Adam Tooze on the Big Misconceptions of the Chinese Economy
Sep 12, 2024
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In this insightful discussion, Adam Tooze, a Columbia University professor and author, tackles misconceptions surrounding the Chinese economy. He argues that the notion of 'overcapacity' in China is flawed, suggesting the U.S. may be misplacing its focus on industrial revival. Tooze dives into China's economic paradox, exploring the challenges of state-directed capitalism amidst its urban successes. He also highlights the complexities of economic policies affecting both China and the U.S., urging a broader view of global trade dynamics.
The debate surrounding China's economic overcapacity is complex, as emerging industries might not fit traditional definitions of this concept.
U.S. economic policy is shifting towards protectionism, focusing on American jobs while overlooking the benefits of global trade.
China's commitment to an export-driven growth model faces challenges, emphasizing the need for balanced domestic consumption and wealth distribution.
Deep dives
China's Economic Duality
China is currently experiencing a paradox of economic growth, marked by a slowdown in overall activity alongside a rising current account surplus. While narratives suggest that the Chinese economy is grappling with crises reminiscent of historical downturns, there remain signs of significant investment in infrastructure and new technologies like electric vehicles and green energy. This dual narrative creates a complex picture where advancements in technology and production efficiency exist alongside declining growth rates and emerging economic pressures. The contrast between impressive industrial development and the portrayal of an economic crisis reflects the challenges in reconciling these opposing viewpoints.
Concerns Over Chinese Overcapacity
The concept of overcapacity in China's economy is being debated, with some experts questioning its validity as an analytical framework. While overcapacity can be observed in traditional sectors like steel or aluminum, it becomes more complex in emerging industries like renewable energy where demand is projected to rise significantly. The argument posits that a focus solely on overcapacity overlooks the potential benefits of China's industrial strategy in sectors critical for future sustainability. Moreover, the disparity between export-driven narratives and the domestic consumption model indicates a need for a nuanced understanding of China's production aims and market dynamics.
Bipartisan Economic Discourse in the US
In the U.S., there is a growing bipartisan consensus regarding the concerns related to China's trade practices, particularly regarding state-supported competitiveness. This environment fosters a narrative where overcapacity is framed as a threat to American jobs and industries, steering economic discourse toward protectionist sentiment. The discussion pivots away from the benefits of cheaper goods associated with competitive global trade, focusing instead on safeguarding domestic producers. This shift underscores a significant change in American economic policy that emphasizes worker-centric narratives, particularly in an election year.
China's Export Model and Domestic Focus
China's commitment to an export-driven growth model remains despite economic headwinds, even as there are calls for increased domestic consumption to stabilize growth. However, many experts argue that China's industrial policy is largely domestic-focused, with significant production for internal markets rather than primarily geared toward exports. The challenge lies in reconciling this model with the need for sustained consumer demand, especially in light of recent economic trends. Addressing issues like wealth distribution and consumer spending may hold the key to transitioning toward a more balanced economic structure in China.
Impending Challenges for German-Style Growth
The relationship between China and Germany illustrates a complex interdependency that is increasingly under strain amidst global economic challenges. As both China and Germany seek to retain their competitive edges, concerns arise about their reliance on manufacturing and industrial models in a changing global landscape. The rise of right-wing populism in Germany further complicates discussions about economic strategy, highlighting feelings of dissatisfaction and economic stress among voters. In this context, both nations grapple with finding sustainable pathways for growth that encompass broader societal needs beyond traditional industrial frameworks.
One of the big buzzwords over the last year or so has been "overcapacity." There's a constant line of argument that China is unfairly flooding the world with unprofitable goods and creating huge, unsustainable imbalances. Western countries, particularly the US (but also Europe), have responded by raising tariffs and engaging in domestic industrial policy in order to compete. But is the strategy sound? Are the basic premises of the problem correct? On this episode of the podcast, we speak with Columbia Professor Adam Tooze, the author of several books, as well as the popular Chartbook newsletter. He argues that the overcapacity framing is misguided, and that the US may be making a mistake putting its chips down on an industrial revival. He talks us through some of the actual weaknesses of the Chinese model, as well as its global political reverberations.
