China’s Meltdown

Xi Jinping: China's everlasting emperor awaits his third term | Financial  Times

How the US tricked China into death.

Let’s dive into the story of how the US has just put China in one of the most difficult positions ever and see the options it actually has to get out of it.

For the past decades, China has been one of the strongest countries fighting for first place in becoming the world superpower. It is well known that most of the companies have been basing their factories in this country due to their labor and climate impact conditions (CO2 emissions).

To put things into perspective, let’s bring into the story another of the strongest countries fighting for the world’s first superpower spot which is Russia. Recently, Russia has started a war against Ukraine (which we are all probably aware of) threatening Europe, the US, and the world while also showing its unstoppable strength to all of us. By declaring war, Russia knew all the sanctions that would get imposed on them by the US and Europe, which has caused more harm to these countries (especially the European ones) than actual Russia itself, and this was all planned by Putin beforehand. We all know how dependent most countries are on Russia (otherwise it’s long enough for another full story), which has given Putin the power to attack Ukraine without much economic harm to the country whatsoever. But, how is that possible? If Europe has been damaging itself by not buying most of the energy and oil from Russia (and being forced to buy from more expensive countries) then how is Russia not affected by this lack of demand? China is the answer. China agreed to buy most of the resources that are not getting bought by Europe at a premium and that’s how Russia is practically intact from all of this. And this is actually the point that is important to us since it is one of the threats that triggered the US into action.

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The US Dollar is the reserve currency of the world, therefore most of the transactions worldwide must be done in this currency to secure the stability of the economy and easy trade between nations (this gives massive power to the US since it keeps track of all the buying and selling of the world by being made into this currency). China and Russia agreed to decouple from this by transacting with Rubles, Yens, and some Cryptos, avoiding the dollar and taking all the power of the US out of the equation. This is important to understand since it’s a great thread to the US and considering the plans of Russia and China among several other countries to decouple from this standard and make their own it makes it even more important since it could be the first practical step into it.

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Back to China’s meltdown. After all of this, we are aware of the power that other nations were imposing against the United States so it needed to take action.

This week, Biden passed a bill prohibiting China to produce, sell and operate with chips. Let’s first show why chips are so important in the modern world. We can easily say that Chips are one of, if not the most valuable asset in the world. Chips are used in everything that’s minimally smart today, such as fridges, microwaves, cars, phones, TVs, watches, and basically everything that has a screen. Without these chips, none of these products can be made. Smart products are everywhere and as time passes, more and more common items are getting smart (who would have thought fridges would be smart ten years ago!).

Back to the power of China, let’s remember that most companies produce their products in China because it is the most cost-effective way to do it, but now, China has been banned from using this technology which means that all these companies are leaving the country and setting up in the U.S which gives not only revenue but also jobs to the country (big victory by Biden). China has then lost a HUGE amount of revenue since it is now limited to the manufacturing of clothing, and just a few more industries that make a relatively small percentage of its economy.

How can the US prohibit the use of Chips in China, isn’t it a different country? How can they just prohibit it out of nowhere?

China does not have the resources to create or operate these Chips. We have to bring three phases to attention here, in order to produce a chip, we need the model, the resources, and the hands to do it. What China has is the hands to make it, but it lacks both the resources which are brought by Taiwan (an ally of the US) and the models which are brought by the US itself. Without this two, China has nothing to do with the production of this desired item.

How bad is this? Well, China is currently facing pretty dark economic conditions due to its restrictive covid policies that are harming its production a lot. To add up, the US has now taken what made China powerful, the manufacturing of these chips which allowed the country to host the factories of most of the companies around the world. Now, all this is gone. China is facing not only not being a superpower, but being way below in the list of the richest countries, being now just average or even poor.

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What’s the way out?

China has now just a few cards to play to move forward.

1- Accept the loss.

This is a pretty unlikely option but Xi Jinping could accept Biden’s new bill and move forward with the few resources left for the country to move on and grow.

2- Invade Taiwan

We have mentioned that one of the lacks of China to produce these chips is the natural resources needed. It is well known that China has been wanting to invade Taiwan claiming that it’s actually Chinese territory and it should be a colony of the country and not a country itself, this has led to shady operations by China’s special forces (such as some aircrafts bombing Taiwanese territory as “mistakes”) that triggered Taiwan into a state of alarm.

China could finally trigger war to invade this country so it could finally have the natural resources to make these chips and they would only need to figure out the models to assemble them.

3- Agreement with the United States

The third option is to make an agreement with the US. Biden now has control of the situation, it wouldn’t surprise me if he proposed China to allow them to manufacture these chips back in exchange for it ceasing any trade with Russia and acknowledging the USA’s power, making Russia terribly weak now and reinforcing the figure of the US being the world superpower on the eyes of the entire world again.

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