Trade War

Newsletter 216 - June 23, 2024

Welcome to the 216th edition of Trade War.

Putin visits Pyongyang, signs defense treaty with Kim, spooking China. That’s not new: the North Korea-China “close as lips and teeth” relationship hasn’t been easy for Beijing, going back at least a couple decades.

A tit-for-tat trade war is brewing between China and the EU. Pork is the first target; what comes next? Beijing’s Commerce Ministry isn’t just contemplating retaliatory tariffs; it’s also helping build the CCP’s authoritarian narrative in the Global South.

Chinese electric vehicle subsidies over the last 15 years reached at least $231 billion or 18.8% the value of each vehicle sold. And new energy vehicles (NEVs) to make up 49.1% of total car sales in June in China.

S&P and Fitch lower their Chinese property sector estimates, predicting even bigger drops for real estate sales. Another Third Plenum looms, but will this one disappoint on reform, just like an earlier one in 2013?

And will Xi Jinping move militarily on Taiwan? Two Takes on that existential question.

Putin-Kim meeting a big headache for Beijing

Russian president Vladimir Putin received the royal treatment from North Korea’s leader Kim Jong-un on a visit to Pyongyang, where the two heads of state signed a mutual defense treaty.

That’s making Beijing nervous: the Moscow-Pyongyang warmness could lessen both Russia and North Korea’s reliance on China, cause instability in North Asia, while spurring the U.S., Japan and South Korea to beef up their military forces in the region.

“Mr. Xi has declared a ‘no limits’ relationship with Mr. Putin and pledged ‘unswerving’ support for North Korea—linking arms with two like-minded authoritarian countries to push back against what they regard as American bullying around the world,” reports the New York Times.

“But by aligning with two pariah states, Mr. Xi is also at risk of facing fallout from the actions of their unpredictable leaders. Mr. Putin’s invasion of Ukraine has severely damaged China’s relationship with the West, which has accused Beijing of not doing enough to rein in Russia. And Mr. Kim’s nuclear saber rattling has helped bring two tense neighbors—Japan and South Korea—together in a trilateral defense partnership with the United States,” the Times reports.

“Particularly at a time of domestic challenges, Beijing prefers stability along periphery. Putin's visit to DPRK challenged that objective. Putin pledged to provide technological support to DPRK, potentially including support for DPRK's nuclear and missile programs,” notes Brookings’ Ryan Hass, writing in a thread on X.

“Closer ties between Putin-Kim could weaken Beijing’s sway and leave it as the biggest loser. The dilution of Chinese leverage means Kim Jong Un can disregard Beijing’s calls for restraint and is much more likely to create chaos at a time when Xi Jinping desperately wants stability,” says the Asia Society Policy Institute’s Danny Russel, also writing on X.

But China fretting about North Korea is hardly new.

As Chinese foreign ministry officials used to complain to foreign correspondents in Beijing, back when the so-called Six Party Talks between the North, South Korea, Japan, Russia, the U.S., and China were ongoing, Pyongyang as often as not would simply ignore Beijing’s calls for restraint—despite its deep dependence on the Chinese economy. “We can’t control them. They don’t listen to us,” the officials would say.

Here’s what I wrote in the fall of 2006 just after Pyongyang conducted a nuclear test, in a Bloomberg News article called “China and North Korea, Brothers No More“:

“‘As close as lips and teeth.’ That once-popular phrase can no longer be used to describe China's decades-old close fraternal Communist relationship with North Korea. With Pyongyang's nuclear test on Oct. 9, it looks increasingly as if Beijing will have to jettison its longtime go-soft approach with its trouble-making neighbor and adopt a much tougher, confrontational stance.”

“‘The DPRK [Democratic People's Republic of Korea] ignored universal opposition of the international community and flagrantly conducted the nuclear test on Oct. 9,’ China's foreign ministry said in an unusually strongly worded statement released just hours after the test. ‘The Chinese government is resolutely opposed to it,’ the ministry added. ‘China and North Korea's strategic relationship has been totally ruined by the test,’ says Yan Xuetong, director of the Institute of International Studies at Tsinghua University. ‘There is no more Communist brother relationship between our countries.’”

“‘It's a big slap to Beijing's previous approach to North Korea,’ says Zhu Feng, director of the International Security Program at Beijing University. ‘It's high time for Beijing to find a new approach, basically harsher and tougher.’”

A year later in the fall of 2007 I was able to visit North Korea, which I wrote about in “A Rare Look Inside North Korea.” and "In the Land of the Dear Leader."

Pork targeted, what comes next?

A tit-for-tat trade war is brewing between China and the European Union. Pork is the first target with Beijing announcing an anti-dumping investigation of the industry on June 17.