Episode Summary: "A Vulnerable China Comes to the Table"

Podcast: The Daily
Host: Natalie Kytroev
Guest: Keith Bradshaw, Beijing Bureau Chief, The New York Times
Release Date: May 12, 2025

Introduction

In this episode of The Daily, Natalie Kytroev engages with Keith Bradshaw to delve into the intricate dynamics of the recent trade negotiations between the United States and China. Following President Trump's aggressive tariff strategies, this meeting marks a critical juncture in US-China relations, with profound implications for the global economy.

China's Economic Struggles Amidst the Trade War

Keith Bradshaw elucidates the severe impact of the US-imposed tariffs on China’s economy. At [02:06], he explains, “President Trump, by early April, had raised tariffs on goods from China to 145%. That stopped all but the most essential imports coming in.” This aggressive tariff hike arrives at a precarious time for China, which is grappling with multiple economic challenges, notably a housing market crisis.

Housing Market Crisis:

• Plummeting Apartment Prices: Apartment values have seen a dramatic decrease of 30-50% in various cities since the housing bubble peak in 2021 ([02:15] – [03:16]).
• Household Financial Strain: Declining property values have severely impacted household finances, reducing consumer spending and diminishing government tax revenues.

Bradshaw highlights that China’s economic model is heavily export-oriented. At [03:41], he states, “This is an economy built for exports, built for manufacturing dominance...but it has an enormous dependence on exports.” The tariffs threaten this foundation, making China's export-driven strategy increasingly risky.

Challenges in Domestic Consumption

Natalie probes into why China struggles with domestic consumption, to which Bradshaw responds at [05:22], “China has a tax system that is based heavily on taxing consumption, not so much on taxing income.” High consumption taxes and a minimal social safety net discourage spending. Key points include:

• High Consumption Taxes: A national value-added tax twice the size of typical US sales taxes discourages purchases of goods and services ([05:22] – [06:02]).
• Limited Social Safety Net: With minimal pensions and unemployment insurance, citizens are incentivized to save rather than spend, leading to a high savings rate of around 40% ([06:03] – [08:36]).
• Investment in Real Estate: Limited investment avenues have funneled savings into real estate, contributing to the housing bubble ([08:36] – [09:23]).

The Real Estate Bubble and Its Collapse

Bradshaw provides a historical overview of China's real estate boom and subsequent bust:

• Rapid Expansion (1980s-2016): From small apartments in the 1980s to massive developments post-1987, the housing market became a cornerstone of China's economic growth ([09:31] – [12:29]).
• Speculative Mania: Excessive investment led to speculative buying, with individuals like a furniture factory sales manager obtaining multiple properties through rising prices ([11:08] – [11:54]).
• Bursting of the Bubble: Initiated around 2020-2021 due to stricter regulations on developers, the housing market collapsed more severely than the US crash in 2008, wiping out twice as much in apartment value losses ([12:49] – [14:40]).

The collapse has devastated Chinese families, whose household net worth was heavily tied to real estate, exacerbating economic woes.

Government Response and Shift to Manufacturing

In response to the housing crisis, the Chinese government has pivoted its focus towards boosting the manufacturing sector:

• Redirected Lending: Emphasis on state-controlled banks to fund factory construction aims to create jobs and stimulate exports ([14:59] – [16:34]).
• Limited Benefits: While factory workers gain from these developments, the broader population suffers from weak demand in other sectors like hospitality and retail.

Bradshaw notes the emergence of a "factory bubble" as China attempts to compensate for the housing downturn by ramping up exports, which remains precarious due to external trade tensions.

China's Retaliatory Measures and Global Implications

Keith discusses China's retaliatory tactics against US tariffs and their broader implications:

• Imposition of 125% Tariffs on US Goods: Despite limited US exports to China, these tariffs aim to pressure American industries ([20:08] – [20:33]).
• Diversification of Trade Partners: Shifting agricultural imports to countries like Brazil, although this doesn't significantly alleviate the trade imbalance.
• Halting Rare Earth Magnet Exports: China’s cessation of rare earth magnet supplies threatens American and European manufacturing sectors, posing risks of disrupted supply chains ([20:17] – [22:09]).

The inability to fully pivot to alternative markets like the EU is compounded by other nations increasing tariffs on Chinese goods, limiting China’s options and intensifying economic strain ([22:33] – [23:25]).

Impact on Chinese Society and Government Stability

Bradshaw emphasizes the internal pressures within China:

• Economic Hardship for Families: Factory closures and layoffs are increasing, particularly in industrial hubs like Guangzhou ([23:54] – [24:38]).
• Suppression of Dissent: A robust security apparatus prevents public protests, with strict censorship and control over information flow maintaining governmental stability despite economic pain ([24:39] – [26:10]).
• Negotiations Despite Tensions: Aware of widespread economic distress, China engages in negotiations to avert further economic decline and potential unrest ([26:10] – [27:54]).

Future Outlook: Best and Worst Case Scenarios

In discussing potential outcomes, Bradshaw outlines the complexities in reconciling US and Chinese interests:

• Partial Compromises: Reductions in tariffs could alleviate tensions but may not address the fundamental differences in economic objectives ([28:14] – [28:33]).
• Divergent Goals: The US aims to reduce reliance on Chinese manufacturing, while China seeks to maintain its export dominance through substantial investments in factories and automation ([28:33] – [29:54]).

Bradshaw concludes that lasting solutions are challenging due to these divergent interests, despite the possibility of temporary easing through partial compromises ([29:56] – [30:51]).

Conclusion

Keith Bradshaw provides a comprehensive analysis of China's vulnerabilities amidst escalating trade tensions with the United States. The interplay of internal economic struggles, aggressive external tariffs, and limited governmental response mechanisms paints a picture of a nation striving to stabilize its economy while navigating complex international pressures. The episode underscores the delicate balance China must maintain to avert deeper economic and societal crises, highlighting the far-reaching consequences of US-China trade dynamics on the global stage.

Notable Quotes:

• Keith Bradshaw [02:06]: “President Trump...raised tariffs on goods from China to 145%. That stopped all but the most essential imports coming in.”
• Keith Bradshaw [05:22]: “China has a tax system that is based heavily on taxing consumption, not so much on taxing income.”
• Keith Bradshaw [08:36]: “China saves more than anyone else in the world. The savings rate is around 40%, saving two out of every five dollars of their paychecks.”
• Keith Bradshaw [14:20]: “The total losses on apartment value in China are now twice as big as they were in the United States in 2008.”
• Keith Bradshaw [20:17]: “The most important step by far that China has made...is to halt the export of rare earth magnets.”
• Keith Bradshaw [28:14]: “The two sides have fundamentally different interests that are very hard to reconcile.”

This episode offers an in-depth exploration of the multifaceted challenges facing China in the wake of intensified trade conflicts, providing listeners with a nuanced understanding of the broader economic and geopolitical landscape.