U.S. tariffs are starting to hurt China’s economy, and the Politburo is getting worried about it

By Dan Calabrese

Alternate headline: World still has communist countries with politburos. I guess I hadn’t really thought about it, but I’m getting flashbacks to the days when Leningrad and Stalingrad were still cities.

I remain a skeptic of President Trump’s tariffs for a whole host of reasons, but I think we all understand the objective is to hammer other countries such that they feel the pain and are compelled to rush to the negotiating table to work out new trade deals more to Trump’s liking. The fact that I don’t care for the overall strategy in the first place, and don’t think the objective should be such a high economic priority, doesn’t mean I won’t tell you if it’s having the desired effect.

In China, it certainly looks like it is:

A Tuesday meeting of the Politburo, whose members are China’s top arbiters of power, highlighted the external challenges faced by the world’s second-largest economy. Without specifically mentioning the trade conflict with the U.S., a statement issued after the meeting by state media made clear the brawl is a big threat to growth and stability, trumping issues such as debt control.

The Chinese economy “faces some new problems and new challenges,” the statement said. “There are obvious changes in the external environment.”

The meeting came as official data showed early Tuesday that China’s business activities faltered in July—the first official data to reflect the impact of U.S. tariffs—adding to signs that trade tensions have started to dent economic growth.

China’s economic growth has been on a controlled descent for most of this decade, propped up at times by shots of easy credit that have helped make debt a long-term threat for the Chinese economy. With growth still buoyantly above the government’s 6.5% target, Mr. Xi has taken aim at debt and other financial risks the past two years to put the economy on sounder footing.

Now that campaign is taking its toll. Signs are building that the economic expansion is losing steam—from weakening investment in factories to anemic household consumption and rising corporate defaults.

The trade fight with the U.S. puts growth further at risk, making Mr. Xi’s campaign look unsustainable. In recent weeks, China’s central bank has been pumping funds into the country’s financial system. Local authorities are restarting projects that were halted due to the previous tightfisted policies.

Where Trump clearly realizes he has leverage with China is in the fact that we import a lot more from China than they import from us, which means their ability to impose retaliatory tariffs is limited. They can try to respond to the tariffs with other economic measures, but they threaten to harm their own economic vitality if they do that, and we can already see that’s starting to happen.

If I had to guess, I’d say the Chinese will indeed come to the table and Trump will get the new trade deal he wants. China really doesn’t have much choice. Their growth rate is higher than ours but they’re starting from a lower place in terms of per capita GDP. They need to grow more – a lot more – and a trade war doesn’t help them do it. They’ll make a deal. We’ll get much lower tariffs or maybe even zero tariffs on most goods we export to China.

Whether that boosts the U.S. economy as much as Trump thinks it’s going to is another question, but it does appear the Chinese are feeling the pressure of Trump’s trade strategies – and it’s only a matter of time before they buckle.

Dan writes Christian spiritual warfare novels and does all kinds of other weird things too. Follow all his activity by liking him on Facebook!