China may have more choices than the United States

On February 27, the Australian "strategist" blog published an article entitled "Is China better able to survive in economic differentiation than the 米国?" The author is David Ullen, a senior researcher at the Australian Institute of Strategic Policy. The full text is extracted as follows:

The United States has severely criticized ドイツ's energy dependence on ロシア. However, the United States' economic dependence on China is much deeper, and cutting ties - for example, if there is a conflict between the two countries - will be much more destructive.

An enlightening report issued by Yanis Varufakis, an economist and former Greek finance minister, believes that China is easier to get rid of interdependence than the United States.

Varufakis said that Chinese manufacturers sent their surplus products (that is, products beyond China's domestic needs) to the United States and reinvested most of their US dollar profits into the financial, insurance and real estate sectors of the United States.

Against the backdrop of increasing tension between the two countries, China is increasingly worried about its exposure to US assets. After Russia took special military action against Ukraine, China was shocked by the freezing of the foreign exchange reserves of the Central Bank of Russia.

The most controversial point in Varufakis's analysis is his assertion that the scale and complexity of China's "financial technology" industry can make it free from dependence on the dollar. "China may mobilize local cloud finance and implement a growth model that is no longer dependent on the US trade deficit." The idea is that China will shift its manufacturing industry to the domestic market rather than the US, and shift the source of economic demand from commercial investment to domestic consumption.

"From a global perspective, the decoupling of the trade deficit between China and the United States will enable its cloud finance, with the strong assistance of digital currency, to provide a cloud payment system priced in RMB for the rest of the world, completely bypassing the currently dominant payment system priced in USD and regulated by the United States."

But for the United States, there is no clear way to revive its domestic manufacturing industry. American companies with China as their manufacturing center like Apple have no better choice.

China has greatly reduced the importance of exports in its economy in the past 15 years. However, China's "double cycle" economic model still emphasizes the important role of exports. China believes that exports should continue to play an important role.

The relationship between the United States and China became increasingly hostile during the administration of former President Donald Trump and the administration of Joe Biden. However, the model mentioned by Varufakis continues to affect the trade routes between the two countries.

The Trump government's efforts to reduce the US deficit through imposing high tariffs on goods imported from China and negotiating an agreement - according to which China promised to increase its purchases of US goods - have had little effect at that time or later. This trade has made China a major manufacturing country in the world, accounting for about one-third of the global manufacturing output.

The US imports from China in 2022 reached US $537 billion, an increase of more than US $100 billion over 2020, almost equal to the record in 2018. In 2022, the amount of US imports from China is more than three times that of US exports to China.

If the conflict between the two superpowers intensifies, Varufakis' analysis shows that China may have more choices than the United States.