Transcription
The CCP wants to defend global trade. But they’re the ones who destroyed it in the first place. And I’ll tell you exactly how they did it. Welcome to China Uncensored. I’m Chris Chappell.
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So, the Chinese Communist Party is freaking out about US tariffs. They’ve launched a full-on propaganda blitz, calling the tariffs abuse, and blackmail. And if anyone is an expert on abuse and blackmail, it’s the CCP. The CCP is also claiming to be the defender of global trade. Yes, China is going to safeguard multilateralism and the multilateral trading system. And they totally are! I’m not being sarcastic here. They really are. The CCP is going to fight for the current global trading system. It’s not because they love international cooperation, which is just propaganda BS. It’s because the CCP has spent decades manipulating global trade to their advantage. So there’s no way they’re going to let all that lying and cheating go to waste. Plus, global trade is basically the only thing keeping China’s economy afloat.
The CCP wants the world to believe that it’s US tariffs that are throwing a—whatever this is—into the gears of the world economy. But the truth is it’s the CCP that’s spent decades destroying the world economy. And in today’s episode, I’ll show you how they did it, and why.
China is an export economy. That means their economy relies on manufacturing stuff for the rest of the world to buy. Chinese manufacturing exploded after China joined the World Trade Organization in 2001. Because China was able to make stuff more cheaply than other countries, consumers around the world benefited from lower prices on Chinese imports. But countries also lost tons of manufacturing jobs to China. The US alone lost more than two million jobs between 1999 and 2011 as a result of Chinese imports.
Now, besides manufacturing, the other big driver of China’s recent economic growth was real estate investment. Which became a problem after China’s real estate market started to collapse in 2020. So, the CCP decided to double down on manufacturing. They pumped billions of dollars into building more factories and exporting more goods to keep China’s economy from crashing. Which did work, but now China is making way more stuff than the rest of the world can buy. That’s called overcapacity.
How bad is it? Here’s a chart from the US Treasury Department showing supply and demand. If trade was healthy, the red and blue lines would be roughly the same. But the fact that the red lines are way above the blue shows that China is making way more batteries, solar panels, and electric vehicles than the rest of the world wants. And because China has so much overcapacity, it also doesn’t import much from other countries. Which means China now has a trade surplus of almost a trillion dollars. That’s more than any country’s trade surplus in the past century, even adjusted for inflation. And China doesn’t show signs of stopping. Its export volume is growing three times as fast as global trade. That’s insane.
So what happens when China exports more and more stuff? They have to cut prices to be able to sell it all. Which means other countries lose even more jobs to China. Entire industries shut down. There are now certain products you can only buy from China. And when those are critical things like medical supplies, that gives China massive political and economic leverage on other countries. Remember when China stopped exporting medical goods during the early days of Covid? Yeah, that, but on an even bigger scale.
So that’s why the Chinese Communist Party is fighting to maintain the global trading system. They dominate it. And without it, China’s economy would fail. And their political control would crumble.
But how did China get here? It’s not just about cheap labor. The CCP has built an entire economic system to dominate global trade. Back when China joined the World Trade Organization in 2001, they promised to follow rules to ensure fair trade practices. To be fair to the CCP, something I never thought I’d say, they did make a bunch of economic reforms in order to get into the WTO. But after they joined, they violated the WTO rules repeatedly. They’ve been cheating the system for decades. And largely getting away with it.
You see, the WTO rules are set up to prevent government intervention that would artificially distort global trade. But in a communist system, it’s government intervention all the way down. Last month, the Rhodium Group published a report called “Far From Normal” that looks at how China’s state support distorts global trade.
For a look at the CCP’s system, let’s use a specific product as an example, to make it easier to follow. Take honey production. Why? No reason in particular. Here’s how the CCP makes a product like honey more cheaply than other countries. First, they use direct government subsidies. They give money to industries they want to support. 99 percent of major Chinese companies listed on the stock exchange get government grants. 99 percent. In our example, farmers that harvest honey or factories that process honey. The CCP also gives industries tax concessions. So honey producers might not pay any taxes. The CCP also uses below-market finance. That means they would let honey producers borrow money at lower interest rates from state-owned banks, or state-owned banks would invest money in these companies without expecting much of a return on their investment. And they also sell goods at below-market prices to these industries. For example, selling cheap land to honey farmers, or providing cheap electricity for honey processors.
This industrial policy is incredibly effective for the CCP. It’s how the CCP jump-started its entire electric vehicle industry. And they’re now flooding the rest of the world with cheap EVs. Yes, these are all things that other countries do, too. But no one does them on the same scale as the CCP. In 2019, the CCP spent almost $250 billion dollars on its industrial policy. That’s massive.
But it’s not just industrial policy. There are also ways China’s entire financial system distorts global trade. Like everything in China, the financial system is political. All banks in China are either state-owned or state-linked, so the CCP controls how they give out loans. Which means state-owned banks give lots of loans to state-owned enterprises, and to other companies the CCP wants to support. And if those companies can’t pay them back? The banks just keep extending the loans. Because it’s better to take the financial risk than to risk getting on the CCP’s bad side. So the CCP’s huge and politicized financial system has resulted in an explosion of credit, and of debt, and lots of companies that are exporting Chinese goods even if they aren’t actually profitable. What could go wrong?
There’s lots of other stuff I could talk about too, like how the CCP restricts China’s market access and discriminates against foreign firms, but I think you get the picture. The CCP’s industrial policy and financial system is destroying the global trading system. More countries have stopped relying on the World Trade Organization to stop the CCP’s unfair trade practices. Instead, they’re putting their own tariffs on Chinese goods. Like Europe’s tariffs on China’s EVs. Or President Trump’s tariffs on China’s…everything.
But in the past, the CCP has been able to get around a lot of tariffs. What I talked about before was the cheating part. Now this is the lying part. It’s called transshipment, where China transfers goods to a second country, where the “Made in China” label is switched for another. This happens with a ton of Chinese products, including Chinese honey. The US has had anti-dumping tariffs on Chinese honey since 2001. So Chinese exporters have tried to get around it with what’s called “honey laundering.” Yes, I am not kidding. Chinese honey is shipped to countries like Thailand, Vietnam, Singapore, India, Dubai, even the Bahamas, and then sent to the US to avoid tariffs. In some cases, the Chinese honey contains antibiotics that are illegal in the US. In other cases, it’s been diluted with rice syrup, or ultra-filtered to disguise that it’s from China. And guess what? Most imported honey is used in processed food. So you don’t know if your Honey Nut Cheerios are really Honey Nut China-Oh’s. But the point is, China has been able to evade tariffs for years. Which is why the Trump administration’s new tariffs are aimed at those back-door transshipment countries, too. Yeah, everyone thought tariffing those remote islands full of penguins was dumb…Until now.
So that’s how the CCP’s industrial policy, their financial system, and their export system are all designed to manipulate global trade. They’ve kept China’s economy going, while hurting other countries. Both advanced economies and developing economies are dealing with the fallout. But it’s gotten so bad, that the rest of the world has no choice but to fight back. Not just the US, but also Europe. And as a result, we may be watching the collapse of global free trade. And it’s the CCP’s fault.
So what happens to China if that happens? Well, that’s…a whole nother episode. Let me know in the comments below if you want to see an episode on how China is running out of money. And if you liked this episode, remember to subscribe to our free weekly newsletter so you can see all of our episodes, even when YouTube doesn’t want you to. The link is below. Thanks for watching. I’m Chris Chappell. See you next time.