Washington targets Beijing’s subsidies as Chinese citizens self-insure

(Originally published Feb. 25 in “What in the World“) If there’s one target of Trump’s ire that he shares with his Democratic opponents in Washington, it’s China.

On Monday, a bipartisan group of U.S. legislators introduced a bill that would give the Commerce Dept. greater authority to retaliate against China for trade practices deemed unfair, including subsidizing industries, dumping cheap exports abroad, and manipulating its currency. The new bill follows U.S. President Donald Trump’s decision earlier this month to raise tariffs on aluminum to 25%, on par with the tariff on imported steel he imposed during his first term.

That tariff virtually shut China out of the U.S. market. Chinese steel now accounts for only about 2% of total U.S. steel imports. Most comes from Brazil, Canada, and Mexico. China supplies about 4% of all U.S. aluminum imports; most comes from Canada. China still subsidizes its aluminum and steel manufacturers, directly and through indirect benefits like favorable financing, that have resulted in a supply glut. U.S. manufacturers say that cheaper Chinese aluminum and steel is being used to lower the cost of other manufactured imports.

That glut obviously contributed to the excesses of China’s construction boom, particularly in housing. As Beijing continues its struggle to mop that up, it has directed more state investment into other strategic sectors, notably electric vehicles, semiconductors, and wind turbines. And, as in metals, the subsidies have resulted in overcapacity and a surge in cheap exports that have worsened China’s trade imbalances with the rest of the world.

While it subsidizes what it considers vital industries, China spends surprisingly little on its citizens’ vitality. Beijing doles out only the equivalent of 6% of GDP on public benefits like healthcare and social security. That’s roughly on par with another country with a famously inadequate social safety net, the United States, but well behind most European countries. Sweden, for example, spends almost 19% of GDP on its social services. China’s President Xi Jinping may be a Communist, but he has a Republican distaste for welfare. But economists say the lack of a solid social safety net is one reason China’s consumers won’t pick up the slack created by a weak manufacturing and property sector. They’re saving up for a rainy day.

China’s hospitals are the latest victims of its economic slowdown. Still anemic after the low margins they endured during the Covid pandemic, hospitals in China find themselves short on patients as China’s consumers ratchet back on healthcare as they tighten their belts. It doesn’t help that there is a surplus of hospitals, built to cater to China’s aging population when the economy was booming and Beijing encouraged privatization. As a result, hospital bankruptcies in the past five years have climbed to 200, up from seven in the previous five-year period.