Beijing Prepares for Economic Warfare

Summary

WSJ What's News Episode Summary: "Beijing Prepares for Economic Warfare" Release Date: December 10, 2024

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Introduction

In this episode of WSJ What's News, hosted by Luke Vargas, The Wall Street Journal delves into significant global developments shaping today's economic and political landscape. The episode, titled "Beijing Prepares for Economic Warfare," explores the escalating trade tensions between the U.S. and China, Rupert Murdoch's failed bid to secure his media empire for his eldest son, a high-profile murder case, and China's strategic preparations inspired by Russia's evasion of Western sanctions.

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1. High-Profile Murder Case in Pennsylvania

The episode opens with shocking news from Pennsylvania:

• Murder Charge: Luigi Mangioni, a 26-year-old former tech worker, has been charged with the murder of UnitedHealth executive Brian Thompson. Charged with murder and a range of lesser offenses, Mangioni was arraigned and denied bail ([00:42]). Pennsylvania Governor Josh Shapiro praised local law enforcement for swiftly apprehending Mangioni, challenging the "folk hero" narrative that some public segments had created around him for attacking American health insurers.

  • Unnamed Commentator ([01:39]): "The suspect here who shot at that CEO and killed that CEO is a coward, not a hero, and we need to make sure that in this country we get back to having a civilization discourse about our differences."

  • UnitedHealth Spokesperson: Expressed hope that Mangioni's arrest brings relief to Thompson’s family and affected parties.

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2. Rupert Murdoch's Media Succession Battle

Next, Vargas discusses a significant development in the media world:

• Failed Trust Amendment: Rupert Murdoch attempted to amend his trust to leave control of his media empire solely to his eldest son, Lachlan. This move was rejected by a Nevada probate commissioner, effectively preventing the division of assets among his four children. The assets include approximately 40% voting stakes in News Corp and Fox Corp.

  • Opposition from Siblings: Three of Murdoch's other children—James, Elizabeth, and Prudence—oppose the change, as it would diminish their voting power.

  • Murdoch's Response: An attorney for Rupert Murdoch announced plans to appeal the decision.

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3. Escalating US-Canada Trade Tensions

The episode shifts focus to rising trade tensions between the U.S. and Canada:

• Trump's Proposed Tariffs: President-elect Donald Trump has signaled intentions to impose a 25% tariff on Canadian imports.

• Trudeau’s Retaliation Pledge: Canadian Prime Minister Justin Trudeau vows to retaliate with tariffs on U.S. products if Trump proceeds, mirroring the 2018 trade conflict where Canada imposed levies on products like Kentucky bourbon and Harley Davidson motorcycles in response to U.S. steel and aluminum tariffs.

  • Trudeau’s Statement ([03:36]): "Trump's proposed tariffs are unfair, but I hope cooler heads might prevail."

  • Unnamed Commentator ([03:36]): "Tariffs on everything from Canada would make life a lot more expensive for Americans."

• Senator Tom Cotton’s Stance ([03:56]): At the WSJ's CEO Council Summit, Republican Senator Tom Cotton endorsed Trump's tariff strategy as an effective negotiating tactic. He emphasized that measures against Beijing are a different challenge and warned business executives against opposing the administration’s policies:

  • Cotton ([04:40]): "I really don't want to see any of your companies or you lobbying next year against our bill to repeal most favored nation status. And I'll just say if you get in the ring on China's behalf, you should expect to be punched."

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4. Implications of Revoking China's Most Favored Nation Status

A pivotal segment features insights from Jason Douglas, WSJ Asia economics reporter:

• Impact of Removing MFN Status ([04:58]):

  "The most favored nation status is what you grant to all countries with whom you don't have a free trade agreement. So it's a sort of baseline for global trade. Removing that status means you automatically shift to another list of tariffs, and those are all an awful lot higher."

• Consequences for Businesses:

  Jason Douglas explains that revoking China's MFN status would lead to significantly higher tariffs, similar to those imposed on countries like Russia, Belarus, North Korea, and Cuba. This change would create substantial uncertainty for businesses operating in China, potentially forcing multinationals to relocate operations to avoid unpredictable tariff hikes.

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5. Market Insights

• Treasury Yields and Inflation Data ([05:55]): Treasury yields are on the rise as investors await the release of U.S. inflation data, a critical indicator ahead of the Federal Reserve’s upcoming interest rate decision. The latest job report, indicating a slight uptick in unemployment, has bolstered trader confidence in the possibility of a rate cut.

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6. Beijing's Strategic Preparations Inspired by Russia

The core focus of the episode examines how Beijing is preparing for potential economic warfare by learning from Russia's strategies to evade Western sanctions.

• Exclusive Report by Georgy Konchev and Ling Ling Wei ([07:20]):

  Chinese officials are meticulously studying Russia's methods of bypassing Western sanctions, aiming to develop a robust toolkit in anticipation of possible economic confrontations over Taiwan. Georgy Konchev, a WSJ foreign correspondent based in Berlin, offers detailed insights:

  • Closening Ties with Russia: Over the past three years, China and Russia have deepened their relationship, with Russia successfully navigating Western penalties, a model of interest for China in case of severe economic conflicts ([07:45]).

  • Key Lessons for China:

    1. Diversification of Financial Reserves ([09:03]): Russia's efforts to de-dollarize and establish independent financial systems provided initial resilience against sanctions. China is likely enhancing its financial strategies to reduce reliance on Western systems.

    2. Building International Coalitions ([09:52]): While the West formed a strong coalition against Russia, Moscow's alliances with China, Iran, North Korea, and others underscored the need for China to expand its global partnerships to support its economic interests.

    3. Supply Chain Resilience ([10:58]): Russia’s struggle with maintaining essential manufacturing processes under sanctions highlighted the importance of protecting and diversifying supply chains. China recognizes the vulnerability of its own global supply chains and the necessity to ensure their robustness.

  • Challenges Identified:

    • Russia’s Dependency on Oil Exports: While oil exports have bolstered Russia’s economy, this model isn't directly transferable to China.

    • Disruption of Domestic Manufacturers: Sanctions could disrupt China's domestic manufacturers connected to global supply chains, though it might also incentivize increased domestic production.

  • Future Preparations: Konchev emphasizes that with the Trump administration's anticipated focus on economic warfare, China must continue to refine its strategies based on Russia's experiences to safeguard its economic interests.

  • Chinese Foreign Ministry’s Response ([08:31]):

    "The country has always been committed to conducting normal exchanges, changes and cooperation with all countries around the world, including Russia, on the basis of equality and mutual benefit."

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Conclusion

The "Beijing Prepares for Economic Warfare" episode of WSJ What's News provides a comprehensive overview of the intricate dynamics between major global players. From internal shifts within media empires to high-stakes trade negotiations and strategic geopolitical preparations, the episode underscores the complex interplay of economic policies and international relations shaping today's world. Beijing's proactive approach in learning from Russia's sanction evasion strategies reveals the unfolding landscape of modern economic warfare, highlighting the critical need for robust and adaptable economic strategies in the face of evolving global challenges.

Listeners are left with a nuanced understanding of how historical precedents inform current geopolitical strategies and the potential ramifications these developments hold for the global market and international relations.

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Produced by Kate Bullivant with Supervising Producer Christina Rocca.

Transcript

[Podcast Host]

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[Luke Vargas]

Senator Tom Cotton warns US Businesses not to get in the way of Donald Trump's China tariff push. Plus how Beijing is using Russia as a real life case study to prepare for economic warfare.

[Georgy Konchev]

Russia has found ways to dodge various penalties imposed by the west and the goal is to have a toolkit in case the west imposes similar penalties on.

[Luke Vargas]

China and a setback in Rupert Murdoch's bid to change who will control his media assets when he DIES It's Tuesday, December 10th. I'm Luke Vargas for the Wall Street Journal, and here is the AM edition of what's news, the top headlines and business stories moving your world today. We begin in Manhattan, where Prosecutors overnight charged 26 year old Luigi Mangioni with murder in the killing of United Health executive Brian Thompson. Mangione, a former tech worker, was arraigned and denied bail yesterday in Pennsylvania after being arrested and charged separately with a range of lesser offenses. Pennsylvania governor Josh Shapiro credited local law enforcement for apprehending Mangione, and he challenged the folk hero status the suspect had earned among some members of the public for striking a blow against America's health insurers.

[Unnamed Commentator]

The suspect here who shot at that CEO and killed that CEO is a coward, not a hero and we need to make sure that in this country we get back to having a civilization discourse about our differences.

[Luke Vargas]

A UnitedHealth spokesman said they hoped Mangione's arrest would bring some relief to Thompson's family and others. We report that Rupert Murdoch has lost his bid to give control of his media empire to his oldest son, Lachlan, when he dies, rather than dividing it among four children, according to people familiar with the matter. The 93 year old media mogul's attempt to amend a trust holding the family's assets, which include roughly 40% voting stakes in Wall Street Journal own News Corp. And Fox News parent Fox Corp. Was rejected by a Nevada probate commissioner. Three of Murdaugh's other children, James, Elizabeth and Prudence, who stood to lose voting power, opposed the change and a representative for them said they welcomed the commissioner's decision. An attorney for Rupert Murdoch said he plans to appeal. Well, the battle lines of the incoming Trump administration's trade fights are taking further shape this week in America's backyard. Canadian Prime Minister Justin Trudeau is vowing to retaliate with tariffs on the US if Donald Trump places a 25% levy on imports from Canada, as he's pledged to do, that would mirror what happened in 2018, when Ottawa responded to U.S. steel and aluminum tariffs with targeted levies on products like Kentucky bourbon and Harley Davidson motorcycles that were designed to pressure members of Congress from key states before a deal to drop tariffs was struck in 2019. Trudeau yesterday called Trump's proposed tariffs unfair, but in remarks courtesy of CTV expressed a hope that cooler heads might prevail.

[Unnamed Commentator]

President Elect Trump got elected on a commitment to make life better and more affordable for Americans, and I think people south of the border are beginning to wake up to the real reality that tariffs on everything from Canada would make life a lot more expensive for Americans.

[Luke Vargas]

Trudeau visited Trump at Mar A Lago last month to talk trade, the kind of bilateral engagement that US Senator Tom Cotton sees as validating Trump's approach to tariffs. Speaking at the WSJ's CEO Council Summit yesterday, the Arkansas Republican called Trump's tariff threats directed at countries like Canada and Mexico an effective negotiating tactic. However, he described promised US Measures against Beijing as a horse of a different color and said he has legislation backed by Trump and Secretary of State nominee Marco Rubio that would revoke China's permanent most favored nation status. And he warned executives gathered for the event in Washington not to get in the way.

[Podcast Host]

I really don't want to see any of your companies or you lobbying next year against our bill to repeal most favored nation status. And I'll just say if you get in the ring on China's behalf, you should expect to be punched.

[Luke Vargas]

I asked Journal Asia economics reporter Jason Douglas what such a change would mean.

[Jason Douglas]

The most favored nation status is what you grant to all countries with whom you don't have a free trade agreement. So it's a sort of baseline for global trade. Removing that status means you automatically shift to another list of tariffs, and those are all an awful lot higher. The only other countries that face these kind of tariffs are pariahs of one sort or another Russia, Belarus, North Korea and Cuba. So the immediate effect would be lots of higher tariffs and all sorts of Chinese goods, and much more leeway for the US Administration to raise or lower those tariffs as it saw fit. But the bigger impact is that this would create this huge sort of uncertainty around operating out of China. Because what it means is that tariffs on imports from China would be subject to an annual review. Which means that if you were a business and you wanted to plan for your operations in the next few years. You just simply couldn't do that. So one of the effects of this and one of the goals perhaps of those people advocating it is that you would would force multinationals and US Companies in particular to move their operations out of China.

[Luke Vargas]

So will the Senate pass Cotton's bill? Tune in tomorrow morning as congressional reporter Siobhan Hughes joins us to discuss where members of Congress stand on the hallmark items on Trump's to do list. And in markets news today, treasury yields are rising as investors await Tomorrow's release of U.S. inflation data, a key report ahead of next week's Fed interest rate decision. Traders are growing more confident about a rate cut after the latest job report showed unemployment ticking higher. Well, coming up, potential Trump tariffs aren't the only economic dangers that China is bracing for. We'll discuss how policymakers in Beijing are studying Russia's efforts to evade Western sanctions and what they've learned after the break.

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[Luke Vargas]

In a journal exclusive, Georgy Konchev and Ling Ling Wei report that Chinese officials are studying Russia's efforts to evade Western sanctions with a very specific goal in mind, drawing lessons that could be useful if a conflict over Taiwan prompts economic warfare targeting Beijing. And Georgy joins me now with more from Berlin. Georgy, tell us what you've learned about how this is all taking place.

[Georgy Konchev]

Yeah, absolutely. I mean, ultimately, China and Russia have grown closer over the course of the Ukraine war. We know over the past almost three years, Russia has found ways to dodge various penalties imposed by the west. And that's of great interest to China. What we learned from people familiar with the effort is that there's interagency groups set up by China in the months kind of following the full scale war against Ukraine. They're looking at sanctions impact in Russia. They're looking at Russia's mitigation strategies. They often visit Moscow to meet with Russian officials. And the goal is indeed to have almost like a blueprint, a toolkit in case there is a Taiwan contingency. They call it an extreme scenario of an armed conflict. But they do caution that it doesn't mean that the country is ready for any invasion anytime soon.

[Luke Vargas]

I should note that the Russian Central bank and the Russian Finance Ministry didn't respond to requests for comment on this story, while the Chinese Foreign Ministry did respond, but said that, quote, the country has always been committed to conducting normal exchanges, changes and cooperation with all countries around the world, including Russia, on the basis of equality and mutual benefit. End quote. Let's get into the meat of it then, Georgi. What are some of the lessons that Chinese officials are coming away from Russia with and how applicable could those lessons be for China?

[Georgy Konchev]

China could be drawing a lot of lessons from the Russian experience here. Number one, of course, is the preparation even before any sanctions are imposed. Russia had for years been diversifying its foreign reserves, trying to de dollariz to build its own financial plumbing with mixed success, we have to say. But it did buy some time for Moscow in the initial phase of the invasion, and that obviously helped them to safeguard the economy. What we've also seen, and this is really important for China, is that coalitions are really valuable here. The west was able to come together, impose unprecedented sanctions on Russia. At the same time, Moscow was able to cobble together a smaller coalition of its friends, including China, Iran, North Korea and specifically the China Russia trade has indeed increased a lot during the war.

[Unnamed Commentator]

That relationship since the start of the war has gone more on the benefit of Russia, though, has it not?

[Georgy Konchev]

And that's exactly the other point here, absolutely, is that Russia would not be able to be as much of a help to China as Chinese to Russia right now. The lesson for China is that they need to find those other players that would be helpful. And that's why China is, of course, as we know, going around the world, investing and bringing benefits to various countries really around the globe. But again, it's really important to have a global list of partners in such a sanction scenario.

[Unnamed Commentator]

And there are a few more potential lessons, one of which we don't really have time to get into, but Moscow has owed a decent amount of its economic durability to its oil exports. Not something so easily applicable to China, as far as I understand. Another, though, where we kind of split the difference, right? Sanctions could really disrupt domestic manufacturers that are connected to the global supply chain. That's something China is quite vulnerable on, if I understand correctly. And then you've got kind of on the flip side, the positive effect potentially of sanctions incentivizing domestic production, which, given many of the headlines we have about the China Chinese economy, may be something they could fare a little bit better on. So it's a mixed bag across some of these other lessons, right?

[Georgy Konchev]

It is a mixed bag. But protecting your supply chains is a big lesson for China here from the Russian side. Indeed, Russia has before the war tried for many years to make its economy self sufficient. But when the sanctions actually hit, Russia did find itself still deeply reliant on Western parts. Indeed, when the car manufacturing in Russia rebooted after the initial wobble of the sanctions, they made cars without airbags for a while, without other safety features. So that's a big lesson for China, that supply chains are global and they need to protect them as well.

[Unnamed Commentator]

Georgi, lots of lessons there. And I guess we would imagine these visits will continue. There's still quite a bit more for Beijing to learn.

[Georgy Konchev]

Absolutely. China itself has been under sanctions from the US For a number of years. Of course, not as substantial as the ones in Russia. But we do know obviously under President elect Donald Trump in his second administration, he's planning to turbocharge the use of economic warfare. He's talking about tariffs a lot recently. And in such a world, China is likely to need those lessons even more.

[Unnamed Commentator]

Georgi Kanchev is a foreign correspondent for the Wall Street Journal based in Berlin. Georgi, thank you so much for the update.

[Georgy Konchev]

Thank you.

[Luke Vargas]

And that's it for what's news for Tuesday morning. Additional sound in this episode was from Reuters. Today's show was produced by Kate Bullivant with supervising producer Christina Rocca. And I'm Luke Vargas for the Wall Street Journal. We will be back tonight with and until then, thanks for listening.