Supercycle
The most important story of our lifetimes
In 2004, an unusual crime wave swept cities around the world. Some called it the great drain robbery. Under cover of darkness, thieves were stripping manholes of their heavy iron covers, leaving streets perforated with sudden drops into sewage tunnels. In a single week, the London borough of Newham lost 93 covers. Aberdeen, in Scotland, saw 130 vanish. Chicago was robbed of 150 in a month. In the Indian city of Kolkata, more than 10,000 manhole covers were reportedly stolen over the course of two months.
These thefts were motivated by a phenomenon that commodity traders call a supercycle, meaning an extended period of high prices for raw materials. Since the Industrial Revolution, the world has seen five supercycles, coinciding with major bursts of economic development or war. Those manhole covers had become valuable because the price of iron, an ingredient for the production of steel, was surging. And most of the demand was coming from one country in particular. China was beginning its rise as an industrial giant.
Iron ore was the signal substance of Chinese growth — by 2024, its price was almost 1,000% higher than in 1995 — but all kinds of resources were sucked into the whirlwind: oil and coal, nickel and copper, soybeans and rubber and wool. In recent months though, analysts have been announcing the end of the two-decade China supercycle. Chinese iron ore consumption is starting to come down, along with steel production. Some reckon its demand for oil may be peaking too. This does not mean that China will stop growing, or that it will not continue to consume and produce much more of certain things. But the patterns are shifting.
As Donald Trump’s tariff experiment now lurches into an escalating trade war with China, it is worth considering the epochal shift that brought us here. The supercycle was an epic chapter carved into the material substrate of our world, reverberating in every corner of the globe. It is, almost certainly, the most important story of our lifetimes. It has raised China, in the space of a generation, from a poor and largely rural society to a superpower that is competing at the frontiers of technology, while controlling the most important resources for the future. It has transformed the developing world. It is implicated with the rise of Trump and, in various ways, with with the precarious situation that Europe now finds itself in.
“If you don’t have steel, you don’t have a country,” declared Trump in 2018. The British government seems to agree, as it uses emergency powers to prevent the UK’s last two remaining blast furnaces from being closed by Jingye, a Chinese company. Such are the strands of history that can be traced back to the start of the century, when those manhole covers were being cut up into scrap, shipped across oceans, melted down, and fed into Chinese steelmaking convertors.
What set the supercycle in motion? Until the 1980s, China still measured affluence by the humble quartet of a bicycle, a wrist watch, a sewing machine and a radio. By the turn of the century, however, the country was reaching an inflection point. Its GDP was approaching $4,000 per person, the level at which a society’s demand for resources tends to leap upwards, as consumers buy more manufactured goods and governments build more infrastructure. Crucially, though, China’s transition was supercharged by global trade in the decades following the Cold War. With its enormous, cheap labour force and authoritarian government, it was perfectly positioned to become the world’s factory. Just as China was reaching the $4,000 per-head threshold, it gained admission to the World Trade Organisation.
China began sucking in the world’s resources like a drain emptying a bath, turning them into vast cities and infrastructure projects as well as products to be shipped back out to the world. What happened next is best captured in numbers, since language can scarcely convey its sheer scale. In 1995, China’s economic output was one-tenth the size of America’s. By 2021, it was three quarters. Over the same period, the Chinese share of world manufacturing output went from 5% to 30%. Whereas just one in five Chinese people lived in cities at the turn of the century, today more than three in five do. So rapid was this urbanisation that, between 2000-2010, China’s villages disappeared at a rate of 300 per day.
In 2003, China had no high-speed rail, but by 2011 it had the world’s biggest network. The country produces more steel in two years than Britain has in almost two centuries. Similarly, China poured more concrete between 2018-20 than the United States has done in its entire history. China melts and refines almost half the world’s copper supply. Chinese oil imports, at 11 million barrels per day, are more or less equivalent to the entire output of Saudi Arabia. China burns 30% more coal than the rest of the world combined, and its consumption is still rising. This means that the Chinese energy system is, by far, the biggest factor determining the future of the climate.
If global trade helped to set this engine running, the Chinese Communist Party pushed it into higher gears. Rather than directing the proceeds of growth towards social safety nets or consumer spending power, the CCP has, until recently, sought to funnel them back into material production. This strategy has helped China become utterly dominant in key supply chains underpinning the modern world, but it has also resulted in prodigious waste and, ultimately, instability. The country’s enormous, debt-swollen property sector, which went into crisis in 2021, threatens to drag the entire economy down. Dozens of concrete “ghost cities” are still awaiting residents, though some are so poorly constructed that they might collapse first. An overworked population faces one of the world’s most daunting fertility deficits. Polluted industrial areas have poisoned their residents and spawned ecological catastrophes.
But Chinese economic development has not only taken place within China itself. A large share of the resources fuelling China’s growth has come from poor and developing regions of the world, whether Brazilian iron ore and soybeans, Congolese copper, Malaysian rubber, or Indonesian nickel. Many of these places have received big Chinese investments in infrastructure, and have become markets for Chinese construction firms and manufactured goods.
The results have been especially dramatic in the world’s poorest continent, Africa. China is the leading purchaser of a wide spectrum of African metals and fossil fuels, and it imports large quantities of African food products, timber and tobacco (China has almost one-third of the world’s smokers). Chinese companies, many of them state-owned, have built more than three hundred dams, almost five-dozen power plants, and thousands of kilometres of roads and railways in Africa. They have constructed an immense apparatus of pipelines and other facilities to access the petroleum reserves of more than a dozen African countries. That is not to mention the airports, hospitals, and sports stadiums, or the nearly two hundred government buildings.
This relationship has undoubtedly brought Africans some benefits, in the form of much-needed government revenues and basic infrastructure that would otherwise not exist. On the other hand, much of this development is designed for resource extraction rather than the needs of ordinary Africans. Much has been financed through exploitative debt arrangements, and much Chinese spending has merely lined the pockets of African politicians. China has stripped African forests for timber, ravaged African wildlife for traditional medicine, and supplied African governments with advanced tools for surveillance and repression.
In 2002, shortly before all of those manhole covers started to vanish, 1,000 Chinese workers arrived in Dortmund, a city in Germany’s Ruhr region. They had come to dismantle a large steelworks. Steel had been produced at the site since 1843, employing 10,000 workers at its peak. Now ThyssenKrupp, a German conglomerate, had agreed to sell the plant to the Chinese firm Shagang.
The enormous industrial edifice, complete with a seven-storey blast furnace, would be packed into crates and shipped 9,000 miles to Handan, a city on the Yangtze River north of Shanghai. It took the Chinese workforce less than a year, toiling 12 hours a day, seven days a week, with scant regard for health and safety precautions. Tens of thousands of parts were meticulously labelled and packed, down to individual screws, requiring some 50 container ships to move. The documents detailing the reassembly process alone weighed 40 tonnes.
Shagang’s steelworks in Handan — which also incorporated equipment from France and Luxembourg — is now the largest in the world. It has helped China’s steel output to surpass that of every other country combined. Back in Dortmund, the site of the former plant is unrecognisable. It has been redeveloped into the Phoenix-See, an artificial lake offering water sports, surrounded by restaurants and ranks of pristine white villas in the International Style. This post-industrial idyll has not, of course, managed to fill the void left by the city’s coal and steel sectors, which employed more than 75,000 people in 1960. When the journalist James Kynge visited Dortmund after the departure of the steel plant, he found widespread unemployment and social disintegration. “Do we look like yachtsmen to you?” a jobless steel worker asked. A local Lutheran priest had a starker message: “Our identity is lost.”
The implications of this story are not exactly as we might expect. Since 2015, when Trump first ran for the presidency, we have become familiar with his account of the “China shock”, or the impact of Chinese growth on manufacturing in the West. According to Trump, China had stolen American blue-collar jobs and grown rich selling America goods that should have been made there. Trump’s trade war against China during his first term was the opening salvo of the radical tariff programme we are seeing today. This view of China’s rise has not gained the same political traction in Europe, but it has become a kind of conventional wisdom. It is because China makes everything, we assume, that areas like the Ruhr or northern England no longer do.
But Western de-industrialisation is a much longer story. It was well underway before the China shock arrived, thanks to competition from countries like South Korean and Japan, and it is still going on today. Those Chinese workers who came to Dortmund were dismantling the last vestiges of unprofitable industries which had been closing down for decades. Germany had already shifted to sectors like cars, machinery, and chemicals, where China was not initially a competitor.
The impact was greater in the US, where according to one commonly cited estimate, the China shock cost a million manufacturing jobs, and 2.4 million jobs in total, during the first decade of the century. Still, what made Trump’s pitch so politically potent was not the number of lost livelihoods, but their concentration in Rust Belt states that helped him to win election in 2016. These areas were suffering from a manufacturing recession at the time, but one that was caused by the dollar’s appreciation against the Euro, not by China.
If we want to understand how the China supercycle has reshaped and undermined the political economy of Western countries, we should focus not just on the losers, but on the winners. Chinese growth offered significant benefits to the Western business and governing classes, and these benefits ultimately made them complacent. In Europe especially, elites became tacitly reliant on China to help them avoid difficult choices. They did not want to acknowledge that their advantages were only temporary, and that they were storing up problems in the longer term.
China rose in a global trading system dominated by America, and American big business reaped the rewards. Multinationals like Apple and Walmart benefitted from Chinese manufacturing, which was not only cheap but highly skilled and innovative, allowing them to develop new products and sell them around the world. In 2018, Forbes suggested that an iPhone would cost “in the $30,000 to $100,000 range” if Apple had to make it in the US, which may be an exaggeration but gets the point across. Likewise, business and financial interests poured capital into China to take advantage of the country’s growing market.
The wealth generated by this system incentivised the belief that, somehow, Chinese growth would not pose a major threat to America’s own power. This was despite clear evidence in the 2010s that China was rapidly scaling the technological ladder, while leveraging its own advantages in resources, production, and trade to secure a controlling position in the global economy. Since 2016, US politics has been overshadowed by these misjudgements, with both parties competing to appease the working class and trying to slow China’s advance.
A similar story can be told about Germany. The German car industry, which has played such an outsized role in European politics over the years, was another winner in China. The big-three German carmakers — BMW, Mercedes and Volkswagen — together accounted for a quarter of the Chinese market in 2019. But they failed to anticipate that China would rapidly develop its own world-beating automotive industry, focused on EVs and software. In fact, in this and other important areas, China has now become a direct competitor. And Germany is ill-prepared for this challenge, since its earlier successes disguised an irresponsible political consensus that, in the name of fiscal restraint, has starved the country of much-needed investment.
Even Europe’s moral aspirations look like a complacent fantasy when China’s role is taken into account. European politicians claim to lead the world in two areas: ensuring the welfare of their citizens, and protecting the environment. But in 2007, when the New York Times ran a report on the aftermath of the Dortmund steel transfer, it could already see that this model of virtuous prosperity was “illusory”. Europe’s clean air, the authors noted, was only possible because Chinese cities like Handan had become a nightmarish “miasma of dust and smoke”, poisoning their residents and driving up global CO2 emissions. Chinese steel mills produced three times more carbon dioxide than German ones, and did so in part to supply Europeans with cheap goods. As an economist at China’s Ministry for Commerce admitted, “the shortfall of environmental protection is one of the main reasons why our exports are cheaper.”
In other words, Europe built its green ambitions on the back of China’s rise as the biggest polluter in history. Britain is especially guilty here. UK governments have boasted about cutting the country’s emissions by about 40% since 1990, but when imported products are taken into account, the figure falls to 23%. Last October, to great fanfare, Britain marked the first day of coal-free electricity in its history. Yet this is basically irrelevant when global coal consumption, led by China, continues to reach new highs every year. Even the transition to renewable energy is being largely driven by coal. Everything from solar panels and electric vehicles to the metals used by green technologies are produced cheaply in China thanks to coal energy.
The solar panels now carpeting the English countryside also rely on the forced labour of Uyghur Muslims in the Chinese region of Xinjiang, where much of the world’s polysilicon is mined and processed. Meanwhile, China’s fishing fleets plunder the world’s oceans and its petrochemical factories pump out plastics for Shein garments, all to the benefit of European consumers.
Since January, the instability rippling across the world has been seen, understandably, as a result of the revolution taking place in the United States. The Trump administration has undermined old alliances and appeased old enemies, extorted trading partners and nakedly coveted the resources of other nations. Now it is trying to fashion a new economic order with the bluntest tools it can find. But even if America is responsible for the dramatic shape and pace of events, we should not lose sight of the dynamics operating in the background, dynamics unleashed by the supercycle.
The US has been trying to pivot its military forces away from Europe and towards Asia since the days of Barack Obama. The disregard in Trump’s circle for Ukraine and Nato is a more extreme expression of the same logic, which is ultimately dictated by the need to contain Chinese power. And recall that Joe Biden prosecuted his own trade war against China, raising tariffs on steel, aluminium, solar cells and EVs — the latter tariff was 100% — and trying to limit Chinese access to advanced computer chips. The Biden administration also coordinated Western investments in African railways and other infrastructure, as part of an effort to counter Chinese control of natural resources on the continent.
Likewise, Europe’s frantic efforts to regain a measure of autonomy are not only a response to Trump’s betrayal, but a belated attempt to gird the continent against Chinese economic might. The enormous investment packages recently passed by Germany’s parliament, reversing two decades of fiscal policy, are aimed at strengthening German industry as well as building defence capacity. European governments and the EU itself are reassessing environmental schemes that threaten security and economic competitiveness. Regulations on combustion cars are being relaxed, while carbon tax exemptions and the recent “clean industrial deal” actually protect polluting industries. If Europe wants to defend itself, then carbon-intensive sectors like steel may need to be subsidised after all.
Even the incipient sense of anarchy in the world is not entirely Trump’s doing. In recent decades, stability came not only from American supremacy, but from the structure of the supercycle, which anchored the world’s supply chains in China. But raw materials traders have long been gearing up for the next supercycle, which is now commencing. This one will be driven by the minerals used in renewable technologies and advanced computing. And rather than the stabilising framework of American-Chinese cooperation, it will take the form of a competitive scramble for resources. Numerous countries will want access to lithium, cobalt, and nickel for batteries, copper for transmitting electricity, platinum for electronic components, and a host of exotic rare earths — gallium, palladium, neodymium and more — for the hardware that underpins artificial intelligence. They will also want oil for the tonnes of plastic that go into every wind turbine and electric vehicle.
The problem for Western countries is that, thanks to the last supercycle, China has a massive head start in this race. It controls two-thirds of all lithium and cobalt processing, almost 70% of rare earths, and around 80% of battery production. Nor is this only a material question. Western commentators sometimes imagine that industrial capacity can simply be summoned into being by relaxing planning laws and providing financial incentives. But advanced manufacturing requires deep pools of experience and skill, which China has developed over time and the West, in many areas, has not. As Apple CEO Tim Cook put it a few years ago, “in the US you could have a meeting of tooling engineers and I’m not sure we could fill the room. In China you could fill multiple football fields.”
Look at Europe’s struggle to make batteries. Last year, around two decades after those workers came to Dortmund to dismantle the steel plant, another Chinese contingent was in the Swedish town of Skellefteå. This time they had come as experts, installing machinery for Northvolt, a beleaguered company that was being billed as Europe’s battery champion. As one engineer told the FT, referring to China’s skill base, “they are established and they have already done it. So they’re just better. We are late to the party.” Northvolt went bust in March. China may not have cracked advanced semiconductors, but neither has America. In Arizona, efforts to kick-start an industry with Taiwanese assistance have been bogged down by a shortage of skilled workers.
Insofar as there is a consistent logic in Trump’s economic plans, it appears that he wants the US to be more like China –– to have more heavy industry, more manufacturing jobs, more exports and more self-reliance. Yet his tariffs are a self-destructive way to pursue these goals. They have already caused American manufacturing to seize up, because it relies on the very things that Trump is making more expensive to import. As Michael Strain has pointed out, for every job making steel in the country, there are 80 jobs that use steel to make something else. And bringing back factories back to the US is not the same as bringing back jobs, since companies will seek to avoid the higher wage costs through automation.
If the China supercycle taught us anything, it is that the ability to make things depends on raw materials and supply chains far beyond a country’s borders. For all its industrial power, China too is vulnerable in this sense, and that is why it has invested so much effort in building up global networks through its Belt and Road initiative. Trump, by contrast, prefers threats of conquest and the erratic theatre of the “deal.” To compete in the next supercycle, America will need leaders with a more subtle sense of how to run an empire.
An edited version of this essay was published by UnHerd.
So interesting. It's the kind of text that makes you feel like you've acquired the skills of an owl. You see more clearly, the visual field is expanded beyond your comfort zone, your routine...
Previously read it on UnHerd. Epic.