I am currently writing something up about China’s price wars and how that relates to the global economy, but since the news dropped, I might as well just make a quick comment: it is in China’s interest to see the US inflation going down.

One of the major reasons (but certainly not the only one) is that Fed’s Powell has stubbornly refused to lower the key rate of the Federal Reserve until the inflation in the US has gone down. That means the local (provincial and municipal) governments in China continue to be squeezed by huge amount of debt they have taken out over the past decade for infrastructure building, and it also adds to the systemic instability of the financial institutions that have made those loans (if you have been paying attention to Chinese news, the largest banks in Jiangsu and Zhejiang have recently been exposed for corruption scandals and the heads of all the largest banks are being prosecuted for frauds. the entire system has rotten to the core, to say the least).

This is why if the tariffs and export restrictions are causing higher inflation in the US, it would be even harder for the local governments in China to pay off their debt, and that squeezes the ability of the local governments to run public services, pay wages etc. Since there is no debt cancellation mechanism in China, and the State Council’s policy from November 2024 was very clear in that it was to allow the local governments to “borrow cheaper to pay off their expensive, outstanding debt” (by raising the debt ceiling by 6 trillion yuan), this strategy requires the Fed to lower its key rate, so Chinese banks can follow in response.

Ironically, this together with the deflation made the Chinese economy even more dependent on the export sector, since they have not been able to stimulate domestic demand, which is another huge topic in itself. As I’ve said before I don’t think this is a coincidence. It is in fact an imperial strategy of the US empire.

A lot of the anti-imperialist pro-BRICS bloggers focus solely on the trade aspect and don’t understand the complexity of China’s economy well enough to understand that both US and China need one another. Until China decides that it wants to give up its net exporter status (the IMF “export led growth” model) and creates an alternative demand within China to absorb the global export surplus, it will have to play the rules set by the neoliberals.

All the talks we’ve seen on the anti-dollar spaces like Petrodollar, China dumping its trillion dollars of US debt (like how lol?), bond yields, China issuing its own dollar-denominated bonds, gold/crypto etc. are all distractions. The only way to kill the dollar is if the world doesn’t want to export their goods to the US anymore, and this cannot happen if everyone still wants to play the “export led growth” game since demand cannot magically appear on its own. Somebody has to step up and create the demand to take the place of the demand created by the huge US trade deficits.

EDIT: Also I don’t think the tariff war with China was even aimed at China. If you look at China’s trade data this month, something very interesting has happened:

As both export and import with the US have declined, China’s export to the EU has increased by 6.4% yoy and its import from the EU has decreased by 7.3% yoy!

That means Chinese exporters are channeling their goods to Europe, which will of course lead to a mercantilist fight where the European industries will now have to fight against cheap (and perhaps even superior) Chinese goods coming into their countries.

Meanwhile, China has reduced its import from the EU (likely because of the consumption slump and that China has been able to replace many products that once they could only obtain from the EU, like high end cars), and this will put pressure on the European exporters as they lose their income.

All of this is causing the EU to become even more desperate to secure a deal with Trump, since the European exporters are being squeezed to death by both the US tariffs and cheap imports from China. They will have to give Trump some really good deal, hoping to offset some of their losses. I suspect this is the true goal of the tariff war with China.