Yves here. While Michael Hudson’s wide-ranging and harsh critique of US economic and social practices is thoroughly deserved, and our failings have been compounded by absolutely terrible leadership, I am a little bothered by his fault-free depiction of China. As I am now seeing in Southeast Asia, China’s mercantilist policies have indeed been very beneficial for China. But Southeast Asia, like the US, is suffering the costs of being in a chronic trade deficit position with China, and one that is getting worse.
Remember that being in a chronic (and significant) trade deficit position is tantamount to exporting jobs. In the US, globalization was one of the means (along with union-busting) of weakening labor’s bargaining position. From the Lowy Institute:
The collapse of China’s property sector has reduced associated demand for goods such as steel. It has also put downwards pressure on already parsimonious household consumption, given property’s relatively outsized role as a reserve of Chinese household wealth.
Beijing’s response has been to prioritise the so-called “real economy” and marshal low-cost capital into the manufacturing sector. Lending to the sector has increased exponentially over the last few years. These low-cost loans have augmented the considerable state-endowed advantages already enjoyed by Chinese manufacturers, who operate in a supply-side nirvana. The Kiel Institute recently found that direct and indirect (e.g., cheap land, credit and power) industrial subsidies in China are up to nine times greater than in the United States relative to overall GDP.
The problem for global manufacturing writ large is that the obverse of these subsidies is weaker Chinese consumption.
The problem for global manufacturing writ large is that the obverse of these subsidies is weaker Chinese consumption. Less government spending on social welfare is one obvious manifestation. The corollary is that China is buying fewer manufactured goods from the rest of the world. With weak demand internally, it is bursting at the seams with oversupply. This is becoming startlingly conspicuous in trade figures. Thailand’s trade deficit with China increased from US$20 billion in 2020 to US$36.6 billion in 2023. Malaysia’s deficit grew from US$3 billion to US$14 billion over the same period. Only Indonesia managed a modest surplus off the back of surging nickel and metals exports.
The gamut of affected sectors is much broader than higher-value-added goods du jour such as electric vehicles (EVs). In 2023, China’s President Xi Jinping made it clear that he wanted a “modern industrial system” to extend to traditional labour-intensive sectors such as apparel, toys and furniture. Instead of migrating offshore to lower-cost destinations, the risk is that these operations will remain in China in an increasingly automated form.
And keep in mind, the very low consumption share of China’s GDP (39%) means its citizens are experiencing a lower standard than they otherwise would to support (what is looking like over-) investment and exports.
Published by Liberation Daily from Shanghai on May 9, 2025; a video and report appeared in Tencent News on May 14, 2025
解放日报访迈克尔·赫德森：贸易冲突带来不可逆的影响，特朗普在自我妥协-腾讯新闻 https://view.inews.qq.com/k/20250514A01FVR00
1、如何看待中美贸易冲突的根源？你认为这是经济利益的冲突，还是更深层次的政治和意识形态的较量？How do you view the root causes of the U.S.-China trade conflict? Do you believe it is primarily an economic dispute, or is it a deeper political and ideological confrontation?
It’s much deeper than a trade conflict. It’s a conflict between social systems. The United States is a neoliberal economy dominated by finance capital. Its political aim is to dismantle government regulation and privatize basic infrastructure, and to make financial centers (Wall Street) the economy’s central planner. This planning is not in the economy’s overall interests.
The problem is that this plan polarizes economies between creditors and debtors, and imposes austerity on labor and the rest of the population. So the United States cannot tolerate a successful alternative model. That’s why the United States fought against the Soviet Union after 1917. It looks at China as an existential threat not because of foreign trade, but because it shows a much more successful economic model. And this success has made other countries orient their trade and investment around China instead of on the United States.
So the United States seeks to disrupt China’s development. Trump is using his tariff threats against other countries as a lever to say that he will reduce tariffs if they agree not to trade with China. He is bound to fail, and that makes him hate China all the more.
2、你提到中国的经济发展模式与美国的资本主义制度有根本性的不同。在你看来，这种差异如何影响了中美之间的贸易关系？You mentioned that China’s economic development model is fundamentally different from the U.S. capitalist system. In your view, how has this difference influenced trade relations between the two countries?
The United States has made a choice to permit the financial sector to make money for itself instead of using the financial system to serve the overall economy’s economic growth and rise in living standards. This is what has forced it to outsource its industry to Asia. It has chosen to create a “market” that rewards making gains purely financially, not industrially.
The most important infrastructure in China’s public domain is the Bank of China and its financial system that aims at increasing tangible capital investment to increase productivity and living standards to uplift its population. The U.S. financial system has found its major loan market in rent-seeking sectors. Banks have added to debt leverage bidding up prices for real estate (80% of bank loans), as well as stocks obtaining natural-resource rents and monopoly rents on credit.
The result is a rentier economy with an increasing the cost structure. In Marxian terms, financial revenue is the Sphere of Circulation, not the Sphere of Production. U.S. industry has to pay labor enough to carry housing costs up to 43% of income, debt service (apart from mortgages) another 10 or 15%, plus student education loans ($1.8 trillion), credit-card debt ($1.3 trillion) and privatized health care (18% of GDP). There is no way that employers can pay labor enough to meet these costs of living and be competitive in foreign markets.
3、中美贸易冲突中，美国采取了一系列关税措施。你认为这些措施能否真正解决美国的贸易逆差问题？还是会导致更广泛的经济后果？In the trade conflict, the U.S. has implemented a series of tariff measures. Do you think these actions can truly resolve America’s trade deficit, or will they lead to broader economic consequences?
The aim of Trump’s tariff measures is to create government revenue that will enable him to cut taxes on the wealthiest 10% of the population, mainly the Finance, Insurance and Real Estate (FIRE) sector. But the effect of these tariffs will be to stop much trade altogether.
If the trade deficit shrinks, this will have two effects. Most broadly, it will sharply increase inflation, by the degree to which tariffs are raised. That will squeeze labor’s income, leading to defaults on mortgage debt and personal debt. That will lead to home foreclosures, loan defaults and much less personal income being available to spend on domestic products. Many small businesses will have to go out of business.
The tariffs also will cause breaks in the supply chain of many companies – for instance, auto companies that rely on particular parts that are imported, or pharmaceutical companies reliant on key chemical components. And also, the military arms and high-tech industries that need rare earth magnets and other key raw materials.
So the US economy will be forced into recession and perhaps a longer-term depression.
4、你曾指出，中国的经济制度避免了苏联式的微观管理，允许市场反馈和创新。在中美贸易冲突中，这种制度优势如何体现？You have pointed out that China’s economic system avoids Soviet-style micro-management and allows for market feedback and innovation. How does this institutional advantage manifest in the context of the U.S.-China trade conflict?
China has sought to make its economy flexible – and also independent of reliance on U.S. attempts to monopolize information technology, military arms making and other products. U.S. companies seek a monopoly position, which minimizes competition in order to extract monopoly rents. China is still letting a hundred flowers bloom in order to see what succeeds best.
5、你认为中美贸易冲突对全球经济秩序有何影响？是否会加速全球多极化趋势？What impact do you think the U.S.-China trade conflict has on the global economic order? Could it accelerate the trend toward global multipolarity?
Trump’s trade conflict insisting that the United States must be the winner in any agreement will change the whole world’s trade relations, and do so IRREVERSIBLY. Trump’s act cannot be taken back. The damage is done.
Trump is making the US-China trade conflict into a wedge to try to force European, Global South and other countries to choose EITHER to focus their future trade and investment on the U.S. market – which is shrinking as a result of Trump’s trade war – or else to participate in the most rapidly expanding market in the world, that of China and its Asian associates along the Belt and Road Initiative.
The choice is whether to live in the short run and avoid U.S. trade disruption (and threats of political regime change), or to look at their long-term growth prospects.
But finance lives in the short run, and many heads of foreign governments owe their political positions to U.S. support. So their loyalty is to U.S. geopolitical aims, not to their own populations.
6、在你看来，中美贸易冲突中，哪一方更有可能采取妥协措施？这种妥协可能以何种形式出现？In your opinion, which side is more likely to make compromises in the U.S.-China trade conflict? What form might such compromises take?
China has announced that it is not going to compromise on its principled position. It doesn’t have to, because it has many alternatives to ties with the United States (although there will of course be a short-term disruption).
But Trump already is compromising – with himself. It is as if he has been negotiating against himself since April 2, rolling back his threats to tax Canadian and Mexican auto parts 25%, and also reversing his tariffs on China’s exports of I-Phones and other products that Trump’s key political supporters need in order to keep their businesses profitable.
So the United States will find itself in a weakening position as Trump’s hope to get other countries to join his anti-China coalition fail to gain support – especially his closest political allies and satellites in Europe, and even from Japan and other ASIEN countries.
7、中美贸易冲突对全球贸易格局有何影响？ How is the U.S.-China trade conflict will impact on the global trade landscape?
When the chaos dies down, the effect will be that the United States has isolated itself from the rest of the world instead of isolating China. And its trade barriers will cause price inflation and further polarize the U.S. economy, deepening U.S. de-industrialization and making it even more dependent on other countries that are not following the U.S. financialization ideology.
8、在中美贸易冲突中，你认为有哪些可能的解决方案可以实现双方的互利共赢？这些方案需要克服哪些障碍？In the U.S.-China trade conflict, what possible solutions do you see for achieving mutually beneficial outcomes? What obstacles must be overcome to realize these solutions?
The real question is, who do U.S. policy makers want to benefit? The United States is run by special interests, mainly in the financial sector and in monopolized sectors, not in the public interest. They are willing to see the economy shrink and living standards be squeezed even more, as long as they themselves get richer. That has been the economic trend steadily since 2008, and it will accelerate.
There is only one way for the United States to overcome this obstacle. That is to change its economic system. But economic systems don’t change unless the population is able to empower a government that is strong enough to keep the financial sector from becoming a predatory exploiter of the economy at large. That would require either a new political party, or a revolution.
I don’t see either of these things happening in the foreseeable future. The Republicans and Democrats have blocked the emergence of a third party by a complex maze of election restrictions. That’s why even “progressive” Democrats realized that they have to work within the confines of their party controlled by Wall Street and military neocons. The Green Party behind Jill Stein was unable to even get a slot on the presidential ballot last November here in New York where I live.
I don’t see a revolution. There is little left-wing movement in the United States. What is called “left” or “Marxist” is actually focused on identity politics of ethnicity (racial minorities) and LGBTQ, not the identity of being a wage-earner. And Trump’s clamp down on universities whose students protest against economic injustice or genocide show the power of a new McCarthy period of police state and FBI censorship of the mass media, the press and the educational system.
The result is looking more like a political Dark Age than an alternative to U.S. economic polarization and shrinkage. So I see a slow crash, rising discontent but not a revolutionary situation.
This prompted a peek at the World Bank Gini data. Over the past 10 years China’s gini ( https://data.worldbank.org/indicator/SI.POV.GINI?end=2021&locations=cn } has dropped from ~44 to 36-7, whereas the U.S. gini has gone from ~33 just before Reaganomics to ~ 41 where it has been stuck for a decade.
At least China is trying.
There is a lot of debate around the figures, as China’s official data is always – well, open to interpretation, but its generally accepted that inequality, as measured by the Gini index, has increased enormously over the past 30-40 years and overtook the US during that period. The more recent dip (and its only a short dip in terms of the long term trend) is probably due to the loss of upper middle income wealth in the property crash and various changes in income calculations. It is also, arguably, due to the Kuznets Curve, which is based on an observation that income inequality tends to even out after countries go through an initial period of rapid growth (I don’t personally subscribe to this myself, but its something you’ll often come across in the literature on the Gini Co-efficient in development economics)..
There is a fairly technical overview in this article (published before China started ‘officially’ measuring it for the World Bank), plenty more on the subject in the usual academic sources.
So in short no, they are not really trying. Apart from clipping the wings of some billionaires who overstepped the bounds, China’s internal tax/welfare policies are generally highly regressive.
Thank you, PK,
In lieu of better statistics, the World Bank’s Gini index indicates that the ‘recent dip’, dating from 2010-2011, is more than ‘a short dip in terms of long-term trends’.
Per this paper it seems Xi has in fact been ‘trying’ for at least 10 years:
«At the 11th meeting of the Central Finance and Economy Leading Group on 10 November 2015, President Xi Jinping stressed that China should strengthen structural reform on the supply front to increase the quality and efficiency of the supply system in the New Normal era. One of the key tasks of this reform is to promote the absorption of excess production capacity. With regard to the real estate industry, “reducing stock (qukucun)” is seen as a critical measure to reach this target.»
Certainly, Xi has not been ‘trying’ hard enough to satisfy Washington. Time will tell whether Xi will satisfy Thailand or his own people, but in the interim, on the world stage he may only need to try harder than Trump or the European sock puppets.
I would very much appreciate more detail on the regressivity of Chinese tax policies (which I do think is critical), and how Chinese advances in infrastructure and health care fail to compensate for the regressivity of its welfare policies.
Given the difficulties in measuring it, changes in the Gini co-officient only really make sense when looked at in long time scales. There are quite a few estimates out there – the World Bank one is based primarily on Chinese official figures, which unsurprisingly paint a positive picture since they started officially producing them – other sources provide widely varying estimates. The current levels are about what you’d expect for an Asian country at this level of development.
A very important point about addressing any Chinese statistical data over the long term, is that there was a very strong incentive in the 1990’s for Beijing to overplay the poverty of China before the 1980’s, in order to prove that their pro-free market policies were working. Very few observers consider the Chinese data from 1950 to around 1980 to be in any way accurate – its very hard to believe, for example, that the average Chinese person was a lot poorer than Koreans in the aftermath of the Korean War, yet this is what ‘official’ figures ask us to believe. China had nuclear weapons, domestic jet airliner projects, and a space program in the 1960′ and 70s – it was not a backward country technologically and had a lot of natural resources. Most of the famines and mass mortality of the period were, shall we say, not entirely of natural origin.
Beijing has been making annual statements about structural reform and addressing inequality for decades. It means about as much as any political statement in any country. Nothing.
The biggest source of tax in China is VAT, widely acknowledged as among the most regressive of taxes. Income taxes are relatively ‘flat’ rated (complex area, as it varies across China). Taxes on various forms of rentier activity (such as property investments) are low. There are massive hidden subsidies to local business interests (i.e. those who are ‘connected’).. The welfare system is largely organised on a provincial level, so is highly variable, but is generally fairly basic, but is good at preventing absolute poverty. The health system is basic unless you are in one of the big cites and have access to one of the major centralised hospitals, there is a reason Chinese travel abroad for treatment if they have that option. State pension systems are highly variable according to your province, but can be very good for rural dwellers (where living is cheap), probably not so good for the urban poor. For people in the middle, financial repression (i.e very low interest rates for saving) is a form of income transfer from ordinary people to business. This is why so many ordinary Chinese rushed into the residential property market, and why so many are hurting now.
Most crucially of all, any country which runs long term trade surpluses is definitionally transferring income from ordinary workers to the export sector (i.e. industrial capitalists). Trade unions are in-house and tamed, protections are very weak, although localised activism (generally tolerated) can be very effective at preventing the worst abuses of workers and pensioners. Its hard to get firm figures on this, but baseline living standards for the bottom 10 or 20% percentile of Chinese are likely significantly better than most other Asian countries of roughly similar levels of development (and probably some wealthier countries, like RoK), but there are still a lot who fall between the cracks, mostly due to the hukou system, which creates a large number of ‘non-people’ as for as local governments are concerned.
It’s incredible that China managed to move from a country with least inequality in the 1970s to a country with an outrageous inequality by the 1980s. However, the all in all living standards have improved incredibly since then and if you look at political discourse (aka. Xi’s speeches) there is a growing sentiment that addressing inequality is crucial and there is a “socialist” narrative present … however, imho that has not translated into much action except infrastructure benefits for all. What you see is that instead of raising consumption levels and tackling inequality, people are more expected to sacrifice to develop China into the great civilizational nation.
Median life expectancies in nations remain finally the most significant indicator.
In 2024, the median life expectancy in China was 78.02 years. in 2025, it’s increased slightly to 78.37 years.
https://database.earth/population/china/life-expectancy
A remarkable rise from 1945, when median life expectancy in China was around 35-40 years, and as low as 29 for males. Granted, this followed the Second Sino-Japanese War and the Civil War. Still, the scale of the turnaround is entirely to the CCP’s credit
In 2024, median life expectancy in the United States was 79.25 years, and in 2025, it did increase slightly to 79.40 years. But the overall US trend is static or downwards, in contrast with the Chinese.
https://www.macrotrends.net/global-metrics/countries/USA/united-states/life-expectancy
And US life expectancy of course remains substantially behind other ‘advanced countries’ such as the UK, at 81.6 years, or Ireland, at 82.75 years, or Japan, at 85 years!
The Gini index also obscures what you can and can’t do with money. If you own your home outright, food/utilities/basic healthcare/education/public transport are cheap, then being at the bottom of the economic scale is not quite so terrible. If being rich doesn’t let you buy politicians or local law enforcement, then the wealth is mostly usable on frivolous things like designer handbags, luxury cars, foreign travel, foreign education for kids, etc.
Also the disparity in cost of living in China between first/second tier cities and everything below is really massive. Way more than comparing NYC/SF costs to rural Midwest or deep South, especially since American reliance on cars outside of major urban areas force the cost of a minimally viable living way up unless you try to hack it by going off grid or boondocks out of your vehicle.
Re China and its flaws–apparently there is still a great deal of control against dissent on the internet and elsewhere but then Trump would be all for that too if he could get away with it. The American system has evolved into freedom for the oligarchs versus control (via debt peonage and attendant consumerism) for the masses. Now Trump is threatening the consumer side with his tariffs so even our feeble low cost lifestyle (courtesy of imported goods) version of a social contract is threatened.
Or so it looks from here in flyover. It’s probable Trump won’t get away with any of it including the tariffs but perhaps Trump doesn’t care as long as everyone is talking about Trump.
In a previous article posted here at NC the high savings rate among Chinese is attributed to a weak social safety net. A cursory look at online sources indicates that 8% of China’s GDP is devoted to such spending while the OECD average is 20%.
This would seem to indicate a significantly high degree of economic insecurity in China and would account for what in today’s article is described as “parsimonious household consumption”. This strikes me as rather odd in a country governed by a putatively communist party.
But being a member of a society in which compulsive consumerism is incessantly promoted, perhaps I’m viewing this issue through a distorted lens. America after all has been described as a country that passed from barbarism to decadence without an intervening period of civilization.
International trade is quite a story, containing economic theory vs. economic reality; mixed in with competing dysfunctions – quite a page turner.
Theoretically, the US should have been cutting manufacturing costs to compete with imports 50 years ago; but the reality is that the imports largely came from US companies offshoring their production in order to increase profits from lower wages in other countries, so competing with themselves wasn’t in the companies’ best interests. Also, such an adjustment would create havoc for debt holders trying to make payments and lead to reducing the value of consumption items like homes and autos. The first dysfunctional solution was for the US to cut taxes and increase deficit spending; thus boosting the economy in the short term and creating what looks to be like quite a painful in the long term.
When China became a target for cheap-labor manufacturing, they made the best of it by moving up the production food chain, doing their own research (well they started by borrowing and taking) and development and producing for their own benefit. I agree that China will need to move to more balanced trade, but the country is a nation of savers where their savings just took a big hit in the real estate downturn. When they do start paying their people more and encouraging consumption this will lead to higher inflation that will affect everyone who consumes China’s products. That means inflation will be in our future. What is the role of countries like the US that have been focusing on consumption? Won’t they have to finally cut costs and become more competitive so they have something to offer China more than just holding US debt? According to theory, that is what’s supposed to happen in a market economy, but the reality is that these types of cuts can take a long time to happen. I am not sure how it is going to work out, except that I expect it to be interesting.