Chinese use crypto to export cash; Trump wields tariffs as diplomatic missiles
(Originally published Jan. 27 in “What in the World“) Out goes the dragon and in comes the snake. But a new zodiac animal doesn’t seem likely to diminish Chinese citizens’ zeal for spiriting cash out of the country.
They’re increasingly resorting to cryptocurrencies to sneak their money out of China. According to Chainalysis, a blockchain data firm, cryptocurrency brokers in China took in $95 billion between late-2023 through mid-2024, more than double what they received two years earlier.
The inflows defy government restrictions imposed in 2021, when it declared using cryptocurrencies illegal and banned foreign cryptocurrency exchanges from providing services to Chinese citizens. Chinese responded by simply moving their cryptocurrency purchases to what The Wall Street Journal calls “over-the-counter” brokers—presumably unregistered, illegal online brokers—and peer-to-peer networks, or in other words individuals.
Chinese aren’t the only ones heading for the exits, though. More U.S. companies are willing to admit (perhaps even boast) that they’re thinking of pulling out of China. In an annual survey of American companies by the American Chamber of Commerce in China, 30% responded that they were either pulling some operations out of China or thinking about doing so.
That’s not surprising given the new attitude towards China in Washington. Newly coronated U.S. President Donald Trump said last week he would impose an additional 10% punitive tariff on Chinese imports as early as next month. Trump said the additional tariffs were meant to punish China for exporting chemicals used to make the fentanyl smuggled into the United States.
Tuesday’s statement disappointed those who thought he might hold back on raising China tariffs. A draft White House memo viewed by Reuters and other people who spoke to The New York Times orders federal agencies to investigate U.S. trade deficits with China and other countries and determine to what extent China has complied with a 2020 deal to boost its U.S. imports.
That Trump didn’t also immediately make good on promises to hike tariffs to 60% sparked hopes he might favor a more transactional form of diplomacy, in which he uses the threat—as opposed to the imposition—of tariffs to extract concessions from China and other trading partners on trade and other areas of foreign policy.
Under the “Phase 1” trade deal Trump signed with Beijing in 2020, Beijing was required to boost its purchases of Made-in-America products to $200 billion over the next two years. China’s imports of U.S. products soared to $180 billion in 2021 as the country recovered from the Covid pandemic but slid back to $165 billion in 2023.
China optimists have still found reason for hope: at least Trump still hasn’t made good on his threat to boost tariffs to 60%. But as Trump’s feint has demonstrated, he clearly doesn’t intend to squander the leverage tariffs give him by deploying them in a single blow. Instead, he’ll use tariffs in an incremental, carrot-and-stick fashion: threatening to raise them with one hand, while with the other offering to lower them.
That’s essentially what J.P. Morgan CEO Jamie Dimon told CNBC on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland. After accusing Trump of treason and reportedly supporting defeated Democratic Vice President Kamala Harris’ campaign, Dimon now appears to have joined the ranks of top American executives scrambling to kowtow to the winning side. Dimon told CNBC Trump is using tariffs as an economic weapon, he said, to “bring people to the table” to negotiate more favorable trade terms. “I would put in perspective: If it’s a little inflationary, but it’s good for national security, so be it. I mean, get over it.”
Trump has, for instance, suggested that a successful sale of the popular social-media app TikTok to a U.S. buyer could affect his tariff decision. On his first day in office, Trump signed an executive order postponing the deadline for a sale that resulted in a one-day U.S. blackout for the app’s U.S. users. While China’s Communist Party-controlled government has said it officially opposes a forced sale, the company’s owner Bytedance is a private Chinese company. So, Beijing technically isn’t able to force it to sell anything. But thanks to revisions in 2023 to its technology export law, it is in a position to block a sale to prevent the export of any technology it deems sensitive.
But perhaps the best indication is how Trump on Sunday announced sanctions against, and 25% tariffs on imports from, Colombia for its refusal to accept flights carrying deported immigrants from the U.S.
Trump may next want to use his tariff threat to stop China from shipping chemicals to Iran not to make fentanyl, but rather weapons. Iranian ships are reportedly in China loading up with a chemical needed to fuel missiles. U.S. hawks are quick to decry any defense-related trade between the two nations as further evidence of the growing “Axis of Evil” between them, Russia, and North Korea. Though when you’ve been labeled a pariah by Washington and sanctioned, there’s little place to turn but to your fellow pariahs. By failing to deploy a Nixonian style divide-and-conquer strategy, U.S. foreign policymakers are instead creating the global archenemy they so desperately desire to justify America’s posture of paranoia.
China, meanwhile, is battling a domestic drug problem very different from the one Trump accuses it of exporting to the U.S. China’s problem is that its own domestically made drugs don’t seem to work. Eager to reduce rising health costs to its rapidly aging population, China in 2018 encouraged domestic drugmakers to compete on cost. That sparked a price war that drove most foreign pharmaceutical companies out of the market. But cutting costs has apparently led many Chinese companies to cut corners: doctors are risking government censure to complain that they are being forced to use ineffective drugs such as anesthetics and blood-pressure medicine.