Chinese President Xi Jinping appeared to back off the heated trade rhetoric over the past few months. In a speech drawing intense focus, Xi, while stating nothing that could be taken as definitive, pledged a “new phase of opening up” China’s vast marketplace.

China does not seek [a] trade surplus. We have a genuine desire to increase imports and achieve greater balance of international payments under the current account.

The country’s massive and structural merchandise trade surplus is a weakness in geopolitical terms. There is in far too many places substantial and legitimate resentment of it, and the Chinese leadership knows very well that it cannot be justified pell-mell. Should China wish to fight the rising tide of fragmentation, this isn’t the place.

Still, it was a far cry from the initial Chinese response to President Trump’s imposition of tariffs and restrictions. Promising retaliation of equal measure, they sought to impose $50 billion in additional duties on mostly American soybeans. Then Chinese officials spent last week leaking potential additional counteractions, including CNY manipulation (yeah right) and the disposition of its forex reserves, largely UST’s (here we go again).

It may be that the official position has softened in recent days, or it may just be the dawning recognition that China, contrary to most assessments, is in a much worse overall shape than the United States. We talk about global Japanification including what’s been done to the US economy since August 2007, but it has been far from uniform playing out this way.

The US system, as riddled with imbalance as it may be, no recovery anywhere on the horizon, it isn’t quite Japan 1989. That’s a far darker and more dangerous scenario. And it’s the one China is much closer to than anyone else.

In 1990, Japan’s share of global economic output (measured by GDP) was about 17%. Not only that, much of the rest of the world had spent the latter half of the eighties extrapolating just how long it would be before Japan’s economy might overtake the US as the world’s largest. Today, instead, it’s proportion is less than 6%.

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