Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: China Page 1 of 11

The End of America as the Essential Consumer Nation

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On May 26, 2025

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For ages, everyone needed access to the American market. I used to call the US, “the consumer of last resort.” If you wanted to get rich, if you wanted to industrialize, if you wanted to scale, you needed the American market. Europe sold to the US, Japan sold to the US, South Korean and China sold to the US. This requirement is why Japan was forced to sign the Plaza Accords, which basically destroyed their future. Oh, life in Japan is fine now, but it’s no longer the roaring Tiger of the 80s.

But the US has lost its place, which is why China was able to laugh in its face when Trump tried to use tariffs against it. His assumption was that China needed the American market. This was true 20 years ago, maybe true ten years ago, but it’s not true now.

But wait… there’s more!

Not so pretty, is it? And unlike America, Chinese consumers aren’t in debt. Their market isn’t based on a deck of cards or predatory lending meant to lock consumers into never ending debt payments.

Looks a lot like America in the 50s and 60s, actually.

China’s growing fast, and certain respects, they’re growing smart.

China is building nuclear plants 2 to 4 times faster than the West and 3 to 7 times cheaper”

Further, China is building far more renewable energy than anyone else, and MAGidiots beliefs aside, it’s working out just fine for them. Ninety percent of new power in China is renewable.

You can see this on this lovely map:

Indeed, for the first time ever, China’s increasing energy demand happened at the same time as a reduction in CO2 production. If there’s a hope for us on climate change (there really isn’t, but still) it’s that China is the primary industrial power AND its leaders and population aren’t idiots who think climate change is a hoax or that it’s real but ignoring it is good for the economy.

Now this isn’t to say that China’s all wonderful or anything. They have high speed trains and they’re electrifying based on renewable energy and to a much lesser extent nuclear fast, but they still have an insane car-centric society.

Still, they’re more sane than any other major country, by a fair margin.

China is now the world’s largest consumer, industrial producer, ship builder, drone maker, auto manufacturer, leads in about 80% of tech fields, produces more scientific papers and patents than any other country, has 8 of the world’s top 10 research universities (Harvard is the only American university on the list, at , but…. recent events are not promising), the most electricity production and the cleanest energy mix of any major country.

The idea that China and the US have a serious rivalry is laughable. The US has lost. It’s like Britain in 1920. It’s all over, except, possibly, for the shooting.

 

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America’s Military Power Is a Legacy Asset

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On May 19, 2025

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Chinese and American flags flying together

Since the industrial revolution, military power has been largely a function of three factors:

  1. Technology
  2. Industrial Capacity
  3. Population

As time goes by, population becomes less important (see, rise of drones), but it still matters. Think of it as something like Tech x IndCap x (Pop x .5).

The US has a powerful military, though most of the technology is one or two generations old. The general consensus is that Pakistan’s Chinese jets (themselves last-gen tech) out-performed India’s Western jets.

At this point, China is ahead in about 80 percent of tech fields. China has 31 percent of world industrial capacity, and the US about 16 percent, meaning that China has about twice as much. Further, China owns the entire supply chain for many of its technologies, whereas the US’s supply chain is reliant on China.

Finally, of course, China’s share of world industrial capacity is increasing.

A lot of civilian industry can easily be turned into military tech. This is what made the US “the arsenal of democracy” in World War II.

China has about 230x the shipbuilding capacity of the US.

China produces about 20K civilian drones a day. The US produces about 20K civilian drones a year.

The US and Canada combined produce about 12 million cars a year. China produces about 30 million cars a year.

So in a real war, where civilian industry is retooled for military production, well, China is well ahead. In the case of drones and ships, ludicrously ahead.

The US finds itself in a similar position to Japan on the eve of the Pacific War. Japan had a powerful fleet and air force, but it couldn’t replace equipment losses to match the rate of the US, let alone expand its arsenal. If it isn’t a “short victorious war,” the US loses, unless it goes nuclear, in which case everyone loses.

This imbalance is only going to get worse. China has a ridiculously small army of about two million, with a million paramilitary. When you consider its population of 1.4 billion, well, again, China is similar to the US before WW2; an industrial behemoth with an undersize military, but which can be expected to ramp up — fast.

(These numbers are better if one includes South Korea and Japan, or even the EU, but then one has to add Russia to the Chinese side. And the way the US is acting, it’s less and less clear its allies will support it in a shooting war, especially if it starts the war. Never thought I’d say that about Japan, but Trump has really shit the bed with his insane trade war.)

All of this is going to get worse and worse for the US. China is increasing its tech and industrial lead, while the US is systematically de-funding its research sector even as erratic economic policy makes long-term investment in new industrial capacity difficult. China’s civilian airline industry is taking off, its car industry is expanding as the West’s collapse, and it’s the only real player in the drone space.

China doesn’t want a war for the simple reason that the longer they put one off, the easier it will be if it happens — and the less likely it will be to happen, because Americans will be unable to sustain the delusion that they have any chance of winning said war.

The American era is over. It’s even likely that the US will lose control of South America, which it has had since the late 19th century. (Yes, there were theoretically independent nations in South America. Theoretically.) It will be pushed back to its North American stronghold, where it even seems to be attempting to lose effective control of Mexico and Canada, which is an entirely self-inflicted wound, as both nations wanted to stay under the US wing.

Just as the sun set on the British Empire, today it is at the horizon for America, and the long European supremacy is nearly over. The world returns to its normal state, where the Middle Kingdom is the most important and prosperous country in the world.

 

This blog has always been free to read, but it isn’t free to produce. If you’d like to support my writing, I’d appreciate it. You can donate or subscribe by clicking on this link.

“Art of the Cave”: Trump Walks Back China Tariffs For 90 Days

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On May 12, 2025

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Well, maybe. Who the hell knows what he’ll do. Anyway, tariffs are back to 30% on China and 10% on America.

This is exactly what China demanded, for tariffs to go back to what they were before April 2nd.

There will still be a two month trade burp. Ships weren’t leaving China for the US at all, literally zero. Lot of freight companies are about to make a mint, though. So expect some shortages, but nothing worse than Covid, and hopefully lasting less time.

The fundamental problem remains, however, which is that there’s no certainty around any of this, so business people can’t make long term plans, including plans to build or relocate manufacturing. Trump and the US can’t be trusted to stay steady on policy, so avoiding making big plans involving the US makes sense.

The Great Power picture is clearer, however. The US tried to impose its will on China and failed. China wouldn’t negotiate till its pre-conditions were met. The world has two great powers, with the EU bidding to become the third (I think they’ll fail, but that’s what the rearmament is about.)

And, in economic terms, China is by far the pre-eminent great power. It isn’t even close. The era of American hegemony is officially over. The US tried to impose its will on the world and failed.

This blog has always been free to read, but it isn’t free to produce. If you’d like to support my writing, I’d appreciate it. You can donate or subscribe by clicking on this link.

 

America Is Trying To Form An Anti-China Trade Bloc

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On April 10, 2025

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Trump backed off on most of his tariffs after Japan sold a ton of bonds and he panicked. He replaced most of the tariffs with a blanket 10%, and kept tariffs on China and Canada (because those countries had counter-tariffed the US, supposedly.) Now the report is that what US negotiators are demanding is that in exchange for avoiding US tariffs, other countries tariff China.

It should be noted, first, that China will not back down. The way Trump is framing this is “China will come to us” and sub-voce “beg” and that’s not happening, it would be a massive loss of face for Xi and for China and China is a “face” society. So massive tariffs on both sides will continue unless the US makes the first overtures and in a face saving way. The US rates on China are 125% and the Chinese rates on America are 85%.

These are nuclear levels and are going to bring trade damn-near to a halt. China has also put export bans on a number of companies for “dual use” techs: in practice, they’ve hit Lockheed and Boeing (big military aviation companies) so hard that I’m not sure those companies will be able to build planes, the supply chain is that China-centric and there are no alternatives.

(Aside: the criminally minded will be scrambling to smuggle into the US, and fortunes will be made, as they were during Prohibition. Those who wish to reduce criminal risks can just import Chinese goods to Canada and Mexico and sell them to whomever. “I don’t know officer, I don’t ask them why they want all those machine parts. Not my business.”)

It’s hard to say how this will play out, because:

  • Lots of western countries have a hate-on for China. European and Canadian politicians, early on in Trump’s regime, had suggested “why tariff us, let’s go after China together!”
  • But… that was then, and this is now. A lot has changed in three months. No one trusts Trump to keep deals any more and China is looking mighty stable. Even if you’d really rather do business with the US, like Europe, can you expect any deal to be kept?

I’m genuinely unsure how this will play out. My personal preference would be to tell the US and Trump to pound sand: they don’t keep their deals, so you just can’t do business with them no matter what the theoretical case is. (That case is mostly that it’s hard to compete with China, their goods are so cheap, whereas the US is sclerotic so you can sell them stuff, especially if they’re in a trade war with China and can’t buy cheap: charge them 2x as much and still come in under!)

If Trump had gone for this as the start, he would have gotten it. Canada and Europe would have fallen over themselves to join in. Now? Not so sure.

There’s a lot of “Trump is a genius and there is a PLAN” going around in MAGA circles. Bullshit. If this was Trump’s actual goal, what he did made it harder to achieve rather than easier. What actually happened is that Japan jerked the bond market’s chain and Trump backed down and is trying to pivot.

It’s not a completely stupid pivot, the West isn’t competitive against Chinese manufacturing, and one way to deal with that (a bad way, but still a way) is to just cut China out of Western markets and sell over-priced goods to each other.

Years ago I said that the way geopolitics were playing out was leading to a “New Cold War” — there’s an entire category on this blog, just on that.

Crunch time has come and we’ll see if it happens, and who’s on each side. Trump’s made America’s chances of putting together a strong coalition far weaker than they should have been, but anti-China fear and a refusal to end rentierism in the West mean that we can’t, actually, compete against China, so there’s still a strong temptation to form that anti-China bloc.

If so, we’ll be the weaker side, as the USSR/Warsaw Pact was last time and we will lose the new Cold war, falling further and further behind technologically and watching as the Chinese enjoy goods we can barely even dream of, just as was true of the late Soviet Union.

Everything, and I mean everything, will be sacrificed to keep the oligarchs in power, keep making them richer and keep the flow of unearned cash pouring into every rich person’s orifices.

Update: Seems that the EU and China are in talks to end EU tariffs on electric vehicles. That sound you hear is Elon Musk puckering up to kiss his ass goodbye.

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China Cuts The Legs Out Underneath The US LNG Industry

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On April 9, 2025

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I didn’t see this coming:

In a move that stunned traders, analysts and policymakers alike, China has just announced a complete halt on all liquefied natural gas imports from the United States. A decision made abruptly with no prior indication, no phased reduction and no explanation beyond a terse statement from Beijing…

…China was one of the fastest growing markets for American LNG, importing more than four million tons annually. Cutting that overnight is more than symbolic, it’s surgical.

Early reactions have been nothing short of panic. Energy markets were jolted, LNG prices in Europe and Asia swung wildly and US energy firms reported immediate financial hits…

…Overnight, the US was eliminated from one of the world’s most lucrative gas markets worth more than US$2.4 billion a year. Let that number sink in. More than 4.4 million tons of American LNG every single year now suddenly has nowhere to go.

Ports along the Gulf Coast are already feeling the shock. Massive LNG tankers are sitting idle with nowhere to dock, no buyers to receive them. Terminal operators are scrambling to reroute shipments, but the damage is done. Revenue streams are drying up. American energy firms are haemorrhaging cash: millions of dollars in losses each day…

…

China has begun rerouting LNG cargoes originally meant for East Asia straight into Europe’s energy-hungry markets. The message is clear: If the US wants to weaponise trade, China will weaponise its energy strategy.

Why Europe? Because it’s vulnerable and China knows it. Since the Russian invasion of Ukraine, the European Union has been scrambling to find a replacement for Russian gas. For the past two years, the US had been the emergency supplier, shipping LNG across the Atlantic to prevent blackouts and political chaos in capitals from Berlin to Warsaw. But that relationship, built out of necessity, was never guaranteed.

And China just exposed that fragility. By stepping in with competitive LG offers at lower prices, China is capitalising on a moment of weakness. European energy firms, already strained by inflation and political pressure, are welcoming any chance to secure stable and affordable supply.

One of the major stories of the Ukraine war is how the US took advantage of the pipeline sabotage and sanctions to sell Europe natural gas. Expensive natural gas. This increased the energy cost of heavy industry and led to a lot of European, especially German factories, shuttering and moving to the US.

Win/Win. For America.

China isn’t itself an LNG exporter, but it controls a lot of the market thru long term contracts. It has an excess of what it needs, and it just signed a new contract with Australia for long term supply:

In March 2025, Australia’s energy giant Woodside Energy inked a game-changing 15-year contract with China Resources Gas, one of Beijing’s top natural gas distributors.

Under the deal, Australia will begin supplying 600,000 tons of LNG per year, starting in 2027. While the volume might not seem earth-shattering on paper, the symbolism behind the agreement is monumental…

… Australian LNG is currently 20% cheaper than US shipments largely due to proximity and lower transportation costs. It takes roughly 10 fewer days for Australian cargo to reach Chinese ports, compared to those from the US.

Australia, of course, has been rather anti-China and a big US ally, BUT cold hard cash, err, trumps that.

What’s becoming clear about this trade war is that China has gamed it out. They thought ahead, having learned lessons during the first Trump administration: they were ready. They’ve massively reduced their vulnerabilities and carefully examined America’s weaknesses, and now they’re hitting them. Hard.

This realigns American allies in Europe and Australia more towards China, it hurts the US, and it highlights the benefits of doing business with China.

 

Xi Jingping

Xi, as we discussed in our last article, has been planning for this, not just since Trump, but since he took power. He’s locked and loaded and he’s firing his guns. The more Trump doubles down, the more America will be hurt, because China needs America less than America needs China. In many cases America firms have no choice but to buy from China, there is nowhere else to get what they need, while China either has alternatives or has already written off buying from the US, as is the case with chips. To China, America is a lost cause: it can’t be relied on either as a supplier or a buyer.

If America’s effectively a write-off, well, treat it like a write-off. And that’s what China is doing.

Trump and many Americans thought that China was the vulnerable one, that China was in a weaker position than them (they made the same mistake with Canada). It isn’t. Now Europe and Japan are holding weaker hands than the US in a trade war, but here’s China actually strengthening Europe.

It is to laugh. Trump’s fundamentally incompetent, a D- player and he’s going up against Xi, who’s arguably a great statesman, and so far, Xi is ripping him a new one.

This is what actual planning and actual competence looks like: see threats in the future and get ready for them. When someone declares you their enemy, as the US has repeatedly, take them seriously.

We haven’t seen that in any Western country in at least two generations.

 

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Understanding Xi JIngping

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On April 8, 2025

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What I always remember about Xi is something the founder of Singapore, Lee Kuan Yee wrote—that he had only met two people in his life who never let anyone else influence their emotions: Nelson Mandela and Xi Jingping.

Xi took over the CCP at a time it was completely ridden with corruption, to the point where regular citizens regularly mocked and complained about it. There were major factions, centering around the two previous leaders and the party had lost much of its ideological orientation. Citizens were happy with economic progress, but there was a sense that there was too much inequality, young people couldn’t afford homes and there was flirting with western ideas of democracy.

China has had three great CCP leaders. The first was Mao, and despite his bad reputation in the West the fact is that Mao massively improved primary education, dropped the mortality rate thru the floor, increased Chinese lifespans, and one famine aside, made sure everyone was fed. Mao tilled the ground, making China’s later rapid modernization possible, using essentially the same model as Japan: start with primary education, then secondary and concentrate on improvements in health.

Mao’s party was very ideological. Deng changed that. The Dengist paradigm was “modernize as fast as possible and be pragmatic: whatever works, works.” This was very successful, but it lead to corruption, to the formation of power centers outside the party, especially among the very rich non-party members and to the formation of cliques within the party. It also gutted the party’s ideology.

In addition Deng’s method of modernization was export driven (this is reasonable, almost everyone did it this way) and had left China very dependent on external trade, especially with America, its primary geopolitical foe.

Xi set a bunch of goals, as part of Xi Jingping Thought:

  1. Get rid of most of the corruption;
  2. Break the factions and center the party around him;
  3. Create an ideological party with unanimity on goals and how to achieve them;
  4. Break power centers outside the party;
  5. Spread the wealth to more people and make everyone at least moderately prosperous;
  6. Listen more to the people;
  7. Make it so that China is no longer vulnerable to foreign trade disruptions;
  8. Make China the world leader in technology and science;
  9. Orient China’s trade towards the developing world more than to the West;
  10. Place China in a position to rewrite the world’s economic system;
  11. Strengthen the army and make sure it is loyal to the party.

The bottom line here is that Xi has accomplished most of his goals and those he has yet to accomplish, like , are well underway. China is the world’s tech leader, the factions are broken, all corruption isn’t gone but its way down, billionaires are dropping like flies; the housing market has become cheaper and the government is taking it over and plans to build most housing going forwards, the party is unified in what it does and how it does to a remarkable degree, and America’s trade war is not a threat to China, but an opportunity to increase China’s world influence.


It’s not an exaggeration to say that Xi is probably the world’s most successful leader: he leads the most powerful economic nation in the world and he’s accomplished almost all the goals he set for himself. China’s response to Trump’s tariffs “this is stupid, but OK, bring it on” is just the latest sign of China’s strength and Xi success. More and more nations come to China with their problems: when Saudi Arabia and Iran wanted to make peace, China brokered the talks. English was not spoken.

Trump and almost all Western leaders are incompetent fools in comparison, who have overseen the decline of their nations, losing the tech and science lead, losing 1st place in trade to China, losing first place in industrial capacity to China and losing their proxy war against Russia to China, without whom Russia could not have withstood western sanctions.

Xi is the world’s most important leader, only Trump comes close, and Trump is important because he’s accelerating the end of the America Empire: because he’s a fool and and an idiot.

Xi sets goals, figures out how to achieve them, and does so. Trump and most Western leaders flail around, doing nothing but speeding up their countries decline and minting more rich people.

It isn’t even a competition any more, it’s a rout.

You get what you pay for. This blog is free to read, but not to produce. If you enjoy the content, donate or subscribe.

China in 1999 versus China in 2025

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On April 5, 2025

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Question: I’ve been presented an opportunity to go back to several places in China I visited in the past–namely Beijing, Xi’an, Yangshou and Shanghai. Probably three weeks.

I will also spend a week in South Korea with old friends, where I lived in 1993-94.

Is this a trip you, the readers of Ian’s site, would be interested in?

America’s In the Position the USSR was in the 80s

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On March 24, 2025

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Back in the 70s and 80s, the USSR’s economy was in terrible shape. It hadn’t always been, that’s a triumphalist myth: for a long time it out-performed the West, and economic textbooks of the 50s discuss the problem that the Soviets were growing faster than we were.

So Reagan’s administration came up with a plan: they’d increase defense spending, the Soviets would have to do the same, and the strain would screw over their economy. There’s various arguments, but it seems to have worked.

Recently Trump suggested that Russia, America and China all cut their defense spending in unison. Russia was interested, China said no.

Now, of course, the US spends way more than anyone else on its military, but that’s mostly because it over-pays for everything because of vast corruption.

But the real issue here is that China is a rich state, and the US is not. Forget GDP, it’s completely misleading. China is ahead in everything that matters: 80%+ of tech fields, has more population and the largest industrial base in the world and it’s the main trade partner of more nations than anyone else, including America.

This graphic is illustrative, but it applies to everything except planes and launch capacity, and soon it will apply to them too:

As Keynes once said, “we can afford anything we can do.” The corollary is that we can’t afford anything we can’t do. China can afford almost anything because it can do almost anything. Within four years it will have cheaper and more lift capacity than the US. Its civilian airliner industry is taking off, it’ll take longer, and the competition is Airbus, not Boeing, but they’ll win that competition too: even if Airbus avoids the Boeing quality collapse, Chinese jets will be cheaper and about as good.

China can easily afford its military budget. I’d guess it could double or triple it and be OK. The US is struggling: the Trump cuts are a reflection of that, and are at the same time reducing government capacity, of which China has plenty, and unlike America government, they’re competent and at this point not even very corrupt and what corruption does exist is honest corruption—you can take a cut, but you have to deliver on time and on budget.

So China’s laughing at America. “No thanks. We’ll just keep out-producing you and we know you can’t keep up, but feel free to try.”

 

You get what you pay for. This blog is free to read, but not to produce. If you enjoy the content, donate or subscribe.

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