Op-Ed: The Trade War Hits China Where It Hurts

This article originally appeared on the Wall Street Journal on August 11, 2019

President Trump’s tariffs and other sanctions are hitting China at a vulnerable moment. The Chinese National Bureau of Statistics reported July 15 that gross domestic product grew by 6.2% in the second quarter, China’s slowest growth since 1992. The actual picture is much cloudier. Beijing has for years cooked the books to make the regime’s performance look better, and they are undoubtedly doing the same now.

No one outside the Chinese government knows exactly what is happening in China. But even the latest report concedes that “economic conditions are still severe both at home and abroad” and that “the unbalanced and inadequate development at home is still acute.” If that’s the official line, the real story is certainly far worse.

Even 6% growth would fall short of the Chinese Communist Party’s ambitions. While China has grown richer, it is still a relatively poor country. Per capita GDP is $10,000, below Romania’s. Even at 6% growth, it would take decades for China to catch up with its capitalist neighbors Taiwan ($26,000), South Korea ($32,000), Japan ($41,000) and Hong Kong ($49,000), let alone the U.S. ($62,000).

With declining growth, Beijing is reaping what it has sown. For two decades after the death of Mao Zedong, the party injected a degree of freedom into China’s moribund economy. But there is a limit to how much control the socialist regime is willing to sacrifice. It refused to create a private banking system or an independent legal system. It won’t privatize the vast state-owned enterprises that account for about 30% of China’s economy, serve the regime’s goals and enrich political elites.

Instead, for the past 20 years—and especially since the financial panic of 2008—the party has generated growth through debt-financed investment and, increasingly, aggressive exploitation of the global trading system that amounts to stealing from other economies. Mr. Trump wasn’t far off when he called it “the greatest theft in the history of the world.”

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