My China trip made one thing clear about the global trade war

Visiting China last week as Donald Trump’s tariffs rained down on the country, I was constantly asked one question: can you really maintain an alliance with such an unstable partner?

Trump and his ilk were chaotic, crazy, destructive and so forth, they said in meetings in Beijing and Shanghai. Why not join a global united front of free traders to push back against Washington instead?

The Chinese were disappointed in the answer, seemingly forgetful that Beijing lifted the last of punitive trade measures against Australia only six months ago.

The persistent line of questioning was telling, nonetheless, underlining the opportunity Beijing scents in Trump’s bullying path to advance its long-standing ambition to crack open the West and US alliances.

But the moment is also laced with a sense of fear in Beijing, which is acutely aware of America’s immense power and the fact that Trump may be able to force foreigners to pay a price for entry into its market.

If there was a German word for being resolute and freaked out at the same time, that would capture the mood in Beijing.

The Chinese mean it when they say they won’t cave to Washington’s escalating threats. They have many cards to play in tariffing US imports and blocking exports in industries they dominate, like critical minerals.

Even someone as powerful as Xi Jinping will be wary about engaging with Trump now. Chinese history takes a dim view of the country’s leaders who negotiate with foreigners and come off second best.

“In the same conversation, Chinese officials swing from parading themselves as the superpower leader of an ill-defined Global South to downplaying their role as that of just another developing country.”

Some Chinese scholars quibbled about Xi responding too quickly to Trump. (The speed at which Beijing hit back leaves no room for doubt that this was Xi’s own decision.)

Nor do all Chinese think Trump is crazy. “He wants to reduce imports,” said one former official, adding that the US president was simply using the bluntest of instruments to do so.

The Chinese understand that any retreat by Trump from his maximalist positions will be temporary, merely way stations en route to new barriers. This is a permanent competition, not a one-off negotiation.

But no one in China, including scholars critical of their own government, suggested Beijing should step back from the fight and make concessions to placate Trump and bring him to the table.

The current brinkmanship, however, is only part of the story.

Trump and his polices were not created in a test tube. He is responding, however erratically, vindictively and incompetently, to a real problem which a sizeable number of US voters have been angry about for decades.

The US can take the blame for its own policies, which favour consumption over savings and thus incur huge deficits, but China’s economic policies have turbocharged these imbalances.

The Chinese system favours pouring resources into industry over delivering benefits to consumers, which is in large part a political choice aimed at strengthening the state and matching the West.

Chinese leaders have promised rebalancing for two decades but have failed to deliver.

‘The tsunami is coming’

In 2024, China’s global trade surplus was nearly $US1 trillion, more than half with Europe and the US but much with developing countries as well.

With industrial lending surging, the Chinese export machine is just getting started. “The tsunami is coming for everyone,” Katherine Tai, president Joe Biden’s chief trade adviser, told The New York Times.

That illustrates a second dilemma that Xi takes on a timely trip this week to Vietnam, Cambodia and Malaysia.

China’s export machine doesn’t discriminate. Blocked from the US market, Chinese exporters will be looking elsewhere to land their goods.

Just as developed countries can’t cope with the scale of Chinese industry, nor can developing countries, which now finds Beijing is pulling up the ladder of modernisation behind them.

Chinese diplomacy in South-East Asia has been mostly very successful, positioning Beijing as a reliable and ever-present partner against a capricious and absent America.

China has also been smart in anticipating Trump. In December, Beijing eliminated tariffs on goods from the world’s 43 least-developed countries, most of them in Africa.

But Beijing talks out of both sides of its mouth. In the same conversation, Chinese officials swing from parading themselves as the superpower leader of an ill-defined Global South to downplaying their role as that of just another developing country.

In the long-term, Australia will suffer from a cratering of globalisation as growth slows.

Caught between a capricious established power and an assertive rising one, Australia will get squeezed even further.

Circumnavigation of Australia

The Chinese were unabashed about their navy’s recent circumnavigation of Australia, which they made clear was in response to our presence in the South China Sea and the Taiwan Straits.

“If you humiliate us, then we will humiliate you,” said one professor at a prestigious university in Beijing.

There might also be a sliver of a silver lining in the short term.

Australian farm producers will fill some holes in the Chinese market left by sanctioned US and Canada producers, just as producers from those two countries did when Beijing imposed tariffs on us.

There was also much talk of stimulus measures to handle the factory closures and layoffs already unfurling in China.

China won’t do a massive 2009-style spend, but they are not going to get growth from a short-term surge in consumption when people are losing their jobs.

Perhaps Australian politicians, now making all sorts of spending promises on the campaign trail, will get a temporary bailout again.