China is terrified that Donald Trump could turn it into a Japan-style zombie economy.
According to the Wall Street Journal, China is "Right to worry.”
The reason is Trump's aggressive tariffs on China -- with more to come on April 2nd -- are hitting when China's economy is already reeling from failed central planning.
This includes trillions of overcapacity dumped into state favorites from green energy and EV's to semiconductors and commercial aircraft.
Overcapacity in China
To illustrate, by 2019 China had five hundred electric vehicle makers.
80% have already gone bust. With a hundred still to go.
This over-capacity is crashing prices in China, which are actually falling again — despite panicked money-printing by China’s central bank.
Meanwhile, private-sector estimates peg China's economy limping along just over 2% growth -- a far cry from double-digits a decade ago.
Ominously, after China's youth employment soared past 20%, Beijing stopped reporting it.
China's response to overcapacity has been dumping abroad, which is why you can get four dollar shirts on Temu.
That's pissing off trade partners including the EU.
But that's barely making a dent, with prices still falling. Which puts tens of thousands more factories at risk.
That could mean millions more jobs lost.
Last year China had nearly a thousand "dissent events" -- including riots.
Millions of unemployed factory workers would be gasoline to the fire.
Trump’s Tariffs
Donald Trump is now feeding China's house of cards into the wood chipper.
A few weeks ago he hiked tariffs to between 17 and a half to 35 percent, with more to come on April second, when Trump goes nuclear with reciprocal tariffs.
Even China perma-bull JP Morgan admitted "we felt tariffs were a negotiating tactic rather than a structural change. We appear to be wrong."
I've mentioned in previous articles that Trump's dream of bringing production back to America is actually possible if business taxes and red tape are tamed.
DOGE is aiming directly at both. And Trump keeps flirting with repealing the entire income tax.
Given America's huge economy -- we're one-quarter of the entire global economy -- if you nestle that under a big beautiful tariff umbrella and cut costs and red tape you get a flood of Chinese companies wanting to Make it in America.
Beijing will be bribing them to stay.
China’s Abuse of Foreign Firms
It's not just Trump.
Doing business in China has always been like dating a stripper -- good-looking but there's an awful lot of drama.
Beijing forces you to train your competitors and share your trade secrets -- so-called forced technology transfer.
Its regulations change depending who you know. With foreigners at the back of the line.
Occasionally it arrests your managers as hostages if it's upset with your country.
Thanks to all this, foreign investment into China has collapsed 96% since Xi Jinping took office, actually turning negative -- more leaving than coming -- with a record $168 billion outflow last year.
There's even talk that China could be turning into a Japan-style zombie economy thanks to government allocation of capital. Bond markets say it already has.
What’s Next
China's President Xi appears incapable of handling the challenge. He's the most anti-business Chinese leader since Mao -- with a decade of low growth to show for it.
Worse, his instinctive combativeness is going to create fireworks with Donald Trump, who's currently luring China's most important ally, Russia, out of its orbit.
Sadly for the Chinese people, Xi's greatest achievement is the police state he built. So, at age 71, there's no cavalry coming.
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Leftism, socialism, Marxism, and Communism are anti business and anti-free-market. The West has adopted their economic theories, obfuscated by Keynes, wholesale. Their true nature is the opposite of how they present themselves. A tiny elite controls everything. Absolutely not a "dictatorship of the proletariat." It is a dictatorship of the elite oner the proletariat. Yet they get away with portraying free markets as the one percent feeding on the herd and themselves as caring and generous benefactors. Both the Left and the CCP and, formerly, the USSR are incongruously presented as being for the poor and the working class while herding them into the butcher shop.
Never in the press is Musk mentioned without the pejorative Billionaire adjective. But they can't hide the saliva drooling from their chins at the thought of becoming one themselves. Meanwhile they fatten us up for slaughter by filling our feeding troughs with their garbage while they feast on our rightful wealth.
Insightful, thank you. Should that have been youth UNemployment (20%)?