies would essentially be parroting what the United States says. So it wants to eliminate any possibility that there will be any other type of information that will be available.

But of course, this is not going to happen that easily, because in addition to the social media, as we know, China, Russia, and many other countries, too, have increasingly been creating their own information space, and creating their own media companies, and so on, which put forward a different point of view. And today, along with all sorts of alternative news websites, these websites are part of the information space for those who realize that the mainstream media does not give you the correct view, and would like to try and see what other views there are. So, you know, whether it is Global Times, or CGTN, or RT, or various Indian news media websites, they do provide a different perspective.

There are a couple of other points one should make about this. It was, you know, remember that Trump originally proposed a ban on TikTok, and in the course of discussions about that, many people said that, oh, well, TikTok is very addictive, and harmful, and so on. Well, in China, the social media is actually controlled a lot more. In the US, because the social media are essentially vast, you know, essentially belong to big corporations whose right to make profits are never to be challenged, the United States refuses to regulate social media, whereas China regulates it. China has rules and regulations to protect children from harm, etc. And China will not say anything if the United States wishes to protect its children, not only from any adverse effects of TikTok, but also any other social media, but the United States refuses to do that.

Second point is that, you know, not only is it true that TikTok is one of the few social media websites where you can voice criticism of what Israel is doing in Palestine, etc., but it is also true that because of this freedom, younger people are basically users of TikTok disproportionately, and their importance in the coming election is going to be huge. They have become very critical of the Biden administration, and in recognition of this, President Biden himself, on the one hand, says that he will sign into law any law against TikTok, which is passed by the Senate now that it’s already been passed by the House. But why, on the one hand, he says that, on the other hand, he has himself acquired a TikTok account.

Another point that one should make as well is that, you know, TikTok is often regarded as a Chinese company. It’s not a Chinese company. Its CEO is based in Singapore. What’s more, a number of US investors would stand to lose from TikTok, which is why I don’t think it’s very clear that the Senate is going to pass this legislation.

Among the US investors that have a fair bit invested in TikTok are the following companies that I’ve just made this list from reading several different sources. They include BlackRock, Fidelity, General Atlantic, Sequoia Capital, Susquehanna, KOTU Management, and T. Rowe Price.

So, you know, we know that in the House, the legislation got passed chiefly because of the concern over criticism of Israel, but it remains to be seen exactly what happens. And I completely agree with you, Michael. I think that if it comes to it and the Senate does pass this law and President Biden signs it into law, I don’t think the Chinese are going to sell TikTok. I think they would rather just shut down TikTok.

So, we’ve talked about Huawei. We’ve talked about TikTok. And by the way, I should remind you that, you know, there are also disagreements between different so-called US allies. You know, I’m reminded that some years ago, the Asian Infrastructure Investment Bank, when it was first floated, the British government actually joined the Asian Infrastructure Development Bank, even though President Obama very loudly asked them not to. So, there are, you know, not only is the US capitalist class divided, but US and its allies are also divided on many fronts.

But now let’s come to the next point, you know, that we want to discuss, which is the whole matter of US steel and US shipbuilding. You know that the United Steelworkers has made a petition to the US Trade Representative Katherine Tai. And Katherine Tai has agreed to look at this and take it very seriously because, and let me just share here a brief statement by her. You see here a Katherine Tai statement where, in response to the United Steelworkers petition, she pointed out that we have seen the People’s Republic of China create dependencies and vulnerabilities in multiple sectors like steel, aluminum, solar, batteries and critical minerals, harming American workers and businesses and creating real risks for our supply chains. I look forward to reviewing this petition in detail.

So, once again, here we have another instance of blaming China for the misery of US workers, which is actually created by neoliberal policies. Wouldn’t you agree, Michael?

MICHAEL HUDSON: Yeah, so the United States policy is that it has to control all key areas on national security grounds. And I think the reason is, we’ve talked before, the US plan is to go to war with China in 10 years. And you want to prepare for that. If all of a sudden you went to war and you were still depending on China for goods, that would disrupt the United States economy. So the United States wants to prepare for this war, presumably war with China, by separating as much as you can right now. And that begins with steel.

And it’s not only independent from China, but from Japan too. What’s been most in the news here is that Japanese companies want to buy US Steel, which used to be the major steel industry in the country. And again, the United States is claiming that even though Japan is our satellite, our ally, it doesn’t want it. So Nippon Steel offers $15 billion to acquire US Steel, and the Biden administration opposes this. And Donald Trump already has threatened to block the Nippon deal. And the present administration wants to do the same thing.

And the labor unions are involved, because US steel is a unionized shop. And the labor unions have come out against saying, no, we want a US controller that we can pressure. But it’s not only China, it’s Japan, it’s everyone. So the US limiting its imports from China is against the entire world. And the only reason China is mentioned is it’s the main country that’s able to produce these imports. And the United States is essentially, if it cuts itself off from China in its attempt to be self-sufficient, it’s going to essentially cut itself off from the whole rest of the world that is trading with China. And this will not help the United States compete, because the steel workers in America, in order to get enough money to pay for their medical care, for their housing, for what it costs to live in America, simply cannot compete with almost any other country, whether it’s Japan or the United States. So it’s good to look at steel as just an example of how far the United States can stretch the national security umbrella.

RADHIKA DESAI: Exactly. And you know, the fact of the matter is that US steel has been one of the earliest victims of the de-industrialization of the United States that set in. Once Ronald Reagan came to power and began to impose his neoliberal policies, his monetarist policies, you know, beginning with imposing the infamous W-shaped recession of the early 1980s. So the de-industrialization of the US began then.

Today, if you look at the shipbuilding industry, the major producers of steel are not in the United States, they are in China, they are in Japan, they are in Korea and elsewhere. And by the way, the US steel workers petition refers specifically to shipbuilding. And here also, we see an astonishing decline of the United States. I just wanted to share a few slides that show this.

So let’s look at this one to begin with. So if you look at this slide, what you see is that the US is not a significant player in the global shipbuilding industry. This is from the Financial Times:

And you see here that China accounts for nearly 50% of the world’s shipbuilding, followed by South Korea, which accounts for another 30% and more, and [Japan], which accounts for another 20% and more. So you can see that the rest of the industrialized world, so to speak, or shall we say post-industrial world, accounts for tiny fractions of that. And among these, the United States is down here at the very bottom with hardly anything.

And let me also show you another really interesting point here, which is that Forbes magazine reported that US shipbuilding is at its lowest ebb ever. This was the name of the story, how did the US fall so far? And in this story, among other things, Forbes notes that a nation that was among the world’s leaders in commercial shipbuilding at key junctures in its history, today builds less than 10 vessels, actual number of vessels, for ocean-going commerce in a typical year. China, by contrast, builds over 1,000 vessels every year. So you can see 10 versus 1,000. China’s shipbuilding is 100 times bigger than the United States. The entire US registered fleet of ocean-going commercial ship numbers fewer than 200 vehicles out of a global total of 44,000. And this is despite trade flows to and from America exceeding a trillion dollars annually. So the United States is among the biggest trading nations in the world. It should own the ships that bring the goods that it buys and sells and take away the goods that it sells, but it does not do so. US registered ship carry barely 1% of the traffic that comes to the US.

And then we have this graph, the decline of US shipbuilding, which accelerated under Reagan, as we were just saying:

So here you have two lines. The blue line is commercial shipbuilding and the red line is naval shipbuilding. So this is related to defense. And you can see that beginning in the Reagan presidency, there has been a sharp decline in both with some improvement here, but these are just ordinary numbers of vessels. And you can see that the decline is really quite massive because even if these numbers show some recovery here, they are minuscule compared to the world totals.

So this is the sorry state of US industry of which shipbuilding is just the tip of the iceberg.

MICHAEL HUDSON: Yeah, I can’t add anything to that, except the Forbes article went on to say, or follow up article on saying that navies are obsolete. If China is able to send a million drones against any kind of US naval vessel, no US naval vessel is safe, given the modern technology where it’s so easy to build a drone or a rocket. To wipe out an aircraft carrier or a battleship or even a submarine. So I think the United States is smart enough to give up on the idea of naval warfare. And we’ll see what happens in the China Sea.

RADHIKA DESAI: I mean, I think that that point I think is a quite an interesting one, because of course, today, destructive capacity is very widely spread, you know, so you have Turkey and Iran building very, very high technology drones. And this just shows that actually, since the ability to inflict harm is now so widely spread around the world, it makes very little sense to make enemies around the world the way the United States is going around doing. I think to me, that’s the main lesson.

That does not, however, mean that control over transportation routes and so on is not an important part of securing your country’s interests and so on. There has been historically very few powers that have not controlled transport logistics. And China has certainly not only increased its shipbuilding capacities, but also increased its carrying capacity, the number of ships that China has. And increasingly, China also controls more and more ports around the world. And to whom, again, it is sort of distributing its logistics software, which is now being increasingly adopted by more and more ports around the world. So in that sense, I think that China certainly represents a challenge to the United States. And if China wishes, sorry, if the United States wishes to antagonize China, China has a lot of power with which to inflict harm.

And I just want to add one final point, you know, the United States has long been talking about having industrial policy. And obviously, with the United Steelworkers Petition around shipbuilding, the matter comes down to, you know, can the United States pursue successful industrial policy, for example, to revive its shipbuilding? And there again, we see that there are a number of obstacles the U.S. faces. After 40 years of neoliberalism, the United States has reduced itself to a position where even if it were to try to seriously engage in having an industrial policy to revive its industry, it would suffer from a number of obstacles.

Number one, there is a lack of skills. You know, the number of graduates that are graduating in STEM subjects, the science, technology, mathematics, et cetera, science, engineering, technology and mathematics are actually relatively few compared to other powers who are more serious about their industry, including China.

There is also a lack of suppliers. The tendency to have just-in-time production is simply not conducive to having a reasonable industrial policy and building resilience.

And finally, you have an entire capitalist class that requires high profits in the short term, whereas industrial policy requires being patient, accepting low profits for a long time before your investment finally occurs. Your investment finally comes into stream and matures in order to deliver high profits. And none of these elements or aspects of successful industrial policy actually exist today in the United States.

MICHAEL HUDSON: Well, that’s why Yellen, the U.S. Treasury Secretary, is in China now. Shall we go in to discuss—

RADHIKA DESAI: Absolutely. Go ahead, Michael.

MICHAEL HUDSON: She’s essentially there to make a number of demands. She’s accusing China of monopolizing clean energy goods, the battery technology, all the things that you mentioned before. She says this is driving down the prices of global energy, of batteries, of everything China produces. There’s no way that American industry can compete with that. So you’ve got to stop exporting these things. Why don’t you just support things for your own consumers? And why don’t you stop exporting? This is almost hilarious.

And she’s used, and the media in America uses, a kind of vocabulary. I think we should get used to a new word. It’s not a new word, but it is in the dictionary. And it’s called cacophemism. It’s the opposite of a euphemism. A euphemism paints lipstick on a pig. It makes something pretty bad look good. Well, Yellen has gone through the entire vocabulary of cacophemism, making everything that China is doing good looking bad. For instance, she says “to export” is “overproduction”. Well, any country that exports produces something more than it produces at home. The only way to avoid overproduction by producing more than you do at home is not to export anything. That’s what she’s asking China to do. Don’t overproduce, consume everything at home, stop making exports. Well, that’s a pretty crazy thing.

And according to Reuters, U.S. Treasury officials said that Yellen was going to, quote, make clear the global economic consequences of Chinese industrial overcapacity, undercutting manufacturers in the U.S. and firms around the world. I couldn’t have made that up for a description of why the United States is so upset with China or any country that is following an industrial policy instead of a post-industrial policy. So the U.S. is approaching with its own agenda.

Congress is using the word that Yellen is going to use, too, of “dumping” its products. Well, dumping means selling below cost. And Yellen’s definition of selling below cost is anything that’s not done by a market economy, meaning anything that’s done with government support. Well, every economy that’s successful is a mixed economy with government support. And in fact, China has opened a complaint with the World Trade Organization challenging Biden’s Inflation Reduction Act, which is a huge subsidy of hundreds of billions of dollars to try to support U.S. information technology and chipmaking technology.

And China has protested the trade barriers that America is doing, that America is leading the fight against the free trade that it was supporting as long as the United States, after World War II, could undersell Europe and other countries because there was a war that destroyed their economies. But now that the United States can’t undersell them, it says, well, you’re dumping if your government helps you. Our government can help our agriculture with all of our huge government parity support for agriculture, for all the special support we’re giving for the war industry, for all of these. But if other countries’ government can subsidize, China produces public transportation at a much lower price than America. That’s called cheating and dumping. Well, you can just see how the vocabulary is being twisted and taken away.

And China, Yellen has even accused China of currency manipulation because when it gets these dollars for its exports, it puts them in the central bank and holds U.S. treasury bonds, just like other central banks are dollarized. Well, there’s no question China’s trying to de-dollarize as quick as it can. But of course, if it didn’t hold the U.S. treasury bonds, its currency would go way up. So by manipulating currency, that means not letting its currency appreciate so much as to price China exports out of the market, just like the Swiss currency for flight capital rose so much that Switzerland couldn’t manufacture industrial goods anymore.

You’re having a whole twisted vocabulary of American diplomacy.

And you’re having a Reagan official, Robert Lichtauer, attributing part of the whole blame on China’s mercantile practices, which are simply the way that America, Germany, and every other country got rich.

Intel, especially the firm that is a foundry for making chips and also designs, has asked for, I think, $280 billion of support in the chips bill.

I would imagine some Chinese official, if they actually sit down for lunch with Ms. Yellen, and they can get in a word when she stops making demands, can point out the double standard that’s been used. But she doesn’t care about the double standard. She’ll just go, you know, plow right ahead and say that, well, the fact is, of course, they both use government subsidies. Every country has a government sector. And the American government sector is, I think, 40% of the economy. So there’s no such thing as a market economy without government, because that’s part of the government.

So I think that the warning, Yellen is really there to make threats and just say that, well, Biden originally attacked Trump in the 2020 election. He attacked Trump saying, Trump raised exports in China’s goods. Looks how awful that is. Well, he came in in 2020, and he kept Trump’s tariffs on Chinese goods. And now he’s trying to raise the tariffs on Chinese goods, the exact opposite of what he said to do.

Well, this is making the U.S. companies, especially the information technology companies, scream because they said, wait a minute, if we can’t import goods from China, then we’re going to have to raise our prices, and we don’t have the capacity to produce these goods at home. There’s going to be a huge interruption. And instead of— we’re going to have the effect now that it’s as if you’re gone to war already with China, not preparing for 10 years to try to pry everything away. So Biden and Yellen have nothing to offer China.

I look forward to what the press will say about her trip there, because there’s really nothing that can be said except demands that China can just laugh at. China can say, well, if it really matters to you, instead of you raising tariffs by 30%, I think they might say, why don’t we just raise our export tariff by 30% instead of the U.S. government, Treasury, getting the tariff proceeds, why doesn’t the Chinese government get the tariff proceeds? And for every 10% that America imposes illegal tariffs on China’s goods, China should impose a matching 10% export charge on goods to the United States. Say, hey, you want to be independent? This is independent. Well, it’s not exactly the kind of sanctions that NATO put against Russia, but that’s the kind of war that we’re going to get into.

And the first victim, as usual, will be the customers of China, America, and presumably the NATO countries of Europe, if America can convince them to import less from China, which NATO is already telling China, why don’t you buy more from us and balance the trade? And I think China said, oh, why don’t you sell us the chipmaking equipment and all the good capital goods that Holland and other countries make? And NATO says, oh, we’re not allowed to send you anything that involves national security. So China, I think, will say, well, then I guess we have nothing to talk about.

RADHIKA DESAI: Right, Michael. And I just wanted to also speak about Janet Yellen’s visit and her claims about Chinese dumping and so on, and raise a couple of slightly different points from the ones that you had raised.

So let’s look at this. So this is from CNBC, Treasury Secretary Janet Yellen on Wednesday warned that China is treating the global economy as a dumping ground for its cheaper clean energy products, depressing market prices, and squeezing green manufacturing in the US. I’m concerned about global spillovers from the excess capacity that we are seeing in China. During a speech at a Georgia solar company called Suniva, China’s overcapacity distorts global prices and production patterns and hurts American firms, workers, as well as firms and workers around the world.

Now, there are a couple of things really worth looking at. Number one is that, according to Yellen herself, she points out that China produces clean energy products more cheaply. Well, isn’t it supposed to be a law of the market that those who are able to produce more cheaply should be triumphant in the market? No, on the one hand, the US administration and officials like Ms. Yellen want to talk about the virtues of the market. On the other hand, they want to complain about the effects of the market. So that’s the first thing.

And of course, it’s the fact that China is able to produce these goods more cheaply only means that China has advanced the productive capacities sufficiently far that these products are available really very cheaply. And in the United States, it’s not just that it’s because of higher wages in the US that are not available cheaply. It’s also because the companies are unwilling to invest in the most efficient methods of production. So that’s the first thing I wanted to say.

The second thing I wanted to say is that what Ms. Yellen is calling overcapacity is really very important. Now, if you think about it in one way, overcapacity has been a problem allegedly plaguing the world economy for about 50 years. One could say that the crisis of the 1970s emerged precisely because there was overcapacity and overproduction, particularly in relation to existing demand.

Now, in itself, industrial capacity is a good thing. And to complain about overcapacity is to say that somebody else should shut down their productive capacity and allow our productive capacity to flourish. Well, instead of playing this kind of zero-sum game, there’s actually another way of dealing with it, which is why not expand global demand? Because if a global demand increases, then there would not be overcapacity. Indeed, if you think about it, considering that so much of the world lives in poverty, needs the roads, the green technology, the hospitals, the buildings, the food, the clothing, all sorts of manufactured goods, the world needs more of it, of course, produced in a green way. So the problem is not overcapacity. And to frame it as a problem of overcapacity is to refuse to resolve the fundamental problem that has been plaguing the world economy for 50 years and more now, which is that there is deficient demand. And there is deficient demand because too much of the world is poor. So why not develop the productive capacities of the world and therefore the ability to demand goods? So that’s the first couple of points I wanted to make.

And there is also another point I want to make, which is that, sorry, so what Ms. Yellen is complaining about is that in China, there has been a rapid growth in three industries in particular, which Ms. Yellen is complaining about. First is battery production. The second is new vehicle production, new energy vehicle production. That’s the red line. And finally, wind and solar power generation capacity. And you can see that in certainly in two of the three cases, and also in the third case, there have been remarkable increases in China’s productive capacity since about 2020. So, and this is what Ms. Yellen is complaining about.

But the fact is that China is making these products available to the rest of the world more cheaply. And this will only mean that the world can get on with the business of dealing with climate change more effectively. So that’s also really quite important.

And a third point I wanted to make is that this discourse about how China should not be exporting so much and is also aligned with something else we discussed last time in considerable detail, which is that the Western officials are essentially saying that China is investing too much and consuming too little. So here’s the IMF director, Kristalina Georgieva. She recently made a number of pronouncements on China’s growth. And among other things, she said China is poised to face a fork in the road, rely on policies that have worked in the past or update its policies for a new era of high quality growth. So basically, she’s saying China should abandon the old policies which have worked and given it amazing growth.

Then she says China could grow considerably faster than a status quo scenario. The additional growth would amount to 20 percent expansion of the real economy over the next 15 years, adding 3.5 trillion US dollars to the Chinese economy. So she’s kind of dangling a statistical carrot saying, if you follow what I’m saying, you will benefit in these ways.

But what is she actually asking China to do? She’s asking China to increase domestic consumption and, of course, in doing so, increase income growth, which in turn, according to her, relies on increasing the productivity of capital and labor. And here’s the key. Reforms such as strengthening the business environment and ensuring a level playing field between private and state-owned enterprises will improve the allocation of capital. And the fact of the matter is that this advice is precisely the opposite of what has given China its amazing capacity to grow in the past.

So really, as Michael said, not only are Western leaders distorting the truth of China’s growth and making the good in China look bad, they’re actually giving bad advice to China.

MICHAEL HUDSON: Well, there’s a reason that China, the consumption has not taken the form of goods and services so much. And that’s because the first Chinese demand is the same demand that middle classes have all over the world. They want to buy the house. So basically, the problem of increasing the domestic market is China has to solve the real estate problem. And that means the real estate pricing problem, the idea of the mortgage credit problem. This is exactly what China is debating and trying to go through now.

I think in some future program we should go over that. It’s a problem all in itself. But there’s no recognition in the IMF that— the one thing the IMF will never talk about and that economists don’t talk about is the FIRE sector: finance, insurance, and real estate. To them, all income is spent on goods and services. They’re not talking about the attempt to spend goods, income on, as they do in America, on debt service, on buying a house or renting a house. We’ve said before, just this week, there was a new census of New York City. The average rent in New York City is $5,500 a month now. Well, how can America and other cities actually compete when they have such a high kind of rent?

As long as economists, IMF and the regular professions don’t realize that apart from goods and services and employers and wage earners, there’s also the financial sector, the insurance sector, and the real estate sector, they’re not going to have a realistic view of the economy.

And in the U.S., as you pointed out at the beginning, it’s the financial sector that says, use your income to support the stock price, pay it out as dividends to raise the price, and use stock buybacks. S&P 500 companies spend 91% of their profits on pushing up the stock price, not R&D. That’s happened for decades. That’s why China and any other country that’s following the Chinese model is going to increase its output. And why, if you follow the American model, you’re de-industrializing. That’s really what the whole fight is about.

And I don’t know how Miss Yellen can bring this up with Biden without other people at the table just breaking out in laughter.

RADHIKA DESAI: Exactly. And, you know, I mean, the fact of the matter is that there was a report just, I think, this morning in the Financial Times, I couldn’t find it just now, but it basically said that the amount of buybacks is reaching such absurd proportions that there’s actually a dearth of equities to buy in the U.S. market because basically they’ve been buying them back at such a rate of knots.

But to come back to our main topic, I just want to share this picture with you as well:

You know, the fact of the matter is that China, precisely because it is pursuing policies that are opposed to the United States, today, the bulk of the countries of the world have China as its main trading partner. So all the countries you see here, which are colored in red, their main trading partner is China. All the countries you see that are colored in blue, their main trading partner is the United States. And all the countries you see here colored in orange, their main trading partner is Germany.

So the efficiency of Chinese production, the beneficence of the links it offers to the rest of the world is very clear from this little statement alone.

And probably, Michael, we should be winding down our conversation, but I didn’t want to wind it down without showing one other thing, which is this, because, you know, you earlier talked about China’s holdings of treasuries, etc. And I just wanted to show this chart, which goes back to 2000 and up to 2024.

So you see here, from the moment China entered the WTO, because China was essentially such a successful exporter and began to really dominate the world export markets, the flip side of that was its accumulation of US treasuries, which reached a peak in the early 2010s, about 2011, 2012, was when China held the most US treasuries, amounting to about $1.3 trillion.

But since then, what we’ve seen is a relative decline of China’s holdings of US treasuries, so that today they are just a little over $750 billion. And here’s the most recent figures that I could find from Reuters. And Reuters says the latest figures show that China held $782 billion of treasuries in November, a large amount, but also around its smallest in 15 years, and down significantly from the peaks of $1.3 trillion in 2011 and 2013.

More importantly, they say, China’s footprint in the US bond market is a fraction of what it once was. China owns less than 3% of all outstanding treasuries, the smallest share in 22 years, and again, substantially down from a record of 14% in 2011. So this shows on the one hand that, you know, we saw in the previous chart here, China has certainly decreased it, but this is an absolute number.

But as a proportion of the total outstanding treasuries, it is as small as 3%, because remember what has also been happening at the same time. The Federal Reserve has essentially been expanding its balance sheet, including by buying US treasuries, which nobody else will buy. So in my humble opinion, I have no doubt that one of the reasons why Madam Yellen has gone to Beijing to meet her various high-ranking Chinese officials and politicians is because she wants China to step back into the treasury market, because as we’ve pointed out earlier, the treasury market is not in good shape, and it needs other buyers.

At the moment, essentially, bulk of the US treasuries are owned by American entities, of which the Federal Reserve is a major part.

MICHAEL HUDSON: That’s currency manipulation. That’s what you’re saying. I would have liked to see the chart on China’s gold holdings, because yesterday, gold hit an all-time record. And obviously, countries are seeing what the United States is doing to Russia and what it’s doing in Palestine and the Near East. They’re all moving out of treasuries because the United States is going to do to other countries what it did to Russia. So of course, no country wants to put its money at risk by holding dollars. That’s what all the shows we’ve done on de-dollarization. So you can see it all coming to a head right now.

RADHIKA DESAI: Well, Michael, you wanted to see China’s gold reserves. I wouldn’t say gold holdings. And I’ll show you, you wanted to see a chart, so I have summoned up a chart for you. Here we go:

So this is just from Trading Economics. This is the 2021 figure. And you can see that China’s gold reserves, these are official holdings. Of course, China also has a large private market in gold. This is just China’s gold reserves. And you can see that, yes, exactly, at the same rate at which China is dumping dollars or treasuries and not participating as much in the treasury market as it once did, it is also increasing its gold reserves.

So, Michael, shall we wrap up? Do you want to say any last few things?

MICHAEL HUDSON: You’ve done it. We didn’t even rehearse this. It’s just natural flow of talk.

RADHIKA DESAI: Yeah. Well, I just wanted to say a couple of things. You know, one of the things that comes out in all of this, or to me anyway, the takeaways is that the United States is essentially, not only is its economy failing productively, but it seems unable even to undertake the industrial policy that will be necessary to make its industry more competitive, make its industry stronger, make its industry more technologically competent. So, its capabilities are low.

And what’s more, I would add one final point, which is that I would say that given its present political structure, it doesn’t seem as though the United States is even going to generate the political will to have industrial policy. Because, you see, if you look at the history of industrial policy, we see that industrial policy and developmental states have been successful only in instances where there are non-capitalist ruling classes, such as, for example, in late 19th century Germany, or in the Soviet Union, or today in China, which are able to impose a certain level of discipline on the capitalist classes. Or where there is, you know, a socialist economy which is capable of doing that.

Whereas today in the United States, you have a political structure which is completely dominated by politicians who will slavishly do what the corporate capitalist class will want. They have not got the capacity to control the capitalist classes for the greater good of the American economy and of the American people. This is the problem that they have.

So, if Michael, you don’t want to add anything, we will bring the show to a close.

I wanted to say that we hope you enjoyed this. We hope you will like it and please share it widely. And I also wanted to announce that in our next show, Michael and I, who’ve been advising the candidate for the Green Party, the presumptive Green Party candidate for US President Jill Stein, will be having a show in which she will be our guest. And we hope this will be a show in which we will discuss the broad outlines of her policy and what are the obstacles that she faces as a third party candidate in the US elections.

So, we hope you will join us. This should be coming up in less than two weeks. So, we look forward to doing that with you. Thank you and goodbye.

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