Kudlow: Xi Jinping Bluffing on Taiwan as China Faces Economic Pressures

Larry Kudlow stated that Chinese President Xi Jinping is bluffing in his saber-rattling over Taiwan during recent discussions with President Donald Trump. According to Kudlow, Xi suggested that mishandling Taiwan could lead to a clash between the two countries and place their relationship in great jeopardy.

Kudlow noted that the longstanding U.S. policy of strategic ambiguity, which supports Taiwan’s autonomy and independence, is unlikely to change. He expressed confidence that President Trump does not want it to change, describing Taiwan’s status as not really negotiable. Kudlow highlighted Taiwan Semiconductor Manufacturing Company (TSMC) as central to global AI competition, pointing out that the Taiwanese firm has opened substantial operations in Phoenix, Arizona, and other U.S. locations. He doubted Trump would alter or relinquish these arrangements.

Kudlow pointed to recent U.S. actions that have diminished China’s influence, including in Venezuela and the Panama Canal, with potential further developments in Cuba. On Iran, he said China buys 90% of Iran’s oil and gas exports, but Trump’s airtight blockade of Iranian ports is leaving China starving for energy, which could lead to a deal. Kudlow added that President Trump has elbowed China out of the Middle East and the Western Hemisphere.

Addressing China’s economy, Kudlow described it as collapsing under communist management. He said the country has not recovered from a real estate property crash several years ago, with GDP growth falling from rates of 15% or better to 5% or less — effectively a recession for China. Kudlow noted that amid bad economic statistics, authorities have chosen not to publish them. He recalled that in the 1980s and 1990s, China flirted with market-oriented reforms that improved the economy and built a private sector, but under Xi Jinping in the 21st century, it has reverted to a tightly controlled state enterprise marked by massive corruption and repeated failures.

Kudlow, who worked on Trump’s first-term Phase One trade deal, said China remains highly protectionist in world trade and rarely keeps promises to open markets. Despite heavy investment in its military, he argued that China’s malfunctioning economy and slipping global political standing weaken its position.

Kudlow drew a parallel to the Reagan-Gorbachev era, when a booming American economy confronted a collapsing Soviet one. He recalled Reagan refusing to negotiate away the Strategic Defense Initiative (now echoed in concepts like the Golden Dome defense and Trump’s Space Force), telling Gorbachev that the strong U.S. economy could sustain it while the Soviet system could not. Kudlow believes the same dynamic applies today with Trump and Xi.

He cited key statistics: U.S. per capita GDP exceeds $90,000, while China’s is just shy of $14,000, giving America a nearly sevenfold economic advantage. Kudlow concluded that while Xi may saber-rattle, Trump holds the stronger position.