America can't win this war nor admit it can't win. It will likely take the PRC to end this conflict. Xi winning the Nobel Peace Prize next year? What is "holding all the cards" in Mandarin.
Exports to the US is about 20% of China's GDP [2].
Regardless of any of China's contingency plans, US exports are well above noise-levels.
[1] https://www.statista.com/statistics/268173/countries-with-th...
[2] https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?location...
What you should take note of, is that China's trade surplus tracks the US trade deficit extremely closely, and this has been the case for the last 20 years.
Said another way, most nations in the world run roughly balanced trade. There is only one nation on earth that can sustain large and prolonged trade deficits. Only one. That is the US. So if you are a nation whose entire economic strategy rests on running large and sustained trade surpluses, then you are going to be exporting your surplus to the US, directly or indirectly, and only to the US.
Now in practice, some of that will be direct sales to the US, some will be indirect sales to the US, but at the end of the day, if you want to run a 1.2 trillion dollar trade surplus, then you have to hope to God that the US is willing to run at least a trillion dollar trade deficit, because no other country is going to do that for you, the entire rest of the world may be willing to accomodate a hundred billion or so, but for everything else, you will depend on the US, directly or indirectly, to absorb your surplus.
So to run a current account surplus against the rest of the world of $100, you need to accumulate $100 of financial claims belonging to the rest of the world. There are complexities, for example I switched from "trade surplus" to "current account" because things like interest payments also need to be added in, but with these adjustments, you cannot run prolonged trade surpluses without storing your money in some other nation's jurisdiction.
Now the question is, which nation is willing to accomodate inflows of a trillion dollars a year? That's right, only a single nation is willing to do that. Most nations ban or severely restrict foreign capital inflows. Those that don't ban it, they don't have the necessary financial infrastructure to accomadate the scale of surpluses that China needs to run. This is why I laugh at all these reports of "China is dumping treasuries". China accumulated over a trillion dollars of dollar claims over the last year. That's in addition to what they already had. Why? Because who else would allow those levels of foreign capital inflows into their economy.
So once again, the US is the only nation willing and able to absorb these capital inflows.
Personally, I don't think this is sustainable, it's deindustrializing the US and is highly destabilizing, but since the liberalization of global capital flows launched by the Clinton administration, we have been doing this 30 year experiment in what happens when you let countries print money and use them to buy your bonds. The results have been, in my opinion, highly destabilizing, and it's not going to end well. But many of those who grew up in this period, think this is just how the world works and they can't imagine any other system, one in which capital inflows were highly restricted and as a result, no nation ran large trade surpluses against any other. Or they don't think about this at all and believe that China's hard work and industrial prowess is why they are able to run large trade surpluses, completely ignoring the whole money printing to buy US bonds that is happening in the background. When the US was the world's primary industrial power in the period 1870 - 1920, we ran current account deficits, not surpluses. What China is doing, industrializing while exporting capital -- that is truly unprecedented and possible only due to the combination of fiat non-convertible money combined with the US allowing unrestricted capital inflows. It's a truly bizarre state of affairs.
This is just tautological with the trade surplus. Yes, the two go hand in hand.
My point is that "trade surplus" is always trotted out as if it is some vulnerability of China's - that if we stop giving them dollars and they stop giving us goods, this would create an unsolvable problem for China's economy.
But this is merely fanciful fiction borne from western thinking where we don't have the political will to take sustained direct action to subsidize domestic industry. But China isn't bound by this! Rather it is merely wishful thinking as if we hold power here.
Hence my focusing on whether China actually needs more dollars (ie is reliant on exporting to get those dollars), or whether they could make do with what they've already saved up in treasuries (and other USD investments) while being unable to export as much to the US. My gut says their economy and industry is now large enough that they could weather it just fine. We're still looking at them as if they are the little kid from the 90's (who would have indeed been hurt if we had never started the arrangement), and failing to see that they are all grown up. The pump has been primed.
> the US is the only nation willing and able to absorb these capital inflows... The results have been, in my opinion, highly destabilizing
In my opinion, the destabilizing results were not inevitable. Rather they were the result of deliberate policies that were kept outside of the Overton window by the entrenched interests who were benefiting from them.
Having others say "I'm willing to accept IOUs from you rather than requiring payment in cold hard cash" (aka having the world reserve currency) is an inherently lucrative position! The downsides can only come from how you react to having that ability - a spendthrift might write IOUs without limit and spend all their cash, making the position itself look like a vulnerability. Whereas a frugal person who wants to avoid that fate but isn't very creative might keep a stack of cash that 1:1 corresponds to IOUs they've issued.
The two deliberate policies of which I speak are 1. USD must always inflate (which precludes the frugal option) 2. the legislature/executive government is prevented from spending the newly created money on (most) deliberate constructive activities (like the industrial subsidies I was talking about above).
So most of the wealth we received from having the world reserve currency (represented in-system by newly created money) was simply given away by the Federal Reserve directly to banks (as low-interest loans) to blindly "invest". This resulted in the everything bubble - unproductive assets as a safe haven, intemperate investment in new industries, but failure to maintain the industries we had (since mature industries don't achieve outsized investment returns).
In a different world the legislature would have spent some of that wealth directly subsidizing domestic industry to maintain it, backed up with laws about not being able to move production lines out of the country. But of course this was not in the interest of the corpo class as it would have meant less money going into their own pockets. Hence it remaining on the fringes of the Overton window. (the one place it did actually happen was the defense industry, of course)
Now that the deindustrialization scam has run its course, the corpo class is on to the next thing - economic consolidation to further cement their position. They're channeling echos of what would have been prudent decisions back in the 90's, which makes grassroots voters think they are finally being listened to. But it's nonsensical to talk of closing the barn door after the horse is long gone, right? So in reality they're pushing upside-down bizarro revanchist economics (like framing strong currency itself as a problem!), to destroy the economy that we actually did develop. Then they can mop up and further centralize.
Edit: tanker hit a mine today in Hormuz, going great