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.
