Tariffs Trigger Crisis: China’s GDP Decline of 3.1% to 5.2% Looms

today I'd like to discuss the trade war and the potential decline in China's GDP this year it's almost certain that China's economy will experience negative growth the reason is straightforward if China attempts to engage in trans shshipment trade moving forward the costs will be prohibitively high during trade negotiations the United States is likely to insist that other nations strictly prohibit any opportunities for trans shshipment trade with China furthermore under new trade agreements where tariffs are applied universally every country will face some degree of overcapacity unless other nations act irrationally they are unlikely to assist the Chinese Communist Party with trans shshipment trade tariffs have already climbed to 145% and President Trump has recently increased them to 245% by the time this video is released tariffs on China may rise even further as a result there's little need to consider issues of elasticity other countries will simply reject any possibility of trans shshipment trade with China drawing on analysis from three major financial media outlets and two think tanks I estimate that China's trade volume with the US will shrink to just 10% to 30% of its previous level to understand not only what is happening but also why I'd like to introduce a framework called unknown unknowns to known known this framework consists of four quadrants the first is unknown unknowns events we cannot predict and are unaware we don't know about this quadrant encompasses potential risks and opportunities that are the most challenging to anticipate and manage the second quadrant is unknown knowns situations where we know something will occur but are uncertain about its ultimate impact the third quadrant is known unknowns issues we recognize we don't understand but have not yet addressed these require clear plans and strategies to acquire the necessary knowledge and skills the fourth quadrant is known known by analyzing these quadrants we can clearly identify the information we possess and quantify it we can also pinpoint what we don't know develop strategies to address those gaps and either monitor or act to gather more data ultimately this process consolidates into known knowns enabling informed decision-m currently one of our unknown knowns is that USChina trade negotiations are highly likely to take place however the duration of these talks and their final outcomes remain uncertain these are our unknown knowns our known unknowns include the fact that US China tariffs are unlikely to increase further as additional hikes would serve little purpose president Trump has already raised tariffs from 125% to 245% rendering further increases largely ineffective additional tariffs would have a negligible marginal impact on our assessment of China's economic outcomes we also know that President Trump is eager to negotiate with China and is determined to challenge it directly third it is highly probable that the Chinese Communist Party will implement additional fiscal or monetary stimulus measures this year to mitigate the effects of US tariffs on China's economy and society fourth our known knowns are as follows exports constitute about 19.6% 6% of China's GDP with exports to the United States accounting for 14.7% of total exports at current tariff levels China's exports to the United States are expected to decline by 70 to 90% additionally the industrial multiplier for China's export products ranges between 1.5 and two this allows for a clear calculation we can quantify the overall economic drag from tariffs by multiplying the 19.6% export share by the 14.7% US share of China's exports then by the 70 to 90% decline and finally by the supply chain multiplier of 1.5 to2 the result indicates that the trade war will reduce China's GDP by roughly 3.1% to 5.2% however this represents only the initial structural impact on China's GDP consider the current situation ports such as Nancha in Guangjo Shaku in Shenzhen and Yantan are overwhelmed with containers stacked seven layers high the maximum height possible freight volume has significantly decreased from our existing known we can infer two additional points first the export industry supports approximately 140 million to 180 million jobs creating employment pressure for at least 20 million individuals second the backlog of goods will exacerbate price pressures in an already weak consumer market grappling with insufficient demand and deflation these goods cannot remain in ports or warehouses indefinitely as they incur additional storage and port fees if USChina tariff negotiations you know don't really make any progress in the near term then this huge volume of goods will either end up being dumped domestically or sold internationally this will honestly put even more strain on China's already fragile economy and when you add in the unemployment pressure that's affecting something like 20 million people the Chinese Communist Party's costs for maintaining social stability this year could really escalate and fast another possibility is that factories might just clear out their final inventory and then shut down operations completely that would mean absorbing the tariffs selling off all the backlog at any price and then well closing the factory once everything's gone so a situation like this would actually lead to a gradual decline in China's export volume starting in May and then you'd see a sharp drop in the third quarter why is that well because selling these goods domestically would bring in even less money than selling them after absorbing tariffs at this point it's not even about making a profit anymore it's about figuring out which option lets factories close down more quickly with the least amount of loss every single day a factory stays open it racks up costs inventory wages utilities all of that for Chinese manufacturers these are pretty much the only options left if they go with domestic sales trade volume is going to decline significantly starting in May or June but if they decide to absorb the tariffs cut prices and just liquidate inventory then trade volume will decrease gradually in May and June but you know it'll really plummet in the third quarter you may wonder why exporters don't redirect goods to third countries the answer lies in the nature of manufacturing products are made to order rooting these goods to other markets results in what the trade industry calls abandoned goods where the original buyer cancels the order for various reasons the best case scenario for abandoned goods is selling them at a 50 to 60% discount in less favorable cases it's 30 to 50% and in the worst cases only 10 to 20% this is the cost of handling abandoned goods moreover finding buyers for these goods involves significant uncertainty after evaluating all possibilities I believe the most likely outcome is that manufacturers will absorb the tariffs clear their final orders and halt production another pressing issue an unknown known is that this year marks a peak for college graduates in China with over 11 million entering the job market combined with the 20 million individuals facing employment pressure due to the trade war this creates not just economic challenges but substantial political pressure on the Chinese Communist Party so I shared a post on my channel about this incident in Changdu where someone actually hung anti-communist anti-inping banners on a pedestrian bridge the following day the area was just packed with plain clothes police and officers honestly I find this pretty perplexing the banner had already been displayed so why would they deploy so many police doesn't this just you know amplify the incident's visibility sometimes the Chinese Communist Party's police actions seem almost comically misguided as if they're actually inviting the public to take notice of what happened this incident really highlights the growing inefficiency of the Chinese Communist Party's governance apparatus it reveals a pretty clear reality the party's repressive machinery has become more and more cumbersome a lot of its personnel just lack motivation merely showing up to fulfill their duties without any real effort their presence actually ends up heightening public discussion of these kinds of events and despite China's information controls peer-to-peer communication is well pretty much unstoppable i'm confident that similar incidents will increase this year and honestly I'm curious to see how many more resources the party will allocate to such ineffective responses another known impact is the Chinese UN's exchange rate last year China's average monthly export trade volume was approximately $300 billion starting in May even in the best case scenario with a 70% reduction in US trade China's export trade volume would decrease by an average of 30.8 billion per month in the worst case scenario with a 90% reduction it would drop by 39.7 billion so what this means is that China's monthly export trade volume would fall to somewhere between 260 billion and $270 billion and that's not even considering any extra anti-dumping measures or non-tariff trade barriers from other countries if those kinds of measures are actually put in place China's monthly exports could you know dip below $250 billion if this happens even in the most optimistic scenario where industrial flight doesn't speed up China's foreign exchange reserves could decline by about 300 billion to 400 billion it's pretty likely that China will keep selling US Treasury bonds since honestly there just aren't many other options not doing so well it risks a collapse of its foreign exchange debt china has give or take $500 to $600 billion in usable foreign exchange to help stabilize the UN's exchange rate assuming industrial capital doesn't flee more quickly each time the yuan drops to a new price range the cost of stabilization rises exponentially unless the party is willing to take the risk of using short-term dollar denominated debt to support the UN a failed gamble here could really you know drive the UN's exchange rate right toward collapse the reasoning is simple if China begins using short-term dollar or foreign exchange debt to stabilize the UN these funds borrowed by domestic companies through dollar bonds or foreign exchange loans are merely held by the People's Bank of China not owned by it pursuing this path would signal the collapse of China's foreign exchange and credit systems while domestic debt can be mitigated through measures like printing money foreign debt is different the Chinese Communist Party cannot print US dollars the party's internal politics and decision-m now face another challenge the tension between ideology and economic reality unlike President Trump who avoids obstacles Xiinping tends to confront them headon the failure of tariff retaliation policies will likely trigger economic and social instability in China within the party there are undoubtedly voices opposing these policies with shei as the focal point of criticism this creates an internal power struggle over control of economic policy from this point forward each misguided policy she pursues will further erode his authority the question of when she will negotiate with Trump is not merely a matter of time we cannot simply predict 3 months 5 months or a year instead we must look for events as indicators that negotiations are imminent for instance the white paper movement during the pandemic ended China's extreme zerocoid policy the downfall of military figures like Meia and Hweong signaled she's weakening control over the military the depletion of the treasury and economy halted China's extravagant diplomacy as the saying goes bodhicattvas fear causes but Xiinping fears consequences so a Chinese blogger recently shared the stories of two veteran factory owners one who made lamps and the other who produced laith tools for machining both of these folks had been running their businesses for almost 20 years with one based in Wukshi and the other in Fosan but in March both of them ended up shutting down their factories and had to lay off more than 300 workers both businesses depended heavily on exports right now leaving their machinery idle means they lose money but running it actually leads to even bigger losses when someone asked who was to blame for all this both owners answered without hesitation the foolish Communist Party this really shows a wider awakening among a lot of Chinese people the party's propaganda just doesn't carry much weight when people are struggling to survive you know Chinese culture is super pragmatic and most people just ignore the party's indoctrination back when the economy was doing well people had enough to eat and wear and honestly most folks just tuned out the party's bragging but now with the party having messed up China's domestic and foreign policy economy and politics things have gotten a whole lot worse i have noticed too that the party's online supporters people often call them little pinks keep using the same old arguments basically their points come down to three things first you've been predicting China's downfall for over a decade yet our economy remains strong second China's GDP growth is the highest in the world so stop baselessly criticizing us third your claims lack logic these three lines just get repeated over and over and honestly there isn't any real substance just slogans thanks a lot for watching if you found this video helpful please give it a like leave a comment down below and hit the subscribe button right here it really helps YouTube suggest my video to more people i'll be back soon with more content until then