Andy Xie lays down the law.
Let’s be honest here, both America and China are tempted to use the other nation as a political scapegoat when it comes to pacifying domestic outrage over the economy at home. It’s far easier to simply blame a foreign enemy for your nation’s domestic problems in order to shift attention away from local causes.
Yet this behaviour has put both China and the U.S. at heightened risk of a trade war, which is not in the interest of either country.
Thus, as hard at it may be, America and China need to put their meaningless trade spats to the side and focus on their real problems at home. In a way both nations have similar domestic gripes — huge local bubbles led to a feeling of unjust distribution of wealth within the economy. Thus both nations need to take a hard look at how economic spoils are benefiting different groups of their populations, for that is where the real economic tension lies.
Unfortunately, a middle class squeeze is under way that is a bigger threat to China’s economic development than slower export growth. High property prices have turned into an unfair tax on the middle class while, in numerous cases, powerful people are enriched. A bit more economic growth will not solve this problem. Meanwhile, low interest rates in an inflation era are actually taxing savers to benefit two classes of borrowers – state-owned enterprises and speculators. Thus, low interest rates are mainly a kind of middle class tax.
The United States is picking a fight with China because it can’t resolve internal problems. Since the financial crisis began, 9 million households have lost homes because they could not or did not want to make mortgage payments. Another 10 million households have negative equity in properties and could be forced or decide to give up homes. That’s 15 per cent of all U.S. households. Meanwhile, the U.S. unemployment rate stands at around 10 per cent, and the federal government’s deficit is more than 10 per cent of GDP. The biggest state, California, faces bankruptcy.
How could a single economy face so many major problems all at once? The immediate cause was the credit-cum-property bubble burst, although the real villains in this case got away with the loot in the confusion after the big bang. Short-sellers were blamed for puncturing the bubble, but guilty parties with power were not.
The China-U.S. trade issues are just smoke-screens. Read Andy Xie’s in-depth view here.
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