All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and [humans are] at last compelled to face with sober senses [our] real conditions of life, and [our] relations with [our] kind.
— Karl Marx and Frederick Engels, The Communist Manifesto
An unfolding trade war pitting the United States simultaneously against China, the European Union, Canada, and Mexico has begun. The economic and political consequences – intended and unintended – are now unfolding. How this trade war develops and “ends” is a political question that cannot be predicted concretely. But the framework to foresee what is coming down the road is coming into focus.
There is no letup in the continued erosion and breakdown of the post-World War II, post-“Cold War” eras characterized at their core by the predominance of US capital in the institutions of world capitalism and in world politics.
On June 15, 2018 the Donald Trump Administration announced it will be adding a 25% tariff-tax on some $50 billion worth of Chinese goods imported into the United States. On June 18 Trump then threatened another 10% tariff-tax on $200 billion worth of additional Chinese commodities, raised to $500 billion on July 5, affecting virtually every Chinese product throughout the US-China production-to-exchange chain.
The first-round of tariffs, $34 billion worth, took effect on July 6, applying to 818 commodities and products. The second round, $16 billion on an additional 284 items, await “reviews,” that is vetting by the major industrial and financial oligopolies whose profits may be more or less directly affected. They are lobbying Trump and his enforcers for exemptions, waivers, and dilutions individually and collectively.
Trump’s threats to escalate were presented as being contingent on any Chinese government and state counter-tariffs on US goods and services. These, of course, were bound to happen; there could be no other political choice for the Xi Jinping government. The Chinese Ministry of Commerce immediately announced counter-measures “of the same scale and the same strength.” The statement further announced as “invalid” the recently reported “progress” on a deal that would have led to an additional $70 billion in US imports to China, based on a negotiated reduction of Chinese tariffs and other legal barriers to selected US commodities and services, including energy, agricultural, and high-tech products. Agricultural commodities were an initial focus of Chinese counter-tariffs, since China is a major market for US agricultural products, especially soy beans.
Trump’s announcement was rolled out with provocative and jingoistic rationalizations. Uncle Sam as bumbling sucker, the victim of nefarious Chinese practices. They are stealing our technology. They carry out “state subsidies” of industries and dump surplus production stealing the jobs of American workers. And so on…as if the entire system of world capitalist production, finance, and exchange were not lubricated and dependent as a whole on such practices. Practices by which the most advanced capitalist states and industrialized economies – the United States, the former colonial powers of western Europe, and Japan – are the historic masters and mentors.
At a July 5 campaign rally in Montana which drew thousands, Trump thundered:
We are bringing back our wealth from foreign countries that have been ripping us off for years…For too long we watched and we waited and we saw as other countries stole our jobs, cheated our workers, and gutted our industry.
With his trademark national chauvinism and demagogy, Trump continued:
The United States of America was the piggy bank that everybody else was robbing. Our allies in many cases were worse than our enemies. We opened our country to their goods, but they put up massive barriers to keep our products and our goods the hell out of their country because they didn’t want that competition.
Trump is upending the decades-long, highly profitable arrangements between the US capitalist class, its various governments in Washington, and the Chinese state. US capital would invest in commodity production inside China for sales to the US and other developed capitalist markets. It has been an arrangement that has been crucial in the formation and accumulation of state and private capital in China by Chinese business owners and government officials.
While it is very difficult to calculate precisely balance-of-trade surpluses and deficits of nation-states within globalized production chains, as well as calculating so-called “services” onto the balance sheets, China’s trade “surplus” in finished goods with the United States has been in the low-to-mid 100s of billions of dollars range for many years. A good slice of which is recycled and parked in US Treasuries. This greatly cushions the impact for US debt markets, making it easier for US federal and private banking institutions to obscure, dilute, and hide dollar-denominated debt. It also helps the US Federal Reserve suppress higher interest rates, and keeps low or non-existent tax rates and outlays for billionaires, millionaires, and US-style oligarchs.
China today owns nearly $2 trillion in US Treasury securities, which makes it the largest US “foreign creditor” and the second largest owner of US bonds, after the Federal Reserve itself. No one can know for sure what the impact of the unfolding trade war will be on Chinese purchases of US Treasuries, insofar as the US-China balance of trade numbers and those of China’s purchases of US government debt have become the intertwined sine qua non of the entire economic and financial relationship. China’s vast holdings register both leverage and vulnerable dependency. China’s decades-long massive economic expansion and growth (high single-digit to low double-digit GDP rises every year since 1991!) has been strongly predicated on maintaining China’s access to US markets for the wholesale and retail sales of these commodities.
Over the decades US-China economic ties and exchange led to the massive expansion of Chinese factory manufacturing and industrial development, as well as huge profits for US capitalists and their Chinese state and private partners.
This process also contributed mightily to the large expansion of the Chinese industrial proletariat, including a super-exploited sector of migrant workers, and urban petty bourgeoisie, with the concurrent reduction in the size of China’s peasant population. All of this has led to the massive production and reproduction of surplus value in the country based on the application of labor power to produce commodities to be exchanged, that is, sold in the US and world markets.
This massive production and reproduction of real value, real social wealth, and real capital was certainly siphoned off disproportionately and corruptly by Chinese bureaucrats and capitalists. But it has also been massively invested in infrastructure and urban development projects, led by high-speed rail production and construction.
Two giant Chinese initiatives in the past period highlight these historical developments. First, the Chinese Belt and Road Initiative which promotes regional “connectivity” through infrastructure and other economic projects, and second, the China-initiated Asian Infrastructure Investment Bank (AIIB) which finances infrastructure and other economic projects in the Asian-Pacific region. AIIB is headquartered in Shanghai and has 86 members, including a number of US NATO “allies.” Washington, from Barack Obama to Trump, has so far declined to be any part of it. Moreover, China has publicly issued its Made in China 2025 plan to be world leaders in future industrial applications in artificial intelligence, robotics, and chip manufacturing, which is viewed with hostility in Washington.
Washington – and this is a largely bipartisan cry – gets particularly worked up over so-called state aid and subsidies to Chinese industries and companies that are themselves state or quasi-state-owned or nominally private. China also attempts to get around efforts led by Washington to pressure companies to restrict Chinese access to some technologies by making such access a condition for sales and commercial exchanges in the vast Chinese markets themselves.
A June 29 column in the Financial Times (“Bond markets send signals of a looming recession”) by University of Chicago “Professor of Finance” Raghuram Rajan states:
[E]conomic metric estimates of the effects of one or two rounds of tariff rises are small. But the models do not capture the intertwined nature of global supply chains. Moreover, the effect on business sentiment, as well as the pall of uncertainty cast over investment will be considerable, A trade war will be costly.
Rajan points to the political difficulties for any governments and national leaderships today “to be seen [as] giving in to threats, making trade conflicts more likely.” He then continues with:
… a final reason for concern. China is cleaning up its financial system, an immensely complicated task given the debt that has built up. Growth has slowed, the cost of riskier loans has been rising, as have defaults. The Chinese authorities are working to spread losses across the system, but this needs to be managed carefully to avoid panic. If China is caught in a trade war while it is still restructuring its financial system, its difficulties could spread abroad.
If the dynamic of a large-scale US-China trade war is unleashed, then it will have critical economic and commercial – and therefore political — consequences for the trade and diplomatic regime that has been built up and stabilized over many decades between Beijing and Washington – and Wall Street and China.
The EU, Canada, and Mexico
The tariffs on China set in motion by Trump and his Executive Branch team of Commerce Secretary Wilbur Ross, White House National Trade Council Director Peter Navarro, and Treasury Secretary Steven Mnuchin came on top of tariffs on steel and aluminum exports carried out against Canada, the European Union, and Mexico, announced with great hoopla, earlier in the June month. These ostensibly aim at boosting US domestic steel and aluminum production, but also led to immediate retaliatory measures of equal reach and value by all. So far, every dollar-value of US tariff-taxes have been met with an equal value in counter-tariffs. Can that be sustained?
On June 29, 2018 Canadian Foreign Minister Chrystia Freedland defiantly announced Canada’s response to the Trump tariffs on steel and aluminum. “We will not escalate — and we will not back down,” said Freeland. (Before her current gig as Foreign Minister for the Justin Trudeau government, Freedland was a leading editor of the Financial Times, the quintessential organ of British and world capital.)
She unveiled counter-tariffs on US goods entering Canada, including whiskey, toilet paper, washing machines, and motorboats. Altogether, Canada will tax $12.6 billion worth of American goods, which matched the value of the US tariffs on Canadian steel and aluminum.
“I cannot emphasize enough the regret with which we take these countermeasures,” Freedland added. She emphasized that the only way Canada might reverse them would be if the Trump White House rescinded first. There are always political dangers when many faces need saving at once.
Trump’s Executive Orders were invoked under the cover of “national security.” This provoked umbrage from Canadian, EU, and other US post-World War II era NATO “allies.” They pointed to the various imperialist wars they fought over the years hand-in-glove with Washington.
The current framework and regime for the regulation of tariffs and the resolution of trade disputes is the World Trade Organization (WTO). The US tariffs are already being contested in WTO bodies in a likely bruising battle. The WTO as an “objective” arbiter and judge, is clearly in danger of losing authority and fraying under great pressure. Trump’s back-to-back measures are bound to accelerate a breaking down of world capitalist trading norms and stability.
Allies and Competitors
The EU bloc, most of its individual nation-state components, and Canada are military allies of Washington — still by far the predominant military power with the most firepower and global reach on Earth – through the NATO alliance. But, at the same time, all are home bases for some of the fiercest competitors of US based multinationals and other capitalist firms in world markets. In a time of intensifying, cutthroat global competition, with financial volatility and turbulent waters ahead, the “competitors” side is being more sharply expressed and rising to the fore. The political fallout from policy choices and decisions on trade, tariffs, currency manipulations, debt and capital flows are, at the very least, posed more sharply in today’s world. Old trading blocs and ties come under pressure and weaken, rebooting political policies and alliances.
Consequences, Intended and Unintended
While Trump’s public utterances – “Trade wars are good and easy to win” – exude typical flippant political confidence on his part, these policies are highly contentious within the broader US capitalist class. Within these circles there is growing anxiety and dread that Washington will not be able to drive things through without serious political consequences in the world arena.
The shift that Trump looks to realize registers the political erosion internationally of the “neoliberal globalization” regime which greatly benefited many US-based giant corporations, banks, and businesses – and the mounds of capital behind their brands – as they set up shop in China, Mexico, and elsewhere with greatly increased profit rates. The major benefit of this inside the United States for US capitalists was the lowering of the value of labor and the evisceration of industrial jobs and industrial unions. The decisive factor involved is relatively cheaper (usually very much so) labor costs, which outweigh other disadvantages and extra costs for US-based capital in production outside the US, such as in transport costs, management training, and so on.
Of course, US capitalists couldn’t care less about the social devastation in working-class communities in the US.
US Capital is Divided
Opposition to Trump’s measures is strongest among business groups and elected officials from both the Republican and Democratic parties who have been identified with the general “free trade” neoliberal policies worldwide that have dominated trade pacts and mainstream bourgeois economics for decades. These anti-working-class policies have increased in unpopularity since the so-called Great Recession and financial crisis of 2007-08 and are now widely discredited and hated in the US and around the world, especially among working people. But the opposition to them takes varied “populist” forms – left and right — that have done and can do little to effectively counter them or provide any program and perspective of mobilization and independent working-class political action and power. In the face of popular hostility and battered credibility, almost by inertia, the “neoliberal model” limps on.
What will be the impact on world economic developments of Trump’s tariffs? Does it give a push to the next – inevitable – financial jolts and economic downturn-recession? Will the EU, Canada, and Mexico have the political will and strength to counter them? Is there space for increasing domestic US assembly and manufacture of commodities, finished products, and capital goods (machinery, etc.) that have been “farmed out” for decades now that US labor value and costs has been driven down in recent decades? Can increased US domestic manufacturing (up 36,000 in June 2018 according to the US Bureau of Labor Statistics) sustain sales volume and profit rates?
Diminished US Political Power
There are wide layers in top US business, financial, and social circles who do worry that Trump is accelerating and deepening the deterioration in US political influence worldwide. They are anxious that Trump’s course, rather that restoring the post-World War II full-spectrum dominance of US capital – capsulized in his campaign slogan “Make America Great Again” – will do the opposite and actually accelerate US decline.
There is considerable substance to this anxiety. Under Trump there has been a striking US political isolation in world political forums on one major international political question after another: Washington’s withdrawal from the (fairly toothless, in any case) Paris climate change accords; Trump’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) on Iran’s nuclear production and activity, an agreement which was ratified by China, France, Germany, Russia, the UK, and the EU as a body; Washington’s humiliating isolation every year in the UN over its criminal and hated blockade of revolutionary Cuba; and issues around Israel and Palestine that might ameliorate Palestinian conditions and advance a two-state solution.
Korea is Hardly a Trump Triumph
Trump’s escalating moves on US trade and exchange with China were announced when the ink was hardly dry on the document issued, amid great world attention and hoopla, after the June 12 Summit between Donald Trump and the Kim Jong-un government in the Democratic People’s Republic of Korea (DPRK).
While the Trump White House has been eager to spin the Summit results as a feather in its cap, his ability to do so was necessarily predicated on the US suspension of “war games” and other joint US-South Korean military maneuvers off the North Korean coasts. Maintaining Washington’s “right” and political will to do so became politically untenable following the Kim government’s ending of missile launches, atmospheric and underground tests, and even the verified destruction of one nuclear site while at the same time the two Korean governments deepened relations through friendly encounters amid popular enthusiasm. No one can seriously doubt that the Moon Jae-in government in South Korea favored and pushed for the US suspension of the “joint” war games.
It seems apparent that China and South Korea forcefully intervened behind the scenes to keep the US-DPRK talks on track. In reality, Trump and Secretary of State Mike Pompeo (with National Security Advisor John Bolton kept in the shadows) found themselves in an isolated diplomatic and political corner and risked a politically unwinnable confrontation with both China, South Korea and the United Nations large majority. This became even more dangerous politically for Washington on the heels of the US withdrawal from JCPOA treaty with Iran.
As this article was being finished, the US-DPRK negotiations had a negative public eruption after US Secretary of State Mike Pompeo met with top North Korean authorities in Pyongyang. The DPRK Foreign Ministry issued a detailed statement on July 7, calling the meetings “regretful” and Pompeo’s apparent sole focus on unilateral DPRK denuclearization “gangster-like.” The DPRK statement promoted, “in the spirit of” the Singapore Summit and its written statement signed by Trump and Kim, an interconnected focus on issues like a formal peace treaty replacing the “Armistice” ending military combat in 1953; improved US-DPRK bilateral relations; and building a “peace regime on the Korean Peninsula,” that is, building on the momentum of improving relations between the two Korean governments and states. Pompeo and Trump have both downplayed the DPRK statement, with Trump on July 9 spinning that China “may be exerting pressure on a deal because of our posture on Chinese Trade – Hope Not!”
Of course, as the DPRK statement said, “suspension of one action called exercises is a highly reversible step which can be resumed at any time or any moment as all of its military force remains intact in its previously held positions without scraping even a rifle.” Nevertheless, for the Trump Administration to revert to a “maximum pressure” policy while demanding North Korean capitulation and permanently subordinating all other political issues, starting with formal and actual bilateral and multilateral peace, is not politically tenable, starting with South Korea and China and, overwhelmingly, world public opinion.
The July 1 landslide election in Mexico of left-wing “populist”Andres Manuel Lopez Abrador (AMLO) is also setting Washington’s nerves on edge. It is not Lopez Obrador’s political orientation and program, per se, that is setting off (mostly muted) alarms. While he is solidly progressive with anti-imperialist instincts flowing from Mexican and Latin American historical experience, AMLO has sent out clear signals that he is loath to directly promote anti-capitalist measures and policies. His campaign focused on the corruption of private capital and the Mexican capitalist state and the intertwined, massive violence and death associated with the illegal capitalist drug cartels.
What is worrying for the US (and Mexican) ruling classes is the tremendous enthusiasm and mobilizations around AMLO’s campaign, which points to the rising expectations among Mexican working people and youth who want action and who are saying Enough is Enough! Rather than channel mass political combativity into harmless electoralism and parliamentary wrangling, it is more likely that any significant progressive measures promoted by the Lopez Obrador government and its clear majority in both houses of Mexico’s legislature, will spur on the class struggle. This is particularly worrisome for the guardians of US imperialism, given the remarkable history of gratuitous, patronizing insults and anti-Mexican demagogy employed by Donald Trump since the beginning of his campaign for US president. And his reactionary and brutal anti-migrant policies once in office.
In any case, a window into the arrogance of the US ruling rich came with a short editorial in the July 3 Wall Street Journal, titled “The Peso Federales.” Acknowledging Lopez Obrador’s “landslide” and “mandate,” the Journal’s editors warn of the pressure coming from a “different sort of election – the one that takes place daily in financial markets.” Pointing to a 1% drop in the Mexican peso (that “recovered” the next day) following the election, the editorial continued “the president-elect now has to worry what the markets think if he wants to improve the lives of Mexicans.”
One of the biggest concerns for the academic, journalist, and big-business monitors of world economic developments today, prior to the next sharp economic crisis and recession-depression, is that there has been a significant and growing outflow of capital from so-called “emerging” countries into the capital markets of the most advanced capitalist economies, especially the US. This is reversing a mild trend otherwise in recent years.
Sharp turns down for the Argentine peso is the starkest expression of this tendency. In June 2018 the IMF came up with a $50 billion “loan,” a bail out for austerity package, that has already provoked the biggest labor mobilizations in that country for over a decade.
The Class Struggle Will Ratchet Up
When you enter a period like the current one, within the transition from one era-epoch to another, old truisms become stale, alliances and allies can and do change, traditional state-to-state relations become strained and even boil over. No one can doubt that class struggle, social polarization, and political volatility is likely to be ratcheted up considerably in the context of the coming global economic downturn. This will happen everywhere and anywhere. In the United States itself we can expect more massive working class and popular eruptions – seemingly coming out of nowhere – like the wave of solid, disciplined, and victorious teacher’s strikes in the US states of West Virginia, Oklahoma, and Arizona in early 2018.
The unfolding trade wars unleashed by Donald Trump are now facts on the ground. To cite the great socialist pioneer Frederick Engels:
Those who unleash controlled forces, also unleash uncontrolled forces.