China and the United States are now in a full-blown trade war after U.S. President Donald Trump imposed 34 percent tariffs on Beijing and China countered with an identical figure. Whether or not Trump now raises the stakes, what’s clear is that the U.S.-China economic relationship will never be the same.
How does China’s strategy on funding science compare with America’s? What explains China’s apparent economic recovery? Is Trump’s trade policy driving East Asian countries closer to China?
Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.
Cameron Abadi: All the news reports indicate Trump was the one making the decision on the scale and sweep of tariffs. And that seems to me a very technical thing for the president and especially someone without an economics background to be involved in. How should we be evaluating this process in relation to the technical nature of tariff policies? It got me thinking about how one reads in history books about monarchs or political leaders determining specific military tactics on the battlefield.
Adam Tooze: Yeah, it is insane. Interviewed on the relevant news stations last week, very close advisors to the president were saying things like, “I can’t really give you any forward guidance on how this is going to go, I don’t know, all I know is the president is talking to smart people and so I’m sure he’ll make the right decision.” I mean sycophantic stuff like that.
So I do think, Cam, that the analogy to a kind of early modern mode of governance is the appropriate one. It’s haphazard. It’s crazy. It’s unlike any tariff policymaking that we’ve ever seen before.
Your focus on technicality is an important one because very early on in the history of American tariff-making in the modern period, so in the late 19th to the early 20th centuries, creating the so-called scientific tariff was actually something that American politics set about doing, which was a deliberate process of expert estimation. It was also, of course, a mode of log-rolling where interests would get behind their particular proposal. It’s never just clean science. But in this case, it just seems to be at the capricious whim of an increasingly aged and opinionated old dude. So that’s where we’re at. I think we’re misleading people if we present it as a more rational process. There are some reasonably smart people around him who could subsequently rationalize, sure. But I think we’ve lost any illusion that they’re in control at this point.
If you start with tariffs framed the way the Trump administration has, there’s no real way of reabsorbing it into a technocratic flow. Whereas in the Biden case, it was long advertised, it was rationalized, it referred to existing practice law. It was part of that whole familiar process of blob-style policy.
CA: How would one compare the overall economic strategy in the United States versus China when it comes to the relationship between science and the state? China’s focus is on state-supported technological development, while the United States is withdrawing support for science in various ways, even as the United States government is clearly backed by the biggest tech companies. How would one compare the philosophies at work here in terms of developing technology and the role of the government in supporting that?
AT: I think it’s tempting to say that the Chinese regime does conventional industrial policy, conventional national strategy, following in a trajectory that goes all the way back to the self-strengthening movement of the late 19th century. And the difference with China is simply the scale, and it is staggering. If you just take crude numbers of patent applications, which is a very crude indicator because of the quality of the patents and the degree to which they’re cited, but currently the Chinese annual rate of patent submission is 1.4 million-plus a year compared to about 300,000 for the U.S. And it’s something that’s exploded in the last 10 years. So it’s truly, truly staggering. And any field of research right now, pretty much you will see the same thing.
And any university in the United States or anywhere else in the world can sing you a song of this because, by my latest estimation, 20 percent-plus of the students on campus in Columbia are Chinese. If you add in the Asian American component, you’re at more like 25 percent. And of the Chinese nationals registered with the immigration authorities, half are in the engineering school, and that’s before you even get to the other bits of STEM. So the U.S. science complex is itself benefiting from the spillover effects of this incredible drive by China. And that’s what we then see in industrial policy, right? This isn’t just an effect of coercion or limitless resources, it’s also the brilliance of literally hundreds of thousands, millions of Chinese engineering minds being turned to lots and lots of really hard problems.
CA: In the past few years, there was much talk about China’s economy slowing down. But from what I can tell, the most recent indicators in the last few months are that the Chinese economy is actually picking up. So what exactly is fueling China’s economic recovery right now?
AT: I think there’s three ways of looking at this, and they’re all familiar kind of tropes from macroeconomics. One is that in a business cycle, a thing to look for is the moment when things stop getting worse and by itself that second-order effect, so they don’t need to get better, they just need to stop getting worse, generates—you find the bottom, if you like. And as soon as you find the bottom, this unleashes a series of decisions like, “Oh, well, well maybe I actually do need to renovate this apartment.” Whilst property prices are crashing, it makes no sense to sink good money in a bad investment. Once property prices are stabilizing at their new low levels, all of a sudden, a bunch of decisions become reasonable that over the preceding period from 2020 to 2021 onward were just dangerous to make. And China in certain areas hit bottom, and this was especially the case in the richer, more affluent real estate markets where there has been a substantial turnaround. China is gigantic, 1.4 billion people. It has dozens of huge cities, bigger than most cities in the United States. And some of those are returning hotspots of property development and property prices. Large parts of the country are still stuck, but it’s those new centers of growth which are driving things forward.
The second element is that we saw a shift in China’s development path. And you can see this in the investment figures. It’s not merely propaganda to talk about new quality productive forces, we’re seeing it in the trade figures as well, which is that the Chinese industrial and economic growth that shaped the last two decades was in some ways just the first stage. And quite contrary to Western imaginings that it was ultimately us and our demand that was driving this, the principal demand was actually China’s domestic urbanization that was riding this. Half a billion people moved to the cities. Cities were massively transformed. That’s what generated the growth. What we are now beginning to see is the shift of China toward the manufacturing sector. And in sector after sector, motor vehicles is simply the most dramatic one, China’s manufacturing sector is taking over. Now this is promising in terms of GDP growth. It poses a whole bunch of really interesting problems which you and I should return to at a future point, which is the China shock that China itself is experiencing. In other words, these aren’t necessarily high-employment sectors, and an awful lot of Chinese firms are shifting production to lower-cost areas which aren’t in China, but could be in Vietnam or could even be further afield in Southeast Asia if those places also enjoy access to American markets.
And meanwhile, I think the third thing to think about here is whether China is really out of the woods yet. And with regard to this, the most worrying symptom is certainly that there seems to be continuing an ongoing deflation in many Chinese markets. That means falling prices. And if that were to propagate and to amplify, it would invalidate the first point, namely that things have stopped getting worse, because a generalized deflation would be the next stage of a chronic contraction, which would really be a bad sign. And that is something to watch and to keep watching. But yes, it definitely does seem as though the first shock, the first winddown, the first contraction, has to a degree ended.
CA: China and South Korea and Japan have together announced an intention to jointly respond to U.S. tariffs. Is Trump’s economic policy subverting, then, his government’s broader goal of balancing against China in Asia? And has America had any coherent economic policy for Asia ever since the demise of the Trans-Pacific Partnership [TPP] free trade agreement that collapsed a few years ago?
AT: I think the short answer is that yes, this is counterproductive, and no, the United States does not have a coherent geopolitical, geoeconomic offering for Asia and hasn’t for many years, for more than a decade at this point. I mean, yes, the pressure from the United States unsurprisingly is driving China, South Korea, and Japan together. They held their first talks since 2019 recently. But one shouldn’t, I think, overemphasize the diplomatic element of this. Just look at the economic data and what you’ll discover is that the world economy doesn’t actually revolve around the United States in most dimensions, certainly not with regard to physical trade and industrial production. It doesn’t. America has a big trade deficit, which sucks in a lot of goods, and it’s crucial to the dollar system’s finances, but in terms of the flow of commodities and trade, Asia is the hub of this and has been for 15 years, at least, since China’s growth really took on huge scale. And so that goes on, it takes diplomatic form, it takes institutional form, and with the decision taken by Trump—but I think Hillary Clinton, if she’d been elected president, would also have made this decision—America’s decision that there simply wasn’t a domestic coalition available from the 2010s onward. In other words, there weren’t the votes in Congress to push through a comprehensive trade policy between the United States and Asia that widened market access. America lost leverage over this situation and has never been able to restore it.
So the people in the Biden administration were super smart, and the president, whatever his standing and status, didn’t bother them and let them get on with Asian economic policy. So they stitched together what looked to them like a coherent synthesis of new trade elements, which focused on various supply chain issues and had elements of greening, energy policy. They did these energy transition partnerships with Vietnam, with Indonesia. But the fact of the matter is they weren’t ever able to back it with money. They weren’t able to back it with market access and they weren’t able to back it with substantial, subsidized, de-risked investment. And so, the stages of incoherence are essentially that you start with the vision TPP, which there isn’t congressional backing for, it falls to Trump to abandon it. Then the Biden people come along and propose what is a coherent vision but can’t back it with resources.
And now we’re just back to full-on incoherence under Trump, with just a kind of bludgeoning trade policy which doesn’t seem to be coordinated with anything. You know, the denouement of this sorry story is that Asia got on with doing the son of TPP, which was this mouthful, it’s the CPTPP, which is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. So they nested the TPP within a comprehensive and progressive offspring. And as that was originally conceived, it was conceived certainly by the time the Americans got their hands on it as a China containment policy. And now the latest question that Beijing is pushing is, “Hey, could we join?” It’s unlikely, I think, they’re going to make much progress on this because the South Koreans and the Japanese can see the Taiwanese problem coming, and the Taiwanese are preemptively also applied, so they’ve created this problem and so everyone will shrink back from that.
But the balance, if you like, of the historical direction of movement is not any longer toward a coherent American strategy of containment, but an AWOL, out-of-whack America that basically leaves a vacuum into which China then muscles in this new stage of its economic development, which is both threatening on the one hand because of its move into manufacturing and on the other hand opens a whole new array of opportunities because China will simply get richer and richer, and ultimately that’s what provides the markets for more and more sophisticated exports from the rest of the region. At least that would be the modified liberal fantasy of how this goes.
CA: When there’s talk of a trade war, it’s always the U.S. agricultural sector that’s said to be likely to suffer the most in the U.S. context. What exactly explains this deep link between American farms and China?
AT: So I mean, what fundamentally connects the two is a logic of free trade and what that entanglement expresses. And it’s large, China is the largest market for American agricultural exports. Soy, corn, both go to China. It’s worth maybe $35 billion, something like that, per annum. So it’s a big flow. It didn’t always used to be like that. You know, in the age of Nixon and Kissinger was when the Chinese market opened up to American exports. What drives it is simply the disparity in what economists call factors of production. And in this case, the one that matters is land. So the arable land per capita in China, that is the land that can be farmed, is about 0.08 hectares, which is about 800 square meters, which is a big back yard. Whereas in the United States, it’s sixfold that. It’s closer to 4,000, 5,000 square meters.
And that ultimately is what determines the balance of production between the two sides in terms of per-capita productivity. The United States will quite likely as a result come out ahead. Costs will be lower, production will be larger and certainly for extensive crops like soy and corn, that huge territory, plus the sophistication of course of American agribusiness, will tell. Why are the Chinese buying more food? Well, it’s because as they get more affluent, the share of meat in their diet increases. And once you’ve got really big animal herds, you have to feed them. And the cheapest thing to do is to import somebody else’s grain production. America is not China’s favored supplier. America supplies about 15 percent of China’s imports. So the trade with China is important for U.S. agriculture. The trade with U.S. agriculture is less important for China. Over the last 10 years, the share of Brazilian soy exports to China has doubled. So now the Brazilian share is about twice the size of the U.S. share.
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