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

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.

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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.”

 

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In The New Cold War, One Side Will Be Weaker and Less Prosperous

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On February 13, 2025

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This is the sort of thing the US used to be able to do, and Britain back in its day:

China has built over 30,000 basic-level smart factories as part of a nationwide push to accelerate industrial digitalization and intelligent upgrading, according to the Ministry of Industry and Information Technology (MIIT).

The initiative, under the smart factory gradient cultivation action, has also seen the creation of 1,200 advanced-level and 230 excellence-level smart factories…

…The 230 excellence-level factories, distributed across all 31 provincial regions in China and covering over 80 percent of manufacturing sectors, have carried out nearly 2,000 advanced scenarios, including smart warehousing, AI-powered quality inspections, and digital research and development, said MIIT.

On average, these factories are 28.4 percent shorter in product development cycles, 22.3 percent higher in production efficiency, 50.2 percent lower in defect rates and 20.4 percent lower in carbon emissions, said the ministry.

Meanwhile, in South and Central America (a similar map could be done for Africa and chunks of Asia):

So, here’s the thing. Under the threat of Trump’s tariffs, Canada and the EU have been offering America to get tougher on China. “China’s the real enemy!” they scream.

Problem is, in the new Cold War, China’s going to be the stronger and more prosperous side. Russia, and most of Asia, Africa and South America are going to align with it. It will soon be in the “US after WWII” position of having more industry than everyone else combined, and it’s already leading in 80% of technological fields. It won’t be long before that’s 90% and I wouldn’t be surprised if in 15 years it’s damn near 100%.

Choosing to align with America is choosing to align with a declining Empire. It’s like laying your bet on Britain in 1918.

I don’t think this is a done deal for all of Europe. The old order is dying, new parties are challenging the old center-right and center-left parties and while the current leadership are lapdogs, the future leadership in many countries will not be. All China has to do is offer to not de-industrialize Europe, or all European countries have to do is cut a deal along those lines.

The sooner one makes the deal, the sooner one defects to the winning side, the better the deal will be.

It is my judgment that it won’t be long before the two best countries to live in are China and Russia. They are rising, and rising fast and the West is in decline. America’s strategy of cannibalizing its allies industries is stupid, because its allies industries are old legacy industries which are mostly already surpassed by China, and those that aren’t, like Pharma, soon will be.

There’s no reason to be loyal to America. Trump’s made it clear that the United States has no loyalty to anyone else, and it’s offering a really shitty deal. Russia doesn’t want to conquer Europe. They conquered half of it once before and it didn’t work out, they just want security.

This won’t happen this year, that’s clear, but smart nations will make the switch as soon as possible. I suspect the EU is likely to break up, so some European countries will change sides, and some won’t. But if it is done as a group of nations, even if not the whole bunch, the deal will be better.

The Cold War is already in its late early stages. I was writing about it as early as 2017, and it’s gathering steam. This is the new world. Choose your side, but for most countries, choose you must and wise statesmen choose the winning side.

 

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France Is Being Kicked Out of YET Another French Country

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On November 29, 2024

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Recently French troops have had to leave Mali, Niger and Burkina Faso. Now it’s Chad booting them.

Update: Senegal has now announced it intends to seek the withdrawal of French troops.

The first three countries have Russian troops in them now. Wonder how long it’ll be before Chad joins the crowd?

France has been the most important country in a lot of its ex-colonies in Africa, but it’s losing its place, not just militarily but economically. Countries are turning to China for imported goods and development at the same time as they turn to Russia for security. Chinese goods, development and loans are cheaper, and neither Russia nor China interfere nearly as much in domestic politics.

It’s just a better deal. For a long time you HAD to go to the West, but now Russia and China can supply pretty much everything you need.

 

As regular readers know I’ve been following Europe’s collapse for a few years now. It’s practically a freefall. In Germany Volkswagon, for example, is planning on closing factories for the first time.

Europe’s well on its way to being what it was for most of history: a backwards and irrelevant peninsula, with the main action and most important civilizations elsewhere in Asia.

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The “China Cycle” Is Mostly A Thing Of the Past

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On September 9, 2024

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So, this was true once:

The Chinese learned a lot from Western Joint Ventures, and I remember talking to a consultant back in the early 2000’s about tech transfer. He said it was very clear: you got into the Chinese market and/or used their lower cost production and what they got in exchange was tech transfer. This isn’t some evil conspiracy, back in the 80s when the US fell behind on cars they basically forced Japanese car companies to set up factories in the US, and yeah, there was transfer of knowledge to American companies.

Now, for the West, what Western companies and the West in general got in return for their tech was not worth the cost: it was stupid and short-sighted, but companies were lining up to do it and economists and business gurus and politicians in the West were for it: the only thing that mattered was making more short to mid-term profits and all sorts of nonsense about it not mattering where goods were produced was espoused by very important intellectuals and officials. There was no attention to the long term cost in terms of loss of technological lead and moving the industrial base to China. I know: I was one of the voices warning, publicly, to stop taking short term profits by selling China our future.

But at this point it’s no longer accurate. Chinese car companies are more advanced than Tesla: they have better batteries, better HUDS, better auto-pilots and they also have faster product cycles.

Again, in most fields the Chinese are now more advanced than the West: the remains are important but in a minority—things like lithography and aerospace, but they’ll catch up in both in time and for Aerospace I’d already buy a jet-liner from China before Boeing, and Boeing’s problems have nothing to do with China. Airbus is still clearly better, but it won’t be in twenty years, and possibly not even in ten.

The West was 100% complicit in the “China Cycle”, but that cycle is almost entirely over and China is now just straight up more advanced and out-competing us.

The West made this choice. We could have maintained our tech lead for another fifty years or so if we wanted to and followed the necessary policies. We didn’t, and to expect China to not use the same methods every other major country used to industrialize is insane. Every accusation made in the “China Cycle” is something the US did to Britain back in the 19th century.

Perhaps China could have industrialized without it being disastrous for the West, but not under any sort of laissez-faire or neoliberal international trade regime.

If you’re young, learn Mandarin. Maybe even if you’re not young.

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