The Greenfield Report with Henry R. Greenfield

Episode 14- China, Tariffs, and Global Economy Shifts. Part 2 with Eric Hendriks

• Henry R. Greenfield/Eric Hendricks • Season 1 • Episode 14

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Henry Greenfield welcomes Dr. Eric Hendriks for a penetrating analysis of the structural imbalances between Chinese and American economies, revealing why tariffs may be the wrong solution for addressing deep economic disparities.

Drawing on insights from prominent economists like Michael Pettis and Ray Dalio, Dr. Hendriks exposes a fundamental contradiction in American economic strategy: the desire to maintain dollar dominance while simultaneously reindustrializing. This contradiction creates tensions that tariffs alone cannot resolve. The conversation thoughtfully explores how America's structural trade deficit necessarily coexists with the dollar's role as the global reserve currency, creating a cycle that benefits financial markets while challenging domestic manufacturing.

The discussion takes a fascinating turn when examining Europe's position in this economic power struggle. Dr. Hendriks suggests that Trump's confrontational approach toward European allies has paradoxically strengthened Europe's economic independence, allowing nations like Hungary to pursue sovereign relationships with China without facing pressure to align completely with American trade policy. This rebalancing of global economic relationships could potentially alter the Western alliance structure for decades to come.

Perhaps most sobering is Dr. Hendriks' assessment of China's comprehensive preparations regarding Taiwan, including diplomatic positioning, military readiness targeted for 2027, and intellectual frameworks justifying potential future actions. As American foreign policy undergoes significant shifts, the window for Chinese assertiveness may be widening in ways that demand careful attention.

Whether you're concerned about global economic stability, the future of American manufacturing, European sovereignty, or peace in the Taiwan Strait, this episode provides essential context for understanding the complex interplay of forces shaping our world. What economic rebalancing might actually benefit both American workers and global stability? Listen now to expand your perspective beyond simplistic trade narratives.

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Speaker 1:

Welcome to the Greenfield Report with Henry R Greenfield, your gateway to understanding today's geopolitical landscape. With 50 years of experience across 10 countries, henry shares expert insights on world affairs, offering practical solutions and engaging guest perspectives. Dive into the Greenfield Report for lively discussions on the issues that matter.

Speaker 2:

This is Henry R Greenfield for the Greenfield Report, with part two of speaking to Dr Eric Hendricks on China and its relations with the global economy, and in this section we are going to talk and complete our discussion, as Dr Hendricks was laying out, on some of the challenges for the China economy, for the US economy and how it has been imbalanced, recognizing several leading experts in the global economic side. So, dr Hendricks, you were speaking to us about why are these two economies imbalanced and, in your view, is the Trump way of tariffs the best way to get back in balance or is that going to make it worse?

Speaker 3:

Yeah, so I'm relying on the macroeconomists that I'm reading, and I mentioned Michael Pettis of Peking University, an American macroeconomist teaching at Peking University, and Ray Dalio, the financial guru and the social theorist. The structural asymmetries in the macroeconomy are such that America runs the structural trade deficit, and that structural trade deficit is coupled with the dominance of the dollar. Very simply put, america has a structural trade deficit, so that puts all these dollars in circulation outside of the US. What do other people do with these dollars? Well, they use them for trade.

Speaker 3:

Right, ifica would have a structural trade surplus and dollars would be flowing back into the us and we dollars couldn't be as dominant a a currency for global trade and and it couldn't be the as dominant the in the in the reserve, uh capital, uh sphere. So so all of that is linked, and and so what trump is seen to want is they want to have their cake and eat it too, and they misrecognize the actual structural problems that they're facing. So, eating their cake, having their cake and eating it too, is they want to have the dominance of the dollar preserved. They want the Wall Street stock markets to flourish, but they also want to stop the financialization of the American economy and reindustrialize.

Speaker 2:

Isn't that a lot of cake and no pain. It's a lot.

Speaker 3:

It's lovely, it's the most delicious cake ever and the problem here is, of course, that the financialization of American society is of course tied up with the flourishing stock market on Wall Street, and all of that is again tied up with the structural trade deficits and with the struggles that you see in American manufacturing. So the real social problems to which the Trumpists are half consciously responding, but they don't really understand the structural challenge that they're facing and therefore they're using the wrong tools In their imagination. And I've spoken to quite some Trumpists, right, and a lot of Trump speakers come to my institute here, the Danube Institute, where I work here in Budapest, and we, you know, we have so many high level American speakers. But I must say the Trumpist American speakers seem to have a misconception of how, of what America's role in the world is, because they think that America is constantly being abused and taken advantage of, whereas actually what's happening is America is the center of a financial system and that has certain adverse social effects in the United States.

Speaker 3:

Now someone like Michael Pettis would agree that this has adverse effects in the United States. So his solution would be to rebalance and for that you would need some austerity, maybe limited capital controls. Imagine you put capital controls which, like South Korea's capital controls, japan, china, all these countries use capital controls to sort of stabilize their external relationships right, their external, their trade balance. The United States doesn't do that, which is why it's such a safe haven for money to float right. If America would actually stop that income and capital, it would diminish the power of the dollar, which Trumpists don't like, but it would also be the first step towards definancializing the United States. On the flip side and Michael Pettis has also been arguing this it would really have helped if the Chinese would have done this, because the Chinese could, from their side, also rebalance things by investing more in their own consumption market.

Speaker 2:

Okay, well, this is a fantastic theory because, as you know from previous Greenfield reports because, as you know from previous Greenfield reports, our listeners will know that I did talk about how Trump blinked last week where the bond market got wobbly, and that bond market is what holds up the US economy the whole, as Dr Hendricks is talking about financialization of the economy. So what we're hearing from Dr Hendricks is it's one of the big imbalances is in fact, this financialization, and he suggests, through some very noted economists and others, that the rebalancing needs to have a period of austerity report. We talk about balancing the US budget and there's a lot of fiddling that's going around with tax cuts and with blowing up various agencies. So I don't want to add to the confusion here, but in my view, what Trump is doing and I think most economists in the world are the tariffs are the wrong instrument to start with a war with China and then, secondly, it's not going to accomplish what they want it to accomplish.

Speaker 2:

So, as we have noted several times in a nonpartisan approach, that if Trump wants to do something, well, first of all he should do it or not do it, and the second thing is tariffs are not going to work, especially if he's looking at it just from a revenue point of view. So it's hard to say exactly what Trump wants out of this, but let's move on, if we can, for a moment, to the Europeans, as we've not spoken about them yet. So what is Europe's participation in this, or not, in the tariff war and in their relationship with China?

Speaker 3:

So Europe right now is having its own little skirmish with the American administration. That of course dramatically undermines any alliance building potential. The Chinese have been terrified of the prospect of a united Western world and Trump has actively undermined that. And Trump has actively undermined that because from this Trump-style American exceptionalism America is too powerful to meet Europe against China, which, ok, you could have that as your guiding philosophy. And then if you pair that guiding philosophy with putting tariffs on the EU and hitting the American German car industry, which is also very important for Central Europe as a whole, and then of course you cannot then later on ask for, like any solidarity against China. In fact Germany, the most important industrial nation in Europe, is very much reliant on its China connections in production.

Speaker 2:

So is Europe going to sit this one out? Are they going to make separate deals with the United States and not have tariffs? And then again, are they going to make separate deals with China, as it seems, by the way, the way that Japan and Korea are making deals? Now Xi Jinping is on his victory tour through Vietnam signing deals. So is the US, in your opinion, going to be isolated and not have that Western alliance anymore? Is that damaged, in your opinion, or not?

Speaker 3:

It's been heavily damaged, and the prospect of a Western alliance and in some way that helps Europe out, because we have a lot of problems with Russia and the sanctions that we put on Russia are very detrimental to Central European economies. And then if we also had to fight a trade war against China, perhaps under the wing of an influential democratic administration, it would have been quite destructive to Europe's economic future. But Trump gives us an easy pass, because we can now just point at Trump and say, oh well, he's trade warring against us too, and so that helps us out. I mean, you should remember that European elites are overwhelmingly pro-democratic party, so no matter who the Republican president is, a Republican administration tends to have less diplomatic clout in Europe. And so this comes at a great time for Europe, because we definitely want to be out now and Trump is making it very easy for us to stay on the sidelines.

Speaker 2:

So a lot of the commentators I think you're saying the same thing here Is Trump inadvertently making Europe great again by having them go their own way, at least partially?

Speaker 3:

Yeah. So there's an upside to this. So if you're being a friend, I mean I wish well on America, of course, and I feel sad when that America has seemed to make some self-destructive moves, that America has seemed to make some self-destructive moves. But I, but with my European friends, when we sit together, we are discussing some, some, some upsides to this Europe.

Speaker 3:

Europe needed to reindustrialize as well and and the the German industry had stagnated. So now that when JD Vance comes to Munich and he he scares the Europeans and that leads to new investments in Poland, sweden and Germany, that's actually great. And then when we also get to escape an escalating trade war against China, it's like a double win for Europe. So potentially, the Europeans keep their heads cool and build their factories. This could actually work out for the European side. But of course, there is such a thing as Western civilization and the United States, because of its historical role and its size, would be the natural leader of something like the Western world. So if America and Europe are divided, there is no. The Western world as a whole lacks leadership.

Speaker 2:

Okay, well, that's a subject for another discussion. Well, we are sitting here in Hungary, and if you could just give us a word on what Hungary is doing with the Chinese, as my understanding is, they have invited the Chinese in on several levels.

Speaker 3:

That's right. So Hungary is a small country, just 10 million people and it's a mid-sized economy. It's much smaller than, let's say, the German economy or the French economy. This tiny little Central European state has quite some geopolitical ambitions and it's managed to become the EU state with arguably the best China relations, so maintaining relatively OK ties with the Russians, good ties with Erdogan in Turkey and good personal ties with Trump. So the Hungarians have been trying to outflank the European Commission and the push to centralize geopolitical decision making in Brussels. Are they being successful? In your view? They were.

Speaker 3:

So the China move was maybe successful. It's just that now, with the Trump move, which also seemed to be very successful seemed very successful when Trump got re-elected things are a bit shaky because when Trump puts the tariffs on the EU and he puts it on the car industry, that hurts Hungary, because the Audi and other German car manufacturers produce from Hungary. So this is actually now an economic threat to Hungary. So some of the Hungarian voters will look to Orban and say, hey, prime Minister, you had such great personal ties with Trump, but what did it benefit us in the end? So that's something that the Fidesz party, the leading party here in Hungary, will have to work with. So they will have to reassure Hungarian taxpayers and voters that indeed, the special relationship between Orban and Trump is going to pay off. And then, at the same time, they will have to do this.

Speaker 3:

I wouldn't call it a balancing act. They would have a balancing act with China and Turkey and Russia and the United States, but it's not really a balancing act. I think what it is. It's Hungary is trying not to be absorbed by the big blob and maintain some of its sovereignty this way, by the big blob, and maintain some of its sovereignty this way, and in that there are some success. They've been successful in inserting their sovereignty, but now it's also the question in having inserted their sovereignty, can they actually have a policy that works economically for their vote?

Speaker 2:

Well, all I can say is there are a lot of challenges. Viktor Orban is one of the most nimble politicians that I've ever seen, at least in the last 30 or 40 years in Europe, and I would never count him out. Now, just moving on, just to kind of finish our discussion today, can you just say a few words about the decoupling of the Chinese economy from the US economy? Is that actually happening and will it work?

Speaker 3:

So things are changing constantly. So we first thought that we were going towards a near total decoupling of trade between the US and China. But then President Trump suddenly announced exceptions for electronic goods, which are arguably the most important part of Chinese exports to the United States. But then he again turned around and he said oh, the exemptions are only for the reciprocal tariffs, but there's another batch of tariffs which is called the anti-fentanyl tariffs, and the electronics may still be hit in that way.

Speaker 3:

So people are completely confused about which tariffs are going to apply to which categories of goods, and the confusion itself has already caused a disarray in Chinese-American trade, and we can only. The economy is so complex that we'll have to see in the coming months how this plays out, because maybe it's not the trade volume itself that is the crucial issue. The question is how many of the value chains that you have in the United States will be crucially disrupted, because if you have a value chain and, like, 20 parts of that do not involve China, but the one part that does involve China, somehow you can't replace.

Speaker 2:

I agree with you. This has also happened in the auto industry, where I come from. Detroit. Parts going back and forth, it's very difficult to have tariffs on things it goes on one side. It's very difficult to have tariffs on things it goes on one side, comes back the other side, and so, yes, it's not just the totality but it's the sum of the parts. Moving on to our final area and thank you for that, it's the discussion would you like to say a few words on the future of Taiwan and the PRC, and is there more stability or less stability right now in the relationships?

Speaker 3:

since Trump is back and Biden has left, the situation is ominous. The Chinese have used the last two years to launched a massive diplomatic campaign to convince governments throughout the global south to sign statements declaring Taiwan China relations in internal Chinese matter. They're doing this in preparation for a move on time. Militarily they've been preparing and the the people's um, the people's uh uh military liberation army is, is is planned to be ready for a taiwan scenario 90 in in 2027. And I can tell you from the chinese intellectual life, things look bleak as well, because an entire library of political theories has been prepared to legitimize a Taiwan scenario. There's already. The philosophies have already been written.

Speaker 3:

So we already know exactly what mainland China is going to tell us when it makes a move on Taiwan. They're going to say that they were provoked, the reunification was voluntary, it's for the benefit of the whole of the world, because China is this foundation of world harmony. But for China to deliver world harmony in which all the different nations and cultures can flourish in a harmonious diversity, it needs to be whole, and in order to be whole it needs Taiwan, et cetera, et cetera. So the situation is rather ominous and exactly at this point, america's East Asian alliance is breaking down and we'll see where this goes. If China gets a sense that America is weakened, it may make a move real quick. So we may actually see a move on Taiwan towards the end of Trump's second term in office.

Speaker 2:

Well, that is rather ominous and it's not a wonderful conclusion, but I think it's important that our listeners have some idea and understanding of what learned experts such as yourself, dr Hendricks, and understanding of what learned experts such as yourself, dr Hendricks, watching this for many decades, have come to that conclusion. As we finish up, dr Hendricks, are there any last words that you would like to add on China and the world? Is it moving in a direction that you believe they will achieve that global dominance, or is it still in the balance and will trump actually, in the end, prove victorious, or will the united states recede?

Speaker 3:

well, I, I think, I think it's there's, there's, no, there's no scenario in which china could could establish itself as a kind of general world leader and take on the kind of role that america had on the world stage, let's say, the mid-90s. That is not in the cards, but we do seem to be moving towards a more multipolar world in which you will have China and the United States as the two largest powers, and such an order can be manageable. But things can also spin out of control in in absolutely catastrophic ways.

Speaker 2:

so is that more likely under trump than that was under biden?

Speaker 3:

I, I mean they, they have their. So the the. The problem is that with the, with the democrats, is that they they had a lot of neocons, and neocons are dangerous in foreign policy because they are hyper idealistic and they do not put conflicts into perspective. On the other hand, we now have a kind of naive Trumpists who seem to be out of their depth. So it's really conflicted on who's more dangerous when it comes to starting wars. Of course, the danger now is less that America starts some kind of Bush-era invasion and the danger is more that powers like China will be encouraged to move assertively in their role and take advantage of the situation.

Speaker 2:

Yeah Well, again, once again, our thanks to Dr Hendricks. This has been a very sobering discussion with Dr Hendricks. As you can see, he's also while he's been in the United States he's lived in, obviously, in China. He does have a European perspective that is not often heard in the US. He also participates in the Danube Institute, which is a self-proclaimed center-right, and, as he said, there are many Trump advisors and speakers who come there, so he gets to hear and gets to speak with a lot of Trump people directly. So this is not just a theoretical exercise. So I would like to thank Dr Hendricks for this incredibly informative report. Thank you so much. Well, thank you, dr Hendricks. And this is Henry R Greenfield for the Greenfield Report, signing off from the heart of Europe, budapest, hungary.

Speaker 1:

Thank you for joining us on the Greenfield Report with Henry R Greenfield. We hope today's insights into the ever-shifting geopolitical landscape have sparked your curiosity and broadened your perspective. Stay connected with us for more in-depth discussions and expert solutions. Until next time, keep exploring the world beyond the headlines.