How Chinese economy is collapsing under its own weight – Firstpost

Imagine a weightlifter, muscles bulging, hoisting a world record-breaking weight. This is China, its economy a titan of global trade, now boasting a nearly one-trillion-dollar trade surplus. But this impressive feat hides a crucial weakness: a profound imbalance between exports and imports. China, the workshop of the world, floods markets with everything from toys to ships, threatening jobs and industries across the globe.

Trump’s proposed tariffs could act as a counterweight, forcing China to reconsider its export-driven model. The “China price”—the result of massive-scale, low-cost factories—is undeniably competitive. What’s more, replicating this on a global scale is fiendishly difficult. However, Trump may hold an ace up his sleeve: China’s reliance on global supply chains. By disrupting these chains, for example, by pressuring Mexico to curb its role as an intermediary for Chinese goods, the US can exert significant leverage.

The problem extends beyond the US. India, with a staggering $100 billion deficit with China, and many other nations face similar challenges. Simply slapping on tariffs is not enough. The key lies in forcing open the Chinese market. This requires a multifaceted approach that targets reciprocal market access.

The G7 is likely to demand that China significantly reduce trade barriers and open its domestic market to foreign goods and services.

The other ingredient in this new recipe is a side dish: regional trade agreements. Encourage alternative trade blocs that can counterbalance China’s dominance while fostering greater economic integration among like-minded nations. This is China plus one on steroids.

For India it is time now to think big, think bold. Investing in domestic innovation and competitiveness is not enough; the performance-linked initiatives, for example, with Apple‘s iPhones coming into India, have faced a great wall with the Chinese restricting talent and tech. So shortcuts will not do; India really needs a bold, imaginative industrial policy.

That will cost a lot of money, political capital, and imaginative policy interventions. Put differently, it will call for strengthening foreign investment as long as jobs and industries are onshored. We need to cut taxes on foreign investments. That will also enhance worker skills and foster a more innovative environment to better compete in the global marketplace.

The problem is time is running out. India needs 1991-style economic liberalisation and needs massive tariffs of its own on China. That will cause pain and inflation in the short run. Nation building is a hard grind; it’s not a picnic. India needs to realise that the China price is an addiction it cannot afford anymore.

China’s economic success is undeniable, but its reliance on exports is a double-edged sword. Like a weightlifter with an excessively developed upper body and weak knees, China risks collapsing under the weight of its own ambition. As the Chinese proverb goes: “He who plays the lute too loudly breaks the strings.” The world must act decisively to ensure a more balanced and equitable global trading system before China’s dominance irrevocably tilts the playing field. For Trump’s America, this is a litmus test.

The writer is a senior journalist with expertise in defence. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.