Global Analysis from the European Perspective. Preparing for the world of tomorrow


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China’s blow to luxury brands from the West

The owners of American and European luxury brands have recently learnt that all means are permitted in war. Due to reciprocal duties on goods, tariffs of 145% are being imposed on goods exported from China to the USA. The Middle Kingdom did not limit itself to the introduction of retaliatory tariffs. The TikTok platform, a Chinese social media app with a global reach of over 1 billion users, has developed a trend that at first glance resembles a grassroots mass initiative by Chinese citizens. Short videos are posted on TikTok that allegedly reveal the modus operandi of luxury brands such as Dior, Prada, Hermès, Chanel, Coach, Ralph Lauren, Apple, Michael Kors, Nike and many others. These companies are said to manufacture their products entirely in China, adding only logos, price tags and, of course, making sky-high profits in the official country of origin, such as America or France. The authors of the videos point out that, for example, a handbag selling for $38,000 only costs $1,300 to make, which should encourage Western customers to buy directly from the manufacturer rather than overpay at an expensive salon in Paris or New York. As you can imagine, these videos are gaining huge popularity and causing controversy. What’s surprising about the above trend?

Firstly, the videos show executives of Chinese factories and other not at all random people who probably could not make a spontaneous decision to record and publish such material on behalf of the company. Secondly, the popularity of this movement has been used by manufacturers of knockoffs to sell them even better. Thirdly, many luxury brands sign agreements with their contractors in China that oblige them to keep this collaboration secret. Fourthly, if a factory actually produces goods for a European luxury brand, how much will its sales fall if that brand ends all its co-operation with it due to the disclosure of company secrets? What will you sell and to whom?

I absolutely do not deny that many western brands use cheap Chinese production to increase their huge profits. Quality does not always go hand in hand with price, and often you only pay for the logo. However, you cannot assume that this is the case in every instance. Sometimes, for example, it is the pre-assembly of a particular product that has to be completed under completely different conditions and using different methods in a completely different country. Let’s also not forget that Chinese contractors do not bear the costs of product development (e.g. designers, electronics), which are often the highest in the entire cycle. Incidentally, experts in the luxury goods market claim that more is bought than the product itself. They talk about emotions, history, a sense of belonging, unique shopping experiences and brand philosophy. It is likely that the target group for these products will find such an argument convincing. Of course, this situation will force manufacturers to be more transparent about the supply chain, which is beneficial for consumers.

Gefira 93: A big picture of purpose

When it comes to the war in Ukraine, Europe – the European Union along with the United Kingdom – is in a fight mode while the United States is not. Europe is still flaunting its so-called human and democratic values, while the United States has just reversed the course of wokeism and genderism. European leaders have shut themselves off from the outside world in their echo chambers and surround themselves with like-minded bellicose individuals, while the United States is trying to find a balance in its foreign policy. Europe is still objectifying Ukraine – the country and the nation are only viewed as a battering ram against Russia, Europe’s topmost foe, while the new American administration seems to be red-pilled to for-ever wars and has become to deal with reality on the ground as it is. European and American ways have ceased to align.

Europe has a history of aggressiveness directed towards the east, which was encapsulated by the notorious German political catchphrase Drang nach Osten or Drive to the East. Indeed, wars between the western and eastern parts of the Old Continent were invariably initiated by its western part. These were the military raids of the Teutonic Knights, these were the invasions launched by Sweden or France, by imperial Germany and the Third Reich. For all that historical record, it is Russia that is credited with aggressive intentions. Why, Europeans, including those with university degrees, are not familiar even cursorily with their own past. Schools are not there for the Europeans to let knowledge sink in; schools are for mind shaping.

Europe obsessed with Russia and Putin appears to be overlooking the worldly political and economic trends. The developing countries are slowly but steadfastly gaining economic and – what follows – political momentum. The United States has broken with globalism and is focusing on its own affairs, recognizing that its role as a global hegemon has come to an end. Not that Washington has given up on exerting leverage here and there in the world: the action to control the Panama Canal or the plans of taking control over Greenland show that the American empire is alive and kicking. Yet, the United States needs to reckon with powerful rivals and concede them some political room on the world stage. It is not only Russia, it is China as well.

Europe has let itself be pushed out of Africa, Europe has developed a guilt complex towards Africans for all the failures of the latter and Europe embarked upon letting itself be colonized. The vacuum created on the Dark Continent has attracted the attention of the Middle Kingdom. China is taking Africa over from degenerating Europe. China’s population is numerically almost a perfect match to that of Africa, while Europe’s dwindling indigenous population is on a slippery road to nothingness. While European influence in Africa is often denounced in European capitals as neo-colonialism, China’s take on its presence on the Dark Continent is framed by Beijing as Going Global. Europe, riddled with guilt and shame, cannot stand up to the Middle Kingdom with the latter’s political ambition. Europe has become irrelevant, while China is a rising star. Also on the Dark Continent.

 

Gefira Financial Bulletin #93 is available now

  • Russia – a stumbling block of nations
  • Greenland
  • Europe out, China in
  • The Mar-a-Lago plan

EU tariffs on Chinese EV

In the United States the tariffs on Chinese electric vehicles are 100%. It is now the European Union’s turn to follow in American footsteps. The EU is about to impose a 45% tax on Chinese electric vehicles, which raises a few uneasy observations.

One. Where has the ideology of free market economy gone? One might rather think that the West is all about market competition. The manufacturer of goods or provider of services who can sell better and cheaper products wins the market. It turns out that this rule is binding only so long as the market is dominated by “us”, not by “them”.

Two. Of course, neither the United States nor the European Union violate their own principles of free market competition! Far from it! What they are currently doing is that they fight unhealthy competition. Understood? You know the usual story that is spun by the commissioners: the tariffs are only imposed because the Chinese support their manufacturers while we do not. How can anybody prove or disprove this claim? How can anybody know whether the Chinese support their manufacturers while Europe does not support its? The argument resembles the one about silencing or suppressing free speech in social media and elsewhere. It is not that the European Union is introducing censorship; rather, the EU combats misinformation and disinformation.

Three. The EU commissioners, who are obsessed with green – loop – sustainable economy would like – as soon as possible – to see on the roads only vehicles powered by electricity. As it is, “Chinese-built electric cars jumped from 3.9% of the EV market in 2020 to 25% by September 2023” (AP), which means that the EU’s green policy has economically backfired. Most likely, the EU commissioners once cherished hopes that European electric vehicles would dominate not only the European market but also markets outside the Old Continent. The Americans must have thought the same. What a bitter disappointment!

Four. If it is true that Chinese EVs are government-subsidized, why cannot the European Union subsidize its own EV manufacturers? Is it because Brussels has funnelled all the available resources to sabre-rattling in Ukraine and the millions of imported aliens?

Five. It also turns out that tariffs are after all good for particular economies. Why, then, have they been removed between European countries – EU members? If a superstate like the EU needs the tariffs – more, if the economic superpower like the United States needs the tariffs – why should a small economy like that of Hungary or Portugal, Finland or Croatia do away with them? Things just don’t add up. It turns out that neither Hungary nor Portugal, neither Finland nor Croatia are afraid of economic competition coming from such giants as Germany or France, the United Kingdom or Italy, but the aggregate of these four countries along with their many dependencies is scared out of its wits when it comes to Chinese competition. Hm…

Six. The EU commissioners dream about saving the whole planet from poverty, discrimination and ecological catastrophe, which is why they import millions of non-Europeans and de-industrialize their countries. Why then do the EU commissioners not want to help the billion of Chinese people by buying their products and why do the EU commissioners not want to accelerate the process of transitioning to green economy with the aid of China’s EVs? These are, after all, the two noblest goals of the managers of the world! A weird thought springs to mind: is still profit more important than all that blah-blah about helping Third World people and saving the planet?

As usual, the Western managers of the world fall into their own snares and say mutually exclusive or contradictory things in the same breath. That’s nothing out of the usual. An attentive observer has had time enough to get accustomed to it while EU blind supporters will neither notice these inconsistencies nor, noticing them, will they ever hold them against their beloved EU.

Inside a Chinese EV

Why China cannot – must not – let go of Tibet

China is a multinational country. Its ethnic minorities are not numerous at all, especially in comparison with the enormous number of the people who are collectively known as Chinese. Still, some of the minorities occupy very large territories, and these are Mongols, Uyghurs and Tibetans. Their respective territories make a crescent from the north (Mongols) to the west (Uyghurs), and the south (Tibetans). Compare with a similar crescent round the Western part of Russia: the Baltic States, Belarus, and Ukraine.

Why can’t China let go of the three alien nations and allow them to have their independent countries rather than being autonomous parts of the Chinese state? The answer is simple and anyone who has followed the political events in the last thirty years knows it. It is not without a reason that we compared the political crescent adjacent to China with the similar one adjacent to Russia. If today China withdrew from the three regions and recognized their sovereignty, no later than tomorrow the United States would join the three independent countries to a kind of NATO or AUKUS. and would take control over them and use them against China. That’s precisely what has happened with the Baltic States and Ukraine; that’s precisely what could have happened with Belarus and may still happen.

That is the reason why big states are compelled to enlarge their territories and to institute dependent states around them. That’s how big states ensure their safety and peace on their borders. It was not without a reason that the USSR (effectively Russia) was made up of several republics and had a whole political bloc of dependent countries in Central Europe. Michail Gorbachev, the USSR’s last head of state, naively thought that neither these dependent countries nor the whole of the Soviet Union were necessary for the safety of Russia, for peace in all Soviet republics and the dependent countries. History – or rather the United States – has proved him dead wrong.

If yesterday China had followed in the footsteps of the USSR, it would have war either close to its borders or inside the country. Conversely, if yesterday the Soviet Union had not let go of all the dependent states and had not disintegrated, today it might be following China’s path of development, implementing capitalism under the guidance of its communist party.

The leaders of the USSR may have thought that Central European states would feel at least a modicum of gratefulness for being peacefully released from the Soviet grip. What is the reality? The reality is that almost on the following day former Soviet dependencies joined a military alliance hostile to Russia, and are now – with the exception of Hungary – rabidly anti-Russian. The leaders of China need not harbor the same naive expectations. They can take it for granted that Mongols, Uyghurs, and Tibetans, emancipated by Beijing, would immediately turn into China’s rabid adversaries. Such are tough rules of history: if you do not expand, you begin to shrink; if you do not elbow your way through life, you soon become downtrodden. 

Preparing for new trade wars

Donald Trump wants to increase tariffs on Chinese even by up to 60%, and Democrats will have no choice as to agree to at least some of protectionism planned by the Republicans, or else China will flood the market w its products to the detriment of American domestic industry. In recent years, Western companies and financiers have invested heavily in China only to withdraw from the country at present.

Source: bloomberg.com

In the second quarter of 2024, 15 billion dollars were withdrawn from China. At the same time, exports from the Middle Kingdom are on the rise as companies increase their inventories of Chinese parts, components, etc. so as not to be so affected by potential trade wars. Put simply, we buy what we can from China, but we no longer invest there. This strategy is being pursued by many countries. As a result, freight costs are also rising. Below you will find transport costs from main ports in China (Containerised Freight Index – green line). The situation is similar to that after the end of the pandemic, when inflation began to rage.

Source: tradingeconomics.com

Companies are filling their warehouses and politicians will have a tough nut to crack if inflation rises as a result of trade wars. Already, 59% of Americans believe their country is in recession, despite good economic data.

It is worth remembering that the development of the global economy has been due to free trade for several decades, with the focus on China. This process is now set to be halted and many Americans would even like to see it reversed. This will benefit many European or American companies, but unfortunately it will be at the expense of ordinary citizens, who will pay more for many products. This will fuel inflation and at the same time slow down the economy. Such a situation is known as stagflation. Stagflation is therefore a possible scenario as downside risks dominate the markets, including geopolitical tensions and trade fragmentation.

 

The real background to the dispute between China and the USA

It is not about politics. It’s not about the eternal struggle between Chinese pseudo-communism (with the capitalist tinge) and American pseudo-capitalism (with the neo-Marxist face). It’s all about raw materials and semiconductors.

Last week, a meeting took place between US President Joe Biden and Chinese President Xi Jinping. Among other things, it was agreed that contacts between the US military and the Middle Kingdom should be resumed.

It should be remembered that the military dialog was broken off following the visit of Nancy Pelosi (then Speaker of the House of Representatives) to Taiwan at the beginning of August last year. This was the first visit by such a senior US politician to Taiwan in 25 years. China protested strongly against the visit and even threatened the US with a military response. Well, Biden’s team has always behaved like a bull in a china shop when it comes to diplomacy (see the flight of US soldiers from Afghanistan and their approach to Russia).

Although a few gestures are now being made after the meeting between Xi and Biden that could indicate a de-escalation in mutual relations, the war on the semiconductor front continues. In the middle of the year, for example, China decided to restrict exports of gallium and germanium, two important raw materials for the semiconductor industry. This was in response to the American decision to deny China access to the equipment needed for chip production. Incidentally, China is the world’s leading producer of gallium and germanium. The Middle Kingdom controls no less than 98% of the supply of gallium and 68% of the supply of germanium.

In October, Joe Biden’s administration announced that the United States would shorten the list of semiconductor types that US companies are allowed to sell to China. With this move, Washington wanted to further cut off Beijing from chips, which triggered an immediate reaction in the Middle Kingdom. This time, however, China decided to strike on a different front by announcing a restriction on the export of graphite, a raw material that is essential for the production of batteries for electric vehicles, among other things. It is worth remembering that China controls 2/3 of the world’s graphite supply. This raw material is the largest component of electric car batteries by weight. Each vehicle contains an average of 50 to even 100 kg of graphite. That is about twice as much as lithium, the processing of which is also controlled by the Chinese worldwide.


Quelle: constructafrica.com

Since many of the raw materials that are indispensable for the green revolution preached by Western decision-makers are mined in Africa, China has been focusing on colonizing the Dark Continent with the help of cheap loans and direct investments since the New Silk Road initiative began in 2013. The regimes of black dictators are happy to go into debt to their Chinese friends because they don’t talk about human rights and environmental protection. Meanwhile, Americans are investing billions in AI and high-tech, which cannot function without Asian and African raw materials. They disregard the potential collapse of supply chains that has been underway since the start of this trade war and which the Chinese can exploit as a weapon.

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