This past month, the international press was full of news about unilateral actions taken by the US under President Donald Trump. There is much analysis of his ‘reciprocal’ tariffs, possible theories behind why they were imposed, their impact on financial assets—most particularly on US bonds—and his pause for 90 days of all country-specific tariffs except those on China, which were increased further.
Meanwhile, on the other side of the world, the well-publicized news was that China had matched US tariffs at 125%. And Beijing followed that action with the statement that “China will simply ignore it if Washington persists with its tariff number games.” This statement indicates China’s belief that the magnitude of mutual tariffs has reached ‘trade embargo’ levels. If these trade barriers stay in place, it means each country must substitute the other’s imports, which will affect the US far more than China.
Also Read: Foreign investors are seeking alternatives to China. Here’s how India plans to pounce.
Over the last five or so years, China has been preparing to lower its dependence on the US. Brazil has replaced the US as China’s largest supplier of corn and soybean. Chinese imports of US soybean have declined from about 40% of shipments to 18% now. Even though about 130 Boeing aircraft remain to be delivered to Chinese airlines and lessors, China stopped ordering new Boeing aircraft several years ago.
While Chinese imports of US crude oil, gaseous hydrocarbons and distilled products was about $20 billion till recently, it has completely substituted that with other supplies in the past couple of months. In 2024, China imported about $11 billion of nuclear reactors, machinery and boilers. China has made significant progress on becoming self-sufficient in nuclear technology and will likely reduce these imports.
Quietly, and more recently, China has taken several other steps in areas where it lacks alternatives. Chinese authorities have reached out to importers with offers of help and waived 125% tariffs on certain semiconductors, chip-making equipment, medical products and aviation parts. Lithography machines, helicopters, quartz and ethane are said to be on the Chinese exempt list, although this carved-out list of imports is expected to dynamically change.
Also Read: Beyond Boeing: Why India should test, not ignore, China’s C919 planes
The most impressive changes that China has made are in the field of fundamental and applied science and technology. The US government is openly quarrelling with major universities, has withheld funding to the National Institute of Health (NIH) and has slashed talent and funding for early career scientists at the National Science Foundation (NSF).
In contrast, and in direct response to the trade war, China has fast-tracked its approval of 29 new majors at its universities. These programmes include “integrated circuit science and engineering,” “low altitude technology and engineering” and “carbon neutrality science.” It has also announced a “rapid response system” to keep its academic curricula updated and relevant.
China continues to extend its lead in green engineering, electric vehicles, batteries, advanced radio-frequency communication, hypersonic physics and physical and environmental sciences. In other areas, such as quantum computing, robotics, artificial intelligence, nuclear fusion, computer vision and advanced materials, it is in a close race with the US. America has ceded leadership in many areas and is in the process of giving up even more with its current approach. The Chinese are quietly stepping in to fill the breach.
Also Read: Unilateral tariffs risk retaliation aimed at intellectual property
According to a critical technologies tracker put out by the Australian Strategic Policy Institute (ASPI), in some critical technologies, all top 10 institutes are from China. Paradoxically, the ASPI’s work was funded by the US state department’s global engagement centre. It’s unclear whether this activity of the state department has since been axed.
The chess board for superpower rivalry has now gone beyond the planet. The US’s Artemis programme is in a race with China’s Chang-e initiative to establish the first permanent station on the moon. The US has announced plans for Artemis IV, that will launch a ‘lunar gateway’ in permanent orbit around the moon with ready access to the moon’s surface. China has unveiled plans to establish a nuclear-powered permanent International Lunar Research Station (ILRS) on the far side of the moon by 2035.
All this is not to say that there isn’t a gap between the US and China. US per capita income is nearly $90,000, far higher than China’s $14,000 or so. Large sections of China remain poor and underserved by the economic fortunes of its coastal areas. China is only hesitantly recovering from its mistakes during the covid pandemic. China’s bad debts lie buried in a catacomb of publicly owned companies.
Also Read: Columbia missed the bus of academic freedom that Harvard took
The world’s top academic talent still wants to attend US universities and study in English, which for now remains the world’s operating system. But Trump is swinging a wrecking ball at that very edifice of world-class universities that attract some of the world’s smartest students. If he persists and, God forbid, actually succeeds with his agenda, then the Chinese contention that the US is an aristocratic power set to decline from its peak will become a truism.
P.S: Will the American phoenix rise from its trade war ashes or will it be the turn of the Chinese feng huang? Feng huang is a mythical Chinese phoenix with ‘yin’ and ‘yang’ elements that represents virtue and grace at the dawn of a new period of harmony.
The author is chairman, InKlude Labs. Read Narayan’s Mint columns at www.livemint.com/avisiblehand.
#China #began #derisking #economy #Trumps #trade #furt
