Chinese Communist Party boss Xi Jinping has a problem, and the answer is — MORE COWBELL! I’m kidding, of course, except for the fundamental truth behind my silly Saturday Night Live gag. Since economic liberalization began under Deng Xiaoping in the 1980s, the answer to China’s economic questions — like Christopher Walken in the famous SNL sketch — has always been the same: MORE EXPORTS.
But exports are about to hit a wall.
Without getting too technical, China desperately needs to escape what economists call the Middle Income Trap. That’s when a Third World (or even Second World) economy comes this close to making the move from poverty to enjoying a middle-level income, then to joining the wealthy nations of the world.
South Korea escaped. Israel escaped. Singapore and Taiwan did, too. All four used to be dirt poor, or nearly so. All are now among the world’s high earners. Argentina was one of the world’s wealthiest countries a century ago but backslid into the middle rank under a crippling combination of economic populism and political corruption. Javier Milei is working furiously to fix all that, but I digress.
These countries escaped in two steps. The first was by exporting well-made manufactured goods. The second was transitioning to a consumer-based economy much like ours. That second step is where China has trouble.
China faces all kinds of headwinds as it sits right at the top of the middle-income heap without quite going any higher. Those headwinds include shrinking demographics, stalled productivity growth, a real estate crisis, a consumer confidence deficit, and more.
So instead of creating a political-economic climate free enough to transition to a more consumer-based economy, Xi turned to the “MORE COWBELL!” solution once again. China now pumps out state-subsidized manufactured goods at an unprecedented rate. The hope, I presume, is to crush the rest of the world’s manufacturing before any resistance is mounted.
Look at this:
This is from @BrookingsInst – Not MAGA or @POTUS
CCP is flooding world markets with subsidized goods. This is how Xi fights for survival.
—@YatesComms @DominoTheoryPod @YatesComms @seanmdav @MariaBartiromo @andrewrsorkin @nedryun @DonaldJTrumpJr @instapundit @ImKingGinger… https://t.co/t5yhe8p95n— Mark Simon (@MarkSimonHK) April 14, 2025
The word you’re looking for is “unsustainable.”
While I remain at best cautiously optimistic about the utility of tariffs for restoring American manufacturing — tax cuts and massive deregulation would probably help more — tariffs are a vital tool for dealing with a rival like Communist China.
The chart shows it. Everything Xi needs to maintain CCP authority is right there in that big red line.
The thing of it is, China has all the tools it needs — particularly in engineering — to escape the Middle Income Trap. All the tools but one: the political and economic stability required to empower the Chinese consumer and escape the Middle Income Trap.
Nevertheless, Chinese manufacturing is a 600-pound gorilla, determined to crush smaller economies. You can find endless reports of just that happening in places like Vietnam and Thailand. But now, enter the other 600-pound gorilla, the U.S. consumer. Without access to our spending power, China’s export power is greatly diminished — particularly if the administration’s trade negotiations get the rest of the world on board with caging the gorilla.
Trump’s tariffs are a dam to the flood of Xi’s exports, a pin to prick his bubble economy.
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