The Telegraph’s Ambrose Evans-Pritchard says the big loser from China’s new “Buy China” edict in their stimulus will ultimately hurt China more than anyone else:
Beijing risks making the same catastrophic error as the US Congress when it passed the US Smoot-Hawley Tariff Act in 1930. America was then the rising surplus power, like China today. It was the chief beneficiary of an open global system.
By imposing tariffs, Washington triggered massive retaliation. While nobody escaped the Great Depression that ensued, the effects were unequal. The US suffered a far steeper decline in output than the rest of the world. Britain muddled through relatively well in a trade bloc behind Imperial Preference.
China’s action is extremely disturbing. It confirms what we have long feared, that the Chinese government is sufficiently worried about rising unemployment to adopt suicidal measures. Nor does this episode instill confidence in the ‘China recovery story’.
Remember, when we went through our Gret Depression in the 1930s, we were a big creditor to the rest of the world, and everyone still went broke, so to think that China’s savings and creditor status will help it is wrong.
That being said, it’s possible that this is mainly political and that exemptions will be granted liberally.
Beyond that, however, if there is a worry for the rest of the world it’s that China may have the industrial capacity to go it alone and spend its money without much benefit for companies the rest of the world. So fare we’ve seen evidence of this in the lack of imports to coincide with internal investment