Well, indeed. America’s savings rate has collapsed to 0.6 per cent of GDP. The US Treasury depends on foreign investors to fund a national debt rising higher than ever before, already 122 per cent of GDP with a structural fiscal deficit of 6 per cent to 7 per cent as far as the eye can see.

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The Treasury must roll over 33 per cent of its $US36 trillion ($56.7 trillion) federal debt over the next 12 months.

China had nothing to do with last week’s Treasury rout, the defining fiasco of Donald Trump’s mad antics. There were plenty of other reasons: a disorderly unwinding of the “basis trade” by hedge funds caught flat-footed; and above all the capitulation of Republican deficit hawks in Congress, willing to go along with a budget gimmick that lets America slash taxes and spend trillions more that it cannot afford.

But it is easy to see how China could create panic just before Treasury auctions if it wished to do so.

Did Trump have any idea what he was doing when he launched his tariff war against China, jauntily shutting down the anchor trading relationship of the international system?

One might have thought that the political pain threshold of the totalitarian, web-controlling Chinese Communist Party was infinitely higher than the threshold of Walmart-shopping MAGA America or Republican politicians facing midterm elections next year. And equally that Xi Jinping has much to gain from defiantly refusing to “kiss ass”, as Trump delicately puts it.

Exports to the US have fallen from a peak of 6.7 per cent of Chinese GDP in the early 2000s to 2.7 per cent today.

Almost 86 per cent of Chinese exports now go to the rest of the world. The maritime Silk Road is turning much of the Global South into a Chinese economic system.

The Association of Southeast Asian Nations alone is a bigger market for China than the US. Most of the Middle East is now listed as pro-China or leaning-China on the geopolitical map of Capital Economics.

I am not among those who think China is automatically destined for economic supremacy. It has overinvested chronically in excess capacity. It faces debt deflation and the onset of Japanification. It is formidable in whole sectors of technology, but it is also brittle, rigid, fear-based, and cursed by the pathologies of party dictatorship.

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The liberal democracies have everything to play for. China wins the 21st century only if the West commits suicide, and that is exactly what Trump is urging upon us.

However, much of China’s $US500 billion export trade to the US is expendable. Shipping toys, furniture, shoes, and clothes for bargain sales in US supermarkets is not profitable. Nor is it the market niche that China wants as a rising high-tech power.

“It’s time for all these low-value businesses that sell to Walmart to close,” said Andy Xie, a former Morgan Stanley banker.

As my colleague Szu Ping Chan reports, there is a whole school of economists in China arguing that the “Trump shock” is exactly what China needs to break out of the middle income trap and jump up the value ladder.

So who suffers most political stress from a total and violent economic decoupling? Xi’s tightly controlled China, or Trump’s febrile, restless America, where 100 million consumers live on maxed-out credit cards and zero savings, acutely vulnerable to a price spike in day-to-day goods, with no safety margin if they lose their jobs?

Scott Bessent, the US treasury secretary, says China is “playing with a pair of twos”, which is one way to describe its stranglehold over critical minerals and much of the resource base of the 21st century high-tech economy.

“The US civilian economy is totally disorganised and has no coherent plan if China cuts off rare earth supply,” said Jack Lifton, chairman of the Critical Minerals Institute.

China has already restricted exports of gallium, germanium, antimony and graphite over the last two years, and has now widened the list.

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This stranglehold is no accident of the free market or geography. China has pursued a strategic policy to knock out rivals via predatory dumping, and compelled its own smelting companies to overbuild refining capacity.

As is by now well known, it has gained 90 per cent control over the rare earth supply chain needed for robots, semiconductors, aviation, magnets, radar, electric vehicles, 5G and 6G wireless, power electronics, you name it.

China’s sway over global sources of lithium, cobalt and nickel is weaker, but Washington has clearly been asleep at the wheel. Trump is right about that.

The rational policy for the US is to build up its own processing industry over the next decade and to contract long-term supply from the likes of Canada and Australia. Instead, Trump has punched allies in the face, and launched his war with China before the US is ready for the consequences. He has the sequencing entirely backwards.

Joe Biden did the exact opposite. He strove to bring America back from industrial death first, calibrating the US showdown with China at manageable levels.

He showered $US280 billion on semiconductor fabs to repatriate America’s chip industry from Asia, and to combat China’s push for supremacy in quantum computing, space, biotech, and materials technology. He teed up what would have been a turbo-blast of $US1 trillion to electrify America and to stop China running away with the booming world market for clean tech.

Trump persists in telling the world that he will not retreat on tariffs and that “nobody is getting off the hook”. But markets are heavily discounting everything he now says.

They can see that he backed down against Canada and Mexico after discovering that US car prices would go through the roof, and that he dared not pull the trigger on full tariffs against Europe, and that he immediately unpicked his own embargo against China after discovering that a US-made iPhone would cost $US3000.

All but a diminishing band of Trumpian fellow travellers around the world can see, in short, that his bluff has been called. China just has to grit its teeth, like the 15th Corps at Triangle Hill, and wait until Trump’s voters can see it too.

The Telegraph, London

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