The fundamental problem which advocates of the political West have with China is that its state-led economic model is outperforming American capitalism.
Michael Roberts is an Economist in the City of London and a prolific blogger
Cross-posted from Michael Roberts’ blog
US president Donald Trump travels to China to meet China’s President Xi Jinping tomorrow, It will be the first time a US president has visited China in nearly a decade, with the last visit being Trump in 2017. The immediate issues before both leaders can be summarised as: 1) the trade war launched by Trump; 2) the Iran war launched by Trump and; 3) the tension over Taiwan, fostered by Trump.
On the trade war, the US and China agreed to a temporary truce last October. Trump had at one point imposed a tariff on China’s exports to the US of 145%. But two things forced him to back down. First, China threatened to restrict the export of rare earths, where China has almost 90% of these vital minerals used in all the hi-tech, AI, semi-conductors businesses upon which the US economy increasingly depends. And second, US manufacturers based in China were alarmed, complaining that Trump’s tariffs would mainly hit their exports and profits. So the meeting between Trump and Xi last October ended with Beijing suspending its export controls, while Trump reduced the tariffs on Chinese goods eventually to just 32% – still high but way down on his previous threats.
And further reductions followed.
Trump has maintained a ban on Chinese EVs into the US and its wind and solar exports. However, this has done little damage to China’s exports. On the contrary, China’s exports have hit record levels – a result of making new trading partners around the world as ties with the US weakened.
And all attempts to restrict China’s expansion into tech products, semi-conductors, etc have miserably failed. China is catching up in the ‘chip war’, it is leading by a mile in robotics and has launched its own ‘open source’ AI models like DeepSeek that are seriously undercutting the likes of ChatGPT and Claude, America’s expensive AI models.
China also dominates the entire range of renewable energy manufacturing.
And China leads by far in the use of robots, with installations rising at 7% a year, while in the US they are falling by 9% a year. China now has more robots in industry than the rest of the world put together.
Source: International Robotics Institute
Then there’s the issue of Iran. China is the biggest biggest buyer of Iranian oil. However, China was prepared. It has built up huge oil inventories that could sustain its fossil fuel energy requirements for some time ahead.
Last week, the US imposed sanctions on several China-based companies, alleging that they provided “satellite imagery to enable Iran’s military strikes against US forces in the Middle East” and enabled “efforts by Iran’s military to secure weapons, as well as raw materials with applications in Iran’s ballistic missile and unmanned aerial vehicle (UAV) programs”. China fought back. “We have always required Chinese enterprises to conduct business in accordance with laws and regulations, and will firmly safeguard the legitimate rights and interests of Chinese enterprises,” spokesperson Guo Jiakun said at a regular press briefing. And China continues to import oil and energy products from Russia, despite sanctions by the European Union.
The ticking time bomb with US-China relations is Taiwan. China maintains its long-standing position that Taiwan is part of China and has only developed into an independent statelet because of the occupation of the island of Formosa by the Chinese Nationalists when they fled the mainland after their defeat by the Communists in 1949. Since then, while the US and the UN recognise in words China’s claim, in reality the US has supported and sustained first a military dictatorship in Taiwan and then after the Taiwan’s democratic evolution, parties and politicians that seek to make Taiwan independent permanently from China. With tiny Taiwan as close to mainland China as Puerto Rica or Cuba is to mainland US, tensions ebb and flow over whether China will act to take it over and whether the US and its allies in the region (Japan, Philippines) will militarily defend it.
Above all, in the 21st century, geopolitics increasingly boils down to a battle between an ailing and weakening hegemonic power, the US and a rising economic giant that is China. The US has long lost its superiority in industry, manufacturing and trade. China is now the world’s manufacturing superpower. Its production exceeds that of the nine next largest manufacturers combined. It took the US the better part of a century to rise to the top in manufacturing; China took about 15 or 20 years. In 1995, China had just 3% of world manufacturing exports, Now its share had risen to well over 30%. While China runs a surplus on payments and receipts with other countries of around 1-2% of GDP a year, the US runs a current account deficit of 3-4% of GDP a year.
The US maintains its hegemony in world finance, but even that is weakening. US industry and banks have huge net liabilities with the rest of the world at 76% of GDP. In contrast, China has a net asset position of 18% of GDP. Such a net liability would put all other countries vulnerable to a run on their currencies – but the US escapes this because the US dollar remains the world’s ‘reserve currency’. Indeed, because most countries in the world transact most of their trade and finance in dollars, the dollar has an ‘exorbitant privilege’ over other currencies. A recent report found that the US gets close to 1% of its annual GDP from being the sole issuer of the greenback, while other economies must buy or borrow dollars.
The US still dominates in military prowess, spending more on armed forces that the rest of the world put together. And it runs near 800 foreign bases worldwide – while China has one. But even here, the war in Iran has exposed the inability of the US military to impose its will over a third level economy and state which has no nuclear weapon (shades of Vietnam over 50 years ago).
For the US ruling elites, China is the ultimate enemy and threat to its global hegemony. That applies to both the MAGA wing supporting Trump in the White House and the ‘globalists’ in America’s ‘deep state’ and ‘neo-con’ circles. The policy difference is that the Trumpists want to concentrate US power in the Western hemisphere with a view to taking on China across the Pacific just as America did with Japan in the 1930s. For the MAGA crowd, Europe can deal with Russia and Ukraine on its own and Israel can deal with the Middle East on its own. The globalists on the other hand still have serious ambitions to dominate globally. They want the war with Russia to continue until Russia is brought to its knees and there is ‘regime change’; and they aim to back Israel and participate militarily until Iran’s regime falls. Trump vacillates between the two policies, currently swinging to the globalists over Iran. But both wings are agreed: China must be eventually be ‘dealt with’; it must be weakened economically and finally forced to accept Western policies and control.
This is the context of the continual economic attacks on China. Mainstream economists in the US, Europe and Japan (along with émigré Chinese ‘experts’) maintain a relentless critique of China, hardly ever on its anti-democratic autocratic state machine (after all ‘democracy’ is a fairly loose description of the US and European state and political institutions). No, it is not that; it is that China’s economy is ruining the rest of the world’s economies.
The critique is contradictory, however. On the one hand, we are told that China is taking over world trade unfairly with price dumping of goods exports, huge unfair subsidies to its industries and applying severe restrictions on the living standards of its people. On the other hand, we are told that the Chinese economy is on the verge of collapse, with a build-up of huge debts in its corporate and local government sectors; with a meltdown in its property markets, with a falling working age population, with a rising fiscal deficit and declining productivity and so on. It is turning into Japan, which has basically stopped growing (per capita income only rises there because the population is falling).
Which of these opposite critiques is true? In many posts over the years, I have argued that neither is true. The Chinese economy has many problems that I have outlined in several posts, but it is not about to collapse. Indeed, it has not ever suffered a slump, as experienced in the major economies of the West in 1980-2, 1991, 2001, 2008-9, or in the COVID pandemic of 2020. China’s state-led planned investment economy has avoided that and it will also overcome, in my view, future obstacles to its growth – if left alone by US imperialism.
China’s household consumption is not stagnating, it’s growing at 4.4% a year, more or less in line with GDP growth. Exports are not driving growth. Net trade accounted for about 20% of 2025 growth, the rest was driven by domestic consumption and investment. Fast growth in productivity has avoided inflation, which is not due to a ‘lack of domestic demand’. So why should China change from its investment-led economy that has seen the average real wage in urban areas grow by 2,406% since 1978 taking purchasing power up 25 times? Can the consumption-led economies of the US and the UK match that rise in purchasing power for their households?
As for ‘unfair’ subsidies applied to China’s industry, a recent report concluded that “While China is indeed an active user of industrial subsidies, direct fiscal support has stabilised since 2008. The strategic focus has shifted decisively from attracting foreign investment towards promoting domestic innovation and technological capabilities. Manufacturing subsidies, contrary to common perception, are relatively modest and decentralised.” Take motor vehicles. China’s BYD and Musk’s Tesla both make EVs in China. Yet BYD has significantly lower costs. Vertical integration is very high for BYD and research and development is far cheaper. State subsidies are only a small part in reducing costs.
That brings me to the latest critique of the Chinese economy, namely, it runs a huge trade surplus in goods with other countries, and so causes a major ‘global imbalance’ (deficits for the US etc) in world markets for trade and financial flows. Apparently, the economic slowdown in the major capitalist economies of the West, the increased risk of stagflation and the possibility of a financial meltdown in the US and Europe are mainly due to China’s mercantilist ‘beggar thy neighbour’ policies. I recently dealt with the causes of global imbalances in trade and finance, which in my view, are a continual feature of the uneven development of capitalist accumulation and production and not due to ‘unfair’ practices or to ‘too much saving and investment’ by China or other trade surplus economies, but due to their superior productivity and investment growth.
But the charge against China goes on, led by a bunch of mainstream and Keynesian economists like George Magnus, Michael Pettis, Martin Wolf, Brad Setser etc. “A few of us have been arguing for 10-15 years that China’s trade and investment imbalances and its soaring debt are all the result of a highly distorted distribution of income in which households directly and indirectly retain an astonishingly low share.” (Pettis). “In sum, China’s trade surplus of $1.2tn last year is not just a product of competitiveness, but also of its macroeconomic imbalances.” (Martin Wolf).
I have dealt with many of their arguments in previous posts. But let me add just a few new points. China’s consumption per year has actually grown by more than $5 trillion over the past two decades alone. The problem is not that China consumes too little. It’s that China’s investment and government spending have also grown enormously. That’s why it has a low private consumption ratio as a share of GDP. Moreover, China’s personal consumption figures exclude “social transfers in kind”(public services, transport, health etc). If social transfers in kind were also stripped out of the disposable income of other countries, their numbers would look more like China’s. The figure for the euro area would be less than 64% in 2020 and a dozen European countries would have a smaller income share than China.
Source: The Economist
What really matters for Chinese households is the rise in consumption per person. Between 1978 and 2024, Chinese household consumption per capita grew by an astounding 7.6 percent per year, on average, compared to 5.2 percent growth in Japan, 5.7 percent in South Korea, and 6.2 percent in Taiwan over a comparable 46-year period. On average, these countries saw real household consumption growth that was less than half of the pace China is currently reporting.
Source: The Consensus on China’s Economy Is Strong—and Wrong, Arvind Subramanianhttps://t.co/I6zFDUqEZE
China’s personal consumption grows faster because its investment grows faster. What drives an economy forward is investment in productive assets and sectors. China has the highest investment to GDP ratio of the top G20 economies. Yes, some of this investment has been ‘unproductive’ (particularly into the private real estate market), but most has led to a massive improvement in infrastructure, public services and the productivity of labour. China has an additional layer of state capital that can continue investing in fields where private returns are insufficient, dispersed, too long-dated, or too externality-heavy. High-speed rail, power grids, ultra-high-voltage transmission, ports, expressways, bridges, urban rail transit, water infrastructure, 5G networks, industrial parks, space programs, and basic energy systems all fall into this category.
And that is the real bugbear for US imperialism and its allies: the state-led planning system that China has adopted. Capitalists are many in China and the capitalist sector is large. But they do not set the investment strategy; on the contrary, they must follow. The Chinese Communist bureaucracy makes many mistakes and zig zags in its strategies because it is not accountable to its people in any organised way. But even so, the Chinese economic model is working way better than the capitalist model of the West, despite the attempts of Western economists to deny that.
As such, that is the main problem for Trump as he visits Beijing. China may be still very far behind US economic and military power, but it is catching up – unlike any other ‘emerging or developing’ economy (including India). So China must be stopped in its tracks.
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