On the menu today: This newsletter, and other voices around NR and other media, have spent worthwhile time and space examining the effects of the trade war on American consumers — price hikes, limited selection, supply-chain issues and layoffs tend to have intense political consequences. But there’s another part of the story which is not as easy to cover but represents arguably the whole goal of the trade war policy: How does the suddenly much higher cost of Chinese exports to the U.S. alter the decision-making by Xi Jinping and the regime in Beijing? What’s happening in the Chinese economy, and how much pressure is increasing on Xi and the rest to cut a deal with Trump? For answers, read on. In other news, now New York Magazine worries that something’s wrong with Pennsylvania Senator John Fetterman’s health.
Will Xi Make a Deal?
This morning, the stridently defiant tone from the Chinese government regarding the U.S. trade war is just a tiny bit less defiant:
China says it is “currently assessing” proposals by the United States to begin trade talks, in a subtle tone shift that could open the door for negotiations.
A spokesperson for China’s Commerce Ministry said in a Friday statement that “the US has recently sent multiple messages to China through relevant parties, hoping to start talks with China. China is currently evaluating this.
“The tariff and trade war was unilaterally initiated by the US, and if it wants to negotiate, it must demonstrate genuine sincerity — that includes being prepared to correct its wrongdoings and cancel its unilateral tariff hikes,” the spokesperson said. “China’s position remains consistent: If it’s a fight, we will see it through to the end. If it’s talk, the door is open.”
Just two days ago, the Chinese Foreign Ministry made it sound like Xi Jinping was in no rush to start negotiations. From that agency’s press briefing, April 30:
Bloomberg: My question is, has there been in the last 24 hours any contact between the U.S. and China to discuss tariff questions over the U.S. tariffs on China?
Guo Jiakun: As far as I know, China and the U.S. are not engaged in any consultation or negotiation on tariffs.
Let’s begin by acknowledging that no matter how bad things get in the Chinese economy, the Chinese government’s public statements will be defiant, and they’ll insist everything is going fine. After all, this is the same government that insisted there was no evidence that SARS-CoV-2 was contagious among humans until January 20, 2020.
On Tuesday, the Chinese Foreign Ministry published a video denouncing the U.S., accusing us of “stirring up a global tariff storm and deliberately targeting China” and declaring “bowing to a bully is like drinking poison to quench thirst . . . kneeling only invites more bullying. . . . China won’t back down, so the voices of the weak will be heard. All bullies are just paper tigers. The U.S. does not represent the entire world. When the rest of the world stands in solidarity, the U.S. is just a small, stranded boat.”
Let’s also acknowledge that the official economic numbers released by China’s National Bureau of Statistics are sketchy at best, even in “normal” times. A survey of economists following China’s economics back in 2023 included some who contended every number put out by the Chinese government was meant to make a political argument, not to offer an accurate measurement of economic activity:
When we interviewed our group of experts on China’s GDP data, we heard a range of opinions. A small minority were absolutist in their positions. Two economists entirely dismissed the official data. Calling official data “garbage,” one claimed, “No one thinks it’s reliable. Both the Chinese GDP number and GDP growth number are unreliable.” Another said that GDP data is “wildly unreliable” and “a political figure,” with the government financing “useless constructions to boost the number.” This expert noted that even when the initial pandemic brought China’s economy to a halt, no domestic economists issued a forecast calling for a drop in GDP “because basically everyone assumes the GDP data is fake.”
But even the official statistics acknowledged an economic decline this week. CNN, Wednesday:
China’s factory activity contracted at its fastest pace in 16 months in April, as steep US tariffs took a heavy toll on the manufacturing sector, adding urgency to Beijing’s efforts to roll out fresh economic stimulus.
The manufacturing Purchasing Managers’ Index (PMI) fell to 49.0 in April, the weakest reading since December 2023, according to data released by the National Bureau of Statistics (NBS) on Wednesday. A reading below 50 signals a contraction.
Zhao Qinghe, a senior statistician at the NBS, said in a statement that the contraction in factory activity was due to “sharp changes in the external environment and other factors.”
The Wall Street Journal reported, “A similar measure of new export orders plunged even more steeply, sinking to 44.7 in April, the lowest reading since December 2022, an early sign that trade between the U.S. and China is in danger of drying up as American importers cancel or delay orders after a rush to bring in goods earlier this year before tariffs came into effect.”
Numbers like that indicate that the Chinese economy is taking such a large hit from the tariffs that even the usual happy-talk numbers must acknowledge it in some manner.
Let’s also note that there are other economic measures that can’t be so easily muddled or massaged. Either a cargo ship full of goods leaves a port in Shanghai toward Los Angeles or it doesn’t. And lately, those ships aren’t leaving. CNN:
At the Port of Shanghai in China, the biggest cargo ships are sitting idle. Shipping companies have begun using smaller ships to move cargo as demand softens. Even so, sailings from China to the US fell 60 percent in April, according to Flexport, a logistics and freight forwarding broker.
“The companies that operate the ships, they canceled a lot of sailings. They said, ‘hey, we’re not going to sail this ship half full. We’re going to leave it here,’” said Ryan Peterson, the CEO of Flexport. “There’s a lot of ships just sitting there off the coast of China, waiting and expecting a deal.”
Fewer ships leaving means goods sit around on docks, and there are fewer orders for more products, which means layoffs. From the New York Times:
In a research report on Tuesday, Nomura Securities said that if Chinese exports to the United States dropped 50 percent, 5.7 million people in China could lose their jobs immediately. That number could grow to 15.8 million workers once the long-term effects rippled through the economy.
At first glance, that looks like an ungodly amount of laid-off workers, but keep in mind, China has a labor force of about 773 million people. A layoff of 6 million people would be less than 1 percent of the total workforce; a layoff of nearly 16 million people would be just 2 percent.
So indisputably, the tariffs on Chinese goods are inflicting some economic pain on the Chinese, which in theory should be increasing pressure on Xi to make concessions. But Joseph Sternberg, writing in the Wall Street Journal, argues that time is on China’s side, not America’s:
Bizarrely, it appears that the Trump administration never considered that America’s trade-war “leverage” can be exploited only by forcing frustrated American consumers to pay more for everything. Markets figured this out in a hurry, which explains why Mr. Trump enjoys the dubious distinction of notching the worst first 100 days performance of the S&P 500 stock index of any president in five decades.
In a democracy, where economics leads, politics always follows close behind: Voters are starting to lose patience with the trade wars as they wonder why the guy they elected to get inflation under control is promising to make things more expensive. Republicans have less than 18 months to turn the ship around lest they crash on the rocks in the 2026 midterm elections.
Xi Jinping, by contrast, anticipates facing his voters, well, never. He can’t afford to impoverish the Chinese people permanently, given the Communist Party’s tenuous hold on any sort of governing legitimacy and the extent to which it relies on a promise of rising prosperity to justify its rule. But the apparatus of political repression he’s spent a decade bolstering allows him to ride out a trade war at least past a U.S. midterm election.
Tariffs inevitably raise prices in the short term; the U.S. isn’t going to start making iPhones and Nike sneakers here overnight.
(Apple plans to shift the assembly of all U.S.-sold iPhones to India as soon as next year, according to reports, and half of all Nike sneakers are made in Vietnam. There’s a longstanding trend of U.S. companies moving their production lines to other places in Asia, especially in Vietnam, Thailand, and Indonesia. Part of this is because Chinese labor isn’t as cheap as it used to be, and part of this is the general U.S.-Chinese tensions. Considering how countries like Vietnam, Thailand, and Indonesia are generally friendlier to U.S. interests, this is a good thing.)
So, Trump and his team have effectively bet that the American people can withstand more economic pain — higher prices, less selection, less U.S. exports of soybeans and aircraft parts to China, etc. — than the Chinese people can. That does not seem like a sure thing.
A China expert I respect a great deal, who generally supports free trade, recently told me that starting a trade war with Beijing is something you can’t do halfway. If Trump were to back down now or soon without significant concessions, the Chinese would conclude he’s a pushover and likely press their luck on even more fronts.
Finally, Trump’s propensity for bluster and hyperbole makes getting an accurate read on the status of negotiations on tariffs just about impossible.
From his interview with Time magazine:
Time: Your trade adviser, Peter Navarro, says 90 deals in 90 days is possible. We’re now 13 days into the point from when you lifted the reciprocal, the discounted reciprocal tariffs. There’s zero deals so far. Why is that?
Trump: No, there’s many deals.
Time: When are they going to be announced?
Trump: You have to understand, I’m dealing with all the companies, very friendly countries. We’re meeting with China. We’re doing fine with everybody. But ultimately, I’ve made all the deals.
Time: Not one has been announced yet. When are you going to announce them?
Trump: I’ve made 200 deals.
Time: You’ve made 200 deals?
Trump: 100 percent.
There are 193 countries in the United Nations. Throw in Taiwan, Palestine, and the Holy See, and you get to 196.
I guess the negotiations with the penguins on Heard and McDonald Islands went well?
ADDENDUM: Back in 2022, New York Magazine published a long cover piece profile on then-Democratic senatorial candidate John Fetterman, praising him as “a Democrat who defied the right-wing caricatures of the contemporary left as elite, effete, and out of touch because he was self-evidently none of those things. . . . In the final weeks, Fetterman is banking on the hope that voters will see in his vulnerability a new way to appreciate his strength. In our conversation, he was lucid and animated, eloquent about the stakes of the race and incensed about the nasty tenor of Oz’s campaign.”
Well, since then, Fetterman has irked progressives by supporting Israel, so out of the blue, New York Magazine offers a giant expose on how terribly mentally and physically damaged Fetterman allegedly is:
A year after his release from the hospital, Fetterman’s behavior had so alarmed [former chief of staff Adam] Jentleson that he resigned his position. In May 2024, he wrote an urgent letter to David Williamson, the medical director of the traumatic-brain-injury and neuropsychiatry unit at Walter Reed, who had overseen Fetterman’s care at the hospital. “I think John is on a bad trajectory and I’m really worried about him,” the email began. If things didn’t change, Jentleson continued, he was concerned Fetterman “won’t be with us for much longer. . . .”
Former and current staffers paint a picture of an erratic senator who has become almost impossible to work for and whose mental-health situation is more serious and complicated than previously reported. No one is saying every controversial position (for example, his respectful relationship with Trump) stems from his mental health — but it’s become harder for them to tell which ones do. When I spoke with Fetterman in April and shared those concerns, he denied anything was amiss. He told me that he felt like the “best version” of himself and later texted that the staff turnover at his office was typical of Washington. “Why is this a story?” he asked.
Many of the staffers I spoke with are angry. They are troubled. And they are sad. These were some of Fetterman’s truest believers, and they now question his fitness to be a senator. They worry he may present a risk to the Democratic Party and maybe even to himself.
Let me get this straight: Back when Fetterman could barely speak during the debate, his medical condition was no big deal, and certainly not a reason to keep him out of elected office. But now that he’s speaking more clearly, but taking positions that irritate progressives, now his staffers think something’s not right with his brain? From what everyone else can see, Fetterman’s in significantly better shape than he was in 2022 and early 2023. (Last year I interacted with him briefly in the Fox News green room.)
I hope Fetterman’s in the best position possible, and I hope he’s following the instructions from his doctors. But both the staffer concern and New York Magazine’s attention on Fetterman’s health are remarkably conveniently timed.