So, this is not thermal imaging speak, but I am an old veteran of thermal imaging industry.
Are these tariffs all about China?
From personal experience, I remember doing business in China when Hu Jintao was the President of the PRC. I also remember how the environment changed when Xi Jinping took over. I also remember when President Xi launched an anti-corruption effort to knock out corruption (as stated), and instead, pretty much kicked-out a lot of the Hu loyalists and replaced with his own people. I remember when Xi was “elected” to an unprecedented third term in office. I also remember when the attitudes of US government people whom we worked very closely with changed toward China. That happened approx. 1 to 2 years into the Xi presidency. The stealing of international IP, the hidden agendas of the belt and road initiatives, surveilling of foreign nationals, bribery, the building of AI models specifically targeting primarily US, British and European nationals using training data taken from the likes of TikTok and others. All that is under President Xi. I won’t get into the background and upbringing of President Xi here because that’s another whole conversation, but I believe it contributes to the way he thinks and builds his perspectives. China has acted with questionable motives, no doubt about it. But it wasn’t always that way. Under Hu, it seems like it was a completely different country.
Most of all, I was completely shocked to see on the internet video of how President Xi had Hu Jintao escorted out of a party meeting in a most undignified manner. “面子” or lose face (mianzi). I can’t do the Chinese characters, I think this is correct but not sure. In China, symbolism is powerful. This event had so many meanings to the Chinese. Xi was the only power, Hu is out, you will be out too unless you conform (Chinese are heavy on conforming). And this was not just a message for the “pinks” in China, it was for everyone to see!
When doing business in Asia, anywhere in Asia, westerners must know what they are doing. It’s very different. What is normal in one culture is abnormal in another. There are all kinds of things that may be seen as abnormal, maybe even unethical to the west, yet normal to Asians. These practices are not what we’re discussing, the Chinese are beyond and have largely been, shall we say, a little OTT.
So, fast forward to today – the Chinese economy is in very poor shape. They had a real estate crash. Remember that normal Chinese people (as opposed to CCP members) do not invest savings in the stock market, they invest in real estate. Their savings, and the life savings of their parents were largely wiped out. It is a major embarrassment to lose your parents’ money. Jobs are scarce, currency is being devalued (inflationary), Beijing is using up their surplus to support the economy to maintain harmony. Very important in Chinese culture – stability and harmony. Today, the Chinese banking system is very stressed, people are out of work, people are not spending, not returning to cities after lunar new year break, Beijing’s stimulus programs have not worked, people have no confidence, on and on. It’s a precarious time for President Xi. And there are internal forces at play as well. He has had to replace many of his supposed loyalists in the government and military. The military has major problems, he fired the head of the rocket force, on and on. Xi is losing his grip and there is a movement by a faction within some powerful families in the party to get rid of him. And now, huge tariffs from the Americans. If you combine the percentage of Chinese goods exported from China direct to US, plus all those that are exported to Vietnam, Singapore, etc. for reexport to America (many in violation of export rules), some estimate that to be in the high thirties to forty percent of their exports. And exports are literally the only thing left moving the economy along in China.
Despite these issues, Xi has to appear strong and powerful. Hence the retaliatory measures. They try to control the narrative domestically. And Trump is forcing a “lose face” situation – dire situation for Xi.
Today, it was said that China was selling US Treasuries creating an imbalance causing rates to rise at a time the US was issuing new bonds. That has far reaching implications globally. (i.e. everyone in England who has a mortgage.) In effect, they tried to cause a bid deficiency in the treasury market. As a result, Trump cancelled (postponed) tariffs on the rest of the world (effectively) but doubled down on China. That reset the financial markets and all is good in the west at least for now. Some say the worldwide tariffs were created to condition the market and Trump was never serious about the absurd levels of tariffs the US implemented. It seems to me, it is quite possible that much of this is carefully thought through and it isn’t as haphazard as it may appear.
Do you remember the white paper protests in China? There were literally millions of people in cities all over China participating in symbolic white paper protests. They were protesting covid lockdowns. China (under Xi’s personal direction) maintained covid lockdowns at a time when the rest of the world was moving on from covid. There was a fire in an apartment causing many deaths because the firefighters couldn’t get water to the building. The building was locked by government operatives for covid lockdown reasons. Recall that the police literally padlocked people into their apartments during covid. In any event, This was a major miscalculation by the CCP and they panicked. Literally overnight, they went from lockdowns to lifting ALL covid restrictions. CCP feared being overthrown by the Chinese people. What the CCP fears most is being overthrown by the people. Hence maintaining harmony and stability is a priority.
The west is already at war with China. For several years there has been a war between China and the west (particularly but not solely just the US.) Western leaders have refused to admit it or deal with it. EU totally refused to see it. The British hoping it would be OK, kick the can down the road, as did the Americans. This goes back to the times of David Cameron and Obama. It was during Obama that the Chinese built military bases on the Spratly islands in the West Philippine Sea (or South China Sea). The war has intensified since then. Order of magnitude the last week or so. I don’t know if Trump is genius or crazy. History will have to decide.
But something has got to give. I don’t think China can survive these conditions long term. They will get crushed economically. Today, Amazon OEM cancelled almost all orders from Chinese vendors leaving them holding the bag. Can you imagine? These are small businesses in China making cheap flashlights, plastic crap and other garbage we all buy. What are the businesses going to do? They can't eat flashlights.
Now, businesses, who over the past few years have already been decentralizing their supply chains away from China, will kick this effort into warp speed.
This may be the end of Xi. I don’t think the Chinese people will tolerate this. How bad will it get?
We shall see.