Trump, tariffs and global trade

Trade wars very often lead to shooting wars, and are one more sign of the deepening crisis of capitalism.

Proletarian writers

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Proletarian writers

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The latest round in belligerent USA trade policy, which saw the imposition of a 25 percent import tax on steel and a 10 percent import tax on aluminium, was, ever so predictably, kicked off with a tweet from US president Donald Trump.

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade any more – we win big. It’s easy!”

A key part of Trump’s campaign rhetoric before he was elected was to claim that the United States was being unfairly treated by the countries it competes with, and that this needed to be rectified. Now, in order to be seen to be meeting the free-market rules of the World Trade Organisation (WTO), while at the same time keeping his campaign promises of market protectionism, the president has cited ‘national security’ as a justification for acting to redress this alleged ‘imbalance’.

Of course, the very idea that the US is on the wrong end of the global ‘fairness’ imbalance is laughable, and a gross inversion of the real structure of existing global power. To make such a claim is akin to a super-rich capitalist moaning about how hard he has to work and how much better his wage slaves have it.

Competition is intrinsic to capitalism and cannot be separated from it – capitalism leads to competition for markets, for access to labour, and for access to raw materials, including oil and mineral wealth.

Bourgeois economic analysis tends to follow the stock market, and, putting the cart before the horse, sees economic crises, including stock market crashes and even the great depression of 1929, as the root of events, rather than a symptom of something deeper. Yet Marx long ago demonstrated that capitalist economic crises are rooted in an underlying economic factor: a crisis of overproduction, in which markets become glutted with products that the impoverished workers are unable to buy.

Historically, one of the main economic factors leading to world war has been escalating trade wars between imperialist countries. However, as Lenin pointed out, for instance, in Imperialism, the Highest Stage of Capitalism:

“The export of capital [by imperialists, in search of superprofits] influences and greatly accelerates the development of capitalism in those countries to which it is exported. While, therefore, the export of capital may tend to a certain extent to arrest development in the capital-exporting countries, it can only do so by expanding and deepening the further development of capitalism throughout the world.” (1916)

As a result, in recent decades, as imperialist powers economically gradually decay, very many non-imperialist countries are able to present highly effective competition to imperialist producers.

It is therefore important to take these newly imposed US tariffs seriously, as they may well provoke retaliatory responses from the affected countries, further destabilising a crisis-ridden global capitalist system that is already teetering on the brink of all-out war.

The US steel and aluminium industry

Steel and aluminium are heavy industries, essential not just to capitalism, but to human civilisation as a whole.

Steel is a fundamental component in the manufacture of industrial machinery and tools, in transportation from cars to ships, and in durable large-scale buildings and other infrastructure.

Aluminium is a much lighter metal with a high strength to weight ratio (ie, it is both strong and light) used in aircraft and other transportation manufacture, as well as in construction, in electricity transmission and in large infrastructure, and all the way down to the ubiquitous aluminium can.

Steel and aluminium are also both essential for the production of weapons and military equipment, and for the pursuit of war in general.

The US produced 78.5m tons of steel in 2016, just under 5 percent of world production, and it is the world’s fourth-largest producer after China (which produced 49 percent in the same year), Japan (6.5 percent) and India (5.8 percent). The European Union as a whole produced 16.6 percent, with Germany the largest producer among the EU countries. (See World steel in figures 2017, World Steel Association, 29 May 2017)

Historical figures from 2013 show that after China, the largest steel exporters at present are Japan, south Korea, Ukraine and Germany, while the United States is the largest importer. Excluding China, these steel exporters are all major allies of the United States, and all their industries were originally due to suffer from the imposition of US import tariffs.

Effect on the US’s allies

The US first announced that Canada and Mexico would after all be exempt from its new trade tariffs, prompting outrage from its imperialist allies and satellites – Australia, the EU, south Korea and Japan, which saw no justification for their economies to be penalised on US ‘national security’ grounds since they are staunch backers of the US. In their eyes, how can they be a threat to the USA when they are allies – either within Nato or ‘major non-Nato allies’?

The exemption of Canada and Mexico from the new tariffs came from a need to maintain good relations with the US’s closest geographic allies on the North American continent and access to the resources they provide to the US. However, as we go to press, we learn that US imperialism has gone back on its determination to impose tariffs on its close allies: the EU, Argentina, Australia, Brazil and south Korea have all joined Canada and Mexico in gaining exemptions from Trump’s tariffs on steel and aluminium products.

China’s response

China, the world’s largest steel producer by far, has condemned the US’s proposal to implement tariffs. China’s foreign minister Wang Yi stated that, in a globalised world, tariffs “will harm both the initiator and the target countries”. This is certainly true, when countries’ trades are so integrated into a world market.

Chinese president Xi Jinping and German chancellor Angela Merkel held a telephone conversation on 16 March discussing global steel production, and agreed to “deepen their strategic partnership”, according to Steffen Seibert, the German chancellor’s de facto press secretary. (Merkel, Xi agree to work on steel overcapacity within G20 by Andrea Shalal, Reuters, 17 March 2018)

Although it would seem that EU countries have now been exempted from the tariffs, including Germany, historically, there has often been economic conflict between the USA and Germany. Current US-instigated sanctions against Russia are damaging the interests of Germany’s eastward-looking capitalists, and also pose a serious threat to European energy supplies, affecting both industry and household consumers.

Meanwhile, a low level tit-for-tat trade war has been going on between European and US-based corporations, with fines levied by the EU against US technology companies over tax avoidance, and by the US against European car manufacturers such as Volkswagen over its recent emissions scandal.

In an article entitled The west is doing its best to help China, Edward Luce of the Financial Times lamented such trade skirmishes are doing everything they can to help China and divide the west, arguing that the proposed new US tariffs are part of a long line of blunders that have sown divisions inside the imperialist alliance. The ‘blunders’ listed include the 2003 invasion of Iraq and the 2008 recession and the subsequent stagnation in the imperialist countries that followed. (7 March 2018)

The FT article went on to highlight the fact that global approval for President Xi Jinping is now higher than the approval rating given to President Trump, the current leader of the ‘free world’, and how traditional allies are increasingly looking at the USA as an unpredictable ‘friend’, ever more prone to punishing its allies rather than working with them to ‘peacefully’ exploit the oppressed nations.

Of course, just as the bourgeois ideologues see in this driving away of the US’s erstwhile allies something to be lamented over, progressive people all over the world cannot but rejoice at the sight of the weakening of the imperialist world order and the widening of the cracks between the various sections of the national and international ruling classes.

Will the tariffs actually happen?

It seems very likely that these tariffs will come into effect. How long they will last is impossible to predict, however.

On 20 March 2002, George W Bush brought in import tariffs on steel of 8-30 percent to protect US steel manufacturers, and to shore up domestic electoral support in key states. These tariffs lasted less than two years, until 4 December 2003.

They were lifted when other countries proposed retaliatory tariffs on US-produced imports, including Florida oranges and cars, which were specifically targeted in order to hurt George W Bush electorally in the swing states where his majority was very slim.

It is possible that the new tariffs imposed by Trump will be lifted in a similar timescale, as similar targeted threats have been made by the targeted countries

Can these and other tariffs succeed? What is the effect of tariffs domestically?

A recent article in the New York Times provided a history of some US tariffs in recent times that have failed to achieve what they set out to do. (Trade wars can be a game of chicken. Sometimes literally, 13 March 2018)

1. Trade tariffs often fail to protect domestic production and fail to reverse the decline in domestic manufacture.

Imposing taxes on foreign imports cannot by itself build up a domestic industry, which requires other state-led interventions, subsidies and incentives.

In the planned economy of the Soviet Union, strong emphasis was placed on building up heavy industry regardless of cost, as it was understood that a strong domestic heavy manufacturing base created long-term beneficial effects.

It seems unlikely that the US administration will intervene in the steel and aluminium industries to such a serious extent.

2. Companies do anything and everything to circumvent tariffs, including switching raw materials and production sites.

For instance, producing four-seater ‘passenger vans’ outside of the USA, importing them, then retrofitting them into commercial vans by removing back seats and windows, thus bypassing a van import tax. Despite this being a clearly wasteful practice, the companies concerned will of course carry on performing such ridiculous contortions if the total cost to them is lower.

3. Tariffs can often have knock-on effects on the domestic market, over and above any tit-for-tat tariffs imposed by other countries.

The imperialist global economy requires the advantages of what is called ‘global wage arbitrage’ to function: that is, it needs to exploit an international wage disparity between the core imperialist countries and the exploited periphery.

Low wages in the superexploited countries enable supercheap production of mass-produced essential goods: 300 teabags for £3, a toaster for £7.29, £9 pairs of jeans … the list is endless.

These cheap essential goods enable the capitalists to keep baseline wages for manual workers at home low, but if governments raise the import costs of goods then the retail price of goods will also (in most cases) rise.

Coming back to the specific tariffs being proposed, we can see that if access to cheap steel and aluminium is restricted, and there is no domestic industry that can make up the shortfall at similar prices, then the cost of production of steel and aluminium goods will rise. This will have a knock-on effect across the country, as retail prices of essential goods rise, thus squeezing the domestic population financially as well as increasing the price of exports, thus reducing many companies’ ability to compete.

Furthermore, there is no guarantee that the tariffs will have any positive effect on US steel production at all, certainly not without the introduction of serious government incentives.

The US ‘rationale’ for tariffs

These trade tariffs have been described as national security measures, as steel and aluminium are essential heavy industries and are key in any protracted full-scale war. Many within the Trump administration consider that the US’s economic security has been weakened by becoming greatly dependent on overseas steel and aluminium production.

The US still has the most powerful military in the world, but it no longer has the strong domestic economic base that it had during the last world war – domestically, it has been ‘hollowed out’. This section of the US ruling class sees the off-shoring of US domestic industry during the so-called ‘neoliberal’ phase, when US businesses went in search of lower wages to offset a declining rate of profit, as having shifted the global balance of power unfavourably to continued US domination.

A key administration trade advisor is Peter Navarro – author of a 2011 book Death by China. In it, he lays out explicitly, and in racist Anglocentric terms, the perceived threat that China poses to American imperialism.

In his white paper on Trump’s economic policy, Navarro sees the reasons for the off-shoring of US manufacturing as both the “high taxes and a heavy regulatory burden” in the USA, as well as “unfair trade practice like the lure of undervalued currencies and the availability of illegal export subsidies”, and lays the blame for the decline in US domestic manufacturing firmly on ‘illegal’ practices by other countries.

In Navarro’s view, rather than cynical and profit-hungry US business seeking to exploit low wages in other countries, they have been ‘lured’ overseas by the ‘cheating’ Chinese (who don’t obey the rules of ‘fair’ trade … set by the USA, of course).

Navarro laments the trade deficits of US parasitism and sees them as the fault of the currency manipulation and mercantile policies of unfair competitors, and also the result of the US agreeing to negotiated trade deals to its own disadvantage (!)

Navarro also complains about other countries purchasing US treasury bonds in order to manipulate their currencies, and yet in reality the US can only manage its huge trade deficit through the willingness of other countries to buy US debt (ie, treasury bonds).

By recycling the trade surplus other countries have with the US back into US treasuries, the US can maintain its deficit without experiencing the effects of maintaining such a deficit for so long; it can continue to ‘print dollars’ to pay its debts and to pay for its imports. Without this recycling, the value of the dollar would crash, with serious ramifications for the US economy. The US is completely caught in the trap of its own parasitism.

Navarro forms part of a group of ‘outsiders’ that Donald Trump brought into the White House who were not part of the ‘traditional’ Washington elite. Navarro was reportedly recruited to the White House team after a cold call from Jared Kushner, Trump’s son-in-law and adviser, who had been impressed by the title of his book while browsing on the Amazon website.

Over time, these oddballs – Steve Bannon, Rex Tillerson and so on – have been fired and replaced by career empire management types with long histories in the US administration. It remains to be seen if, like the others, Navarro is fired from the Trump inner circle to be replaced with someone who takes a more subtle approach to running the US’s imperial trade network.

Trade and war

Trade wars have a history of leading to shooting wars. Clausewitz (as quoted by Lenin) long ago pointed out that “war is an extension of politics by other means”. Competition is intrinsic to capitalism, and it is only a matter of time before ‘peaceful’ competition becomes violent competition, during which the protagonists pursue their political aims by means of war.

For decades, the imperialist west has remained at peace under the aegis of US military dominance, ultimately backed up by its apocalyptic nuclear arsenal. With this unique post-second world war hegemony, ‘friendly’ economic competition has had free rein, without sliding into military competition between imperialist countries.

With the dominance of the world by US imperialism, the imperialists as a whole have until now managed to keep the inevitable capitalist tendency towards war confined to being waged ‘only’ against the oppressed nations by the oppressor imperialist countries; to the point where shooting wars between imperialist countries are now thought by many to be a thing of the past, though war against the oppressed nations with very little power to defend themselves has continued unabated and, indeed, intensified since the collapse of the Soviet Union.

The rise of powerful new non-imperialist trade and military rivals that imperialism desperately needs to dominate and suppress has created new possibilities for imperialist countries to find themselves drawn into theatres of war, rather than merely conducting war in other people’s countries.

This post-war ‘peace’ was founded first and foremost on the balance of power that pertained at the end of WW2, when the old imperialist powers were prostrate and the Soviet Union, and its growing number of allies, were rising ever higher. In such a situation, the US (the only imperialist country to emerge stronger from WW2) was able to dictate terms to the European imperialists (and also to Japan in the east), prompting them to found the EU and to join Nato as a counterweight to the growing European socialist bloc, and helping them to buy social peace at home through massive loans for reconstruction of industry and for the creation of welfare states.

In this situation, when the US was economically so much mightier than everyone else, it could largely dictate the terms of the ‘free and fair’ competition between the imperialist countries in their access to markets and exploitation of the oppressed nations – it not having to be stated that the US’s military and economic power gave it something of an advantage in all such ‘open’ competitions.

Over time, however, the balance of power has been shifting in the world. The EU, with Germany at its heart, is increasingly unhappy to remain a mere satellite of the US, and both rival imperialists and rising non-imperialist economies are increasingly able to give the US a run for its money in the economic arena. Trump’s new trade tariffs go against the conventional post-WW2 capitalist wisdom, and are a symptom of increased competition and even the potential fracturing of the post-second world war alliance of imperialist countries.

How this particular factor will play out is near impossible to predict. Navarro may be fired like others in the administration and replaced by someone who takes a more subtle Obama-era type of approach, attempting better to bind the imperialist alliance together; these new Trump tariffs may be rolled back swiftly like the Bush ones … or they may not be.

These tariffs may escalate into the type of full-blown trade war that most ‘experts’ thought was a thing of the past, or they may not. But, regardless of what happens in this particular instance, the internal contradictions in the capitalist system are leading to deepening rifts between various sections of the bourgeoisie, as they argue over how best to survive the present economic crisis, and between the various imperialist countries as they argue over ‘fair shares’ in their ‘peaceful’ alliance to exploit and dominate the world.

The fragmenting and destruction of the post-second world war order and the rearranging of the geopolitical map in favour of the socialist and non-imperialist countries is nothing for workers to fear. Indeed, the sight of our enemies fighting one another, and our allies increasing in strength, can only bring us joy.

The very real possibility of a catastrophic world war that the imperialists may well try to unleash, most probably against non-imperialist trade rivals (notwithstanding the fact that interimperialist contradictions are also becoming more acute) in their increasing desperation to save their bloodsucking world order is something we must do all in our power to avert, however, through the only means available to us: active non-cooperation with imperialist warmongering and fighting for the revolutionary overthrow of the parasitic and bellicose capitalist ruling class.