By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute
The United States has increased tariffs on $200 billion worth of Chinese products to 25 percent, and Beijing has responded in kind on $60 billion worth of American goods. More tit for tat appears to be on the way: the Trump administration is now openly deliberating whether to impose additional tariffs on a further $325 billion of Chinese goods exported to the United States. National security concerns are also being increasingly invoked: Not only is Huawei, the Chinese telecommunications group, already largely shut out of selling its products in the U.S. domestic market, but Trump is also now taking steps to ban the sale of U.S.-made components to Huawei as well. What was once a mere trade skirmish, therefore, appears to be metastasizing into Cold War 2.0.
This creates a conundrum for the Trump administration: Beijing is increasingly viewed by many countries as an economic rival or a security threat to be contained, rather than a collaborative trade partner to be accommodated. But the president’s “America First” trade policy is undermining broader multilateral efforts to contain China because Trump’s incessant focus on reducing his country’s bilateral trade deficit with Beijing means diverting Chinese purchases away from other trade counterparties.
That means, for example, China buying more U.S. cars made on American soil than, say, German ones, more U.S. soybeans than Brazilian, or more U.S. semiconductors than Japanese or South Korean ones, all designed to help reduce the bilateral deficit. This sort of a trade deal, however, is clearly not in the interests of the EU, Brazil, Japan, or Southeast Asia, and is making them averse to collaborating with the United States with regard to any Chinese security concerns they might share (which they do), especially when one considers that the basis for the West’s successful containment strategy against the former Soviet Union was that it was both collaborative and multilateral in scope.
Semiconductors are a perfect case in point to highlight the new contradiction. If Trump bans the export of U.S.-made semis to Huawei (he has now offered a temporary 90-day waiver), then the latter will naturally gravitate toward buying them from other countries. In fact, the Sino-U.S. trade dispute is just one of many growing points of friction between the U.S. and its traditional allies. Many are increasingly ignoring Trump, and competing for Chinese markets or investment (as the Italians have recently done in response to Beijing’s “Belt and Road Initiative”).
The Sino-U.S. dispute throws up other challenges for the administration: Tariffs are certainly effective as an attention-getting mechanism. But if the goal is ultimately to encourage more jobs at home, they will be ineffective if unaccompanied by a national industrial policy that focuses on American re-industrialization in order to create skilled, high-paying private sector jobs capable of profitably supporting workers with solid middle-class incomes. A corollary is that a national development policy must be geared toward jobs that reflect the needs of the 21st-century economy, rather than nostalgically working to sustain industries that may be headed toward obsolescence, like steel or even fossil fuels.
Many share the president’s belief that a harder line on Chinese trade is necessary. This reflects a growing loss of faith (even among those formerly well-disposed to Beijing) that the country’s market reforms will inevitably lead to multi-party liberal democracy, along with mounting skepticism that free trade and commercial co-dependence can displace military rivalry (a similar historic miscalculation was made before World War I).
But support for the president’s current stance, particularly from Democrats, is conditionally tied to the embrace of a more activist form of state industrial policy to ensure that American workers derive maximum benefit from the reverse engineering of existing “Chimerica” supply chains. And that, argues Professor Michael Lind, “means adequate and permanent production on U.S. soil, not just innovation in America and production elsewhere.” This means some combination of managed trade, along with national industrial policy.
Managed trade, which prioritizes concrete purchases of U.S. goods (as opposed to increased market access or structural changes to China’s economy), is not really new. Ronald Reagan pursued a similar policy against Japan during the 1980s. Nor is the idea of a national economic development strategy particularly contrary to American historical traditions. Since the days of Alexander Hamilton, industrialization and the concomitant role of the state have long been viewed as the joint basis of modern military power and prosperity by both major parties, whether the president was a Republican like Lincoln or Eisenhower, or a Democrat such as FDR or JFK.
It is only with the rise of multinational industry in the past few decades where the notion has taken hold that the state should limit its role in economic development. Borders have come second to measures of growth and corporate profitability. When there has been greater growth potential with policies that go across borders, the policies generally got the green light, even at a cost of eroding America’s homegrown manufacturing base. As industry became even more profitable when it went offshore, the focus for staying on top of the world’s economic food chain shifted—principally in the fields of advanced research in the fields of computing, biology and of course, military and space.
But Americans themselves often did not experience the benefits of these shifts as more and more industry moved offshore. International Monetary Fund (IMF) and World Bank loans ensured that the developing world would increasingly depend on Western agriculture to feed itself, Western engineering expertise to supply energy infrastructure, and Western finance centers to manage—and leverage—their economies. The muscle memory of state involvement in industry at this point is a matter of bailouts and buyouts. What remains of the old state-level involvement in national economic affairs has evolved into a “Washington Consensus” that engages in a more limited government role: Modest incentives and subsidies to avoid sudden and sharp economic convulsions. A 25-year decline in manufacturing, rather than all at once.
Until the latest disruption on trade, Wall Street and the markets had come to believe Trump would get a trade deal with China that promised increased access to Beijing’s domestic market (e.g., the credit card companies and the U.S. rating agencies), but not much in the way of a changed status quo. One of the reasons why the president may have pulled back from this kind of an agreement is that expanding U.S. corporate access to China’s domestic markets actually deepens “Chimerica” integration, rather than disrupting it and bringing much industry back to the United States. American blue-collar workers (a growing Trump constituency) will neither benefit from a “status quo plus” arrangement, nor is that kind of a deal consistent with the growing belief among Trump’s advisers that Beijing constitutes a growing national security threat.
Which leads to one of the new dimensions of this trade war: it is occurring against a backdrop in which long-standing contradictions with regard to trade and national security concerns have finally collided. These tensions are not new, as Michael Lind has observed:
Under presidents of both parties, the Pentagon drew up war plans against China while the Commerce Department blessed the offshoring by U.S.-based multinationals of much of America’s industrial base to Chinese soil. This combination of ‘containment’ and ‘engagement’ inspired a name that itself was a contradiction: ‘congagement.’
Trump is attempting to unravel “congagement” via the embrace of a more nationalistic industrial policy. That means returning to“the time-tested and successful Hamiltonian industrial strategy of using whatever means are necessary—tariffs, subsidies, procurement, tax breaks, even overseas-development loans to countries that purchase U.S. manufactured exports—to ensure that strategic industries necessary to U.S. military power are introduced to America or remain here,”as Lind writes.
So with regard to China, this means exporting U.S. goods made on American soil. It therefore disrupts existing supply chains. It’s not free trade by any stretch, but the virtue of numerical targets is that they are actually easier to monitor and enforce than vague promises to respect intellectual property or eliminate state subsidies. Under a managed trade framework, if China does not meet its quota of American goods, then Trump could slap on new tariffs. For America’s trade nationalists, this sort of a deal also has the happy byproduct of undermining the multilateral trade framework established by the World Trade Organization because enforcement mechanisms are left in the hands of the two parties to the agreement. With regard to national security considerations, it means preserving domestic manufacturing capacity in “dual-use” industries important in both defense and civilian commerce.
But in resolving one contraction, Trump might well be introducing a new one. While managed trade might well dislocate many existing “Chimerica” supply chains, such disruption would likely come at the economic expense of America’s traditional allies in Europe, Japan, Taiwan and Korea. If Beijing were to accept specified quotas, it means some other country loses out. Not only will this likely prove unacceptable to China’s non-U.S. trade partners, but it will also further exacerbate widening divisions between the United States and its traditional allies, making coherent economic diplomacy against Beijing less likely (especially against a backdrop of rising national populist movements that have rendered problematic any idea of a united European response in a protracted rivalry with China). And if it comes against a backdrop of China viewed as a national security threat, Beijing itself has even less incentive to accept such a deal, even if it means risking some short-term economic damage.
There are also economic pitfalls for the United States in embracing such a narrowly nationalistic approach. High-tech “knowledge” industries (e.g., biotech, health care, AI, robotics, etc.) are crucial for future growth prospects. At the same time, growing concerns about climate change risk consigning one of America’s major comparative advantages—namely, its dominance in the fossil fuel industries—to obsolescence, as the rest of the world works to decarbonize their economies. The issue here is that only a few countries matter in these industries (as opposed to, say, resource-based exporters). If the global economy continues to evolve into a series of regional, balkanized competing military-economic blocs in a post-unipolar world, it behooves the United States to be part of the biggest, most advanced of those geo-economic blocs. That becomes harder to do if the EU, Japan, Korea, etc., increasingly view America as an unreliable partner, pursuing a narrowly nationalistic policies that damage their own economic interests. Or the United States pursues more preemptive wars of choice, without any degree of international support (e.g., Iran).
All of which stands in marked contrast to the post-WWII period, where the United States consciously made trade-offs that often worked against narrowly nationalistic considerations, but which sustained a coalition that ultimately won the Cold War. For example, it largely tolerated Asia’s mercantilist trade practices in order to secure the region’s cooperation as part of a U.S.-dominated security umbrella (even though the resultant Asian export onslaught proved damaging to a number of American manufacturing interests). Trump has evinced little awareness of, or inclination to pursue, these trade-offs. In fact, “America First” almost makes it impossible to consider them.
In any case, the breakdown in these trade negotiations is yet another sign that we have likely passed the high-water mark of globalization, both in economic terms and also ideologically. We are long past the point of making the naïve assumption that the end of the Cold War means a universal embrace of Western liberal capitalist democracy (i.e., the “end of history”). Beijing may in reality have relatively limited options to retaliate against the trade sanctions imposed by the Trump administration. But it won’t stand still and will seek out new partners to offset this containment as much as possible. At the same time, Trump will find it hard to sustain a multilateral coalition to contain China if the United States continues to pursue narrowly nationalistic managed trade goals that damage its allies. Something will have to give.
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So I was thinking about this article and I realized that Trump might just be able to pull this off when you think about it. All it would require would be an integrated industrial/technological policy for the US to match requirements with resources allocated; a totally revamped educational system where vocational colleges are both funded and encouraged like in Germany; free attendance with no crippling student debts to encourage young Americans to attend those vocational colleges; revamping wages so that engineers and technical people in America are highly-paid and respected professionals; and also the formation of a government research organization like Australia’s CSIRO to help nurture technical developments that industry may be loath to invest in without guaranteed profits.
And while we are at it, a coupla sparkly ponies that can fly as well if possible.
Yes, under Trump, this is like chasing unicorns. The problem is that Trump is a straight 19th century protectionist, like McKinley. He’s not a believer in a national development state. In my view we are heading back to the historic norm—Multipolarity, in which military and economic policy are or should be aligned in the interest of maximizing the advanced dual use industrial base (not GDP per se).
The purpose of trade is not to maximize GDP but to have a seller’s market in high value added products
in increasing-returns sectors and a buyer’s market in low value added inputs.
Having failed to turn the whole world into a Pax Americana bloc because of Chinese and Russian opposition, the US will construct a smaller bloc in which it is the hegemon. But having antagonized virtually every single ally, the American-led bloc is getting smaller and smaller.
If the block is anchored by trade, where will the factories be? US or Mexico?
This is American business you’re talking about. So Mexico, unless they can use prison labor on US soil.
What is getting smaller and smaller is American workers portion of business profits. Multi-polar or Bi-polar agreements notwithstanding, American business refuses to share in ANY business improvements. Strong workers unions need to be factored in to this new equation.
It sounds like
1. per Rev Kev, Trump can and should pull this off
And
2. catch those unicorns.
So far, I haven’t read much from the Democractic candidnates about the tariffs or Huaiwei (which is part 1, above), for or against.
And it looks like what Trump will do, in pulling part 1, above, off, is to set it up for a progressive successor in the White House to catch those unicorns.
Mr Auerback, may I recommend reading Michael Pillsbury’s excellent book “The Hundred Year Marathon” prior to writing any other uninformed and useless articles on China.
The Chinese are hell-bent on world domination and Pres Trump is the first leader in my lifetime to see this for what it is and push back against it. Letting them join the WTO was a huge mistake. Also consider how deeply the Chinese have infiltrated themselves in this country…prime example: our Sec Transportation Elaine Cho is married to the Senate majority leader McConnell. Her father is the #2 or 3 person in the Chinese commie party and recently “gifted” the couple somewhere between $2 and $10 million. But of course that has no impact on our government.
If there are two countries bent on world domination, it doesn’t end well.
This isn’t really a “negotiation.”
It’s OK when we do it.
“The Chinese are hell-bent on world domination”
I think you exaggerate. Yes, China seeks to be a/the leader in high-tech….just as the US has. And yes, it wants to be a great trading nation. But that doesn’t imply “world domination”, an expression which itself implies hegemony. Yet nothing in China’s military strategy implies that. China neither spends enough, nor purchases the appropriate equipment for “world domination”.
Troll Alert!
Elaine Chao’s father, James Chao, is about as far from a Communist as you can get. He fled the revolution and hasn’t been to China since 1949. He’s lived in NYC since 1958, and his shipping company is based there. He’s an American philanthropist and gave $40 million to the Harvard Business School in 2012.
Between you and auerback this is an anti china hate-fest friday.love the regime change vibe,don’nt forget iran,north korea and vevezuela while you’re at it.
You mean, after a four thousand year history of not seeking world dominion, the new China is desperate for it. Give me a break. This is inverted thinking. What you are doing here is projecting what America and the west wants and has effectively had for the past four hundred years, and still wants.
“Based on interviews with Chinese defectors …” OK, Mr. Pillsbury really needs to learn something about China. An easy primer is Dennis Bloodworth’s The Chinese Looking Glass. If he finishes that (or The Chinese Machiavelli) then he should go for some serious scholarship with China: A New History by John King Fairbank and Merle Goldman. I’d recommend Sun Tzu’s The Art of War, but that’s a much harder to understand work without the background. Frankly, Mr. Pillsbury appears at first glance to be a typical right-wing paranoiac, promoting a conspiracy theory based on his misunderstanding his sources.
I agree, RK. This article is amazingly tone-deaf. If the US were not ruled by an elite that is interested in nothing else but its own benefit, it likely would have taken China many more years to rise and develop. And since the 1970s, things have only gotten worse for the ordinary American – with no sign of any solutions (beating up on China is not pointing to an effective help to US workers).
The author does not consider that this fight has a while ago turned into a spin-off of the Carthago delenda est miniseries (although, given China’s 5000-yr history, 1.4 billion inhabitants, and drive, I’d venture to guess the outcome may be different than in the original).
This. And the Hundred Year comment above. The timescale of industrialization (and de-) is long. And how many forget America’s long history of massive tariff barriers, which propelled the country to some of the fastest growth periods. Yes cars and soy and smartphones with modern supply chains are different animals indeed.
The Chinese industrialized with a clear flow of benefit through to workers: look at wage growth there over the last 20 years. Someone sleeping on the mud floor next to the pig now has a TV set and a car. That’s Bob from Detroit’s TV set, of course…so how to get it back for him? This is where one must try and take Trump at his word: since the profits already accrue to U.S. corporate owners no matter where the hapless worker happens to be doing the work. So at some level he must be seeking to actually improve the U.S. worker’s lot? But supporting unions and making it illegal again for companies to borrow simply to buy back their own shares would be the way to go. Which of course would be anathema to The Orange Man. So we’re back to divining his actual motives: it’s probably just an Other he can rail against, wave the flag at, puff out his chest, and secure votes.
And of course the cleverest strategy of all would be to embrace Russia and drive a wedge into the BRI with the help of the Eurozone lapdogs…but of course Bolton and Pompeo and Bibi will not allow that as they patiently await The Rapture (is there a Jewish version of Rapture?). Oh and those paragons of policy the Dems, who have decided that the clever platform is to be against everything but not for anything, to rummage through 20-year old tax records looking for discrepancies, to set up committees on things like reparations and which rest room a DFTGYL gender identifier is allowed to use. You know, monumental geo-strategic stuff like that.
What makes you think Russians would ever trust the US again? I think the 1990s provided enough proof that US just wants to dismember Russia and strip it of resources. No, thank you. You can do that once – China was peeled off in early 1970s – but both countries leaned their respective lessons.
As for the previous comment about the getting back the TV – why not just build two TVs so each can have one? Isn’t that what China is trying to do?
Did FDR trust Stalin, or vice versa?
Does Putin trust Xi? That’s today. And in the near future?
Maybe trust, but verify? For individuals, and for nations.
“What makes you think Russians would ever trust the US again? ”
Correct indeed… while Putin is still in. God help Russia should it elect a neoliberal president. Someone willing to replay a Yeltsin & throw Russia to the ravenous neoliberal wolves. That’s genuinely scary.
Does nobody remember that in 1952 China and Russia split over ideological differences? The Russians pulled their advisors and stopped the economic aid they were sending the Chinese Communist Party. For years afterward the two countries were nearly at war. There were skirmishes along the border. And it’s not as if those developments were unknown in America. I was in high school at the time and remember the gleeful reports of fighting. I was always baffled by the “monolithic international communist conspiracy” argument so popular among the elites. It’s basically only since the 1990s that they have slowly realized their interests align.
Just want to comment on this, not a criticism because everybody says stuff like this but we do need to tighten up our speech – the guys on top are great at exploiting weak spots, that’s how they got there:
>That’s Bob from Detroit’s TV set, of course…so how to get it back for him?
As we’ve said before, the TV set is today such a painfully useless “purchasing power” comparison it isn’t even funny. Bob can be unemployed and live with his mom and watch plenty of TV. The sucker linked below… a week’s worth of gas. Crap, now that I’ve googled it I want one!
What we need to talk about is Bob’s (and my!) medical and retirement security. Not TV sets. Don’t let them talk about “that women on welfare with the big TV”. Make them discuss the idiocy that if you are too sick to work you don’t have a job *and* you can’t afford what it costs to have somebody make you not sick.
*who is also implied to be “blah” of course…
https://www.bestbuy.com/site/samsung-50-class-led-nu6900-series-2160p-smart-4k-uhd-tv-with-hdr/6288348.p?skuId=6288348&ref=212&loc=1&extStoreId=297&ref=212&loc=1&ds_rl=1260573&ds_rl=1266837&ds_rl=1266837&gclid=EAIaIQobChMIj_nH8r-y4gIVE5SzCh3aMgBPEAQYASABEgIeJPD_BwE&gclsrc=aw.ds
I return to this quote from Tim Cook (hat tip Olga):
I wonder if the deskilling of our own working class has reached such a pitch (or nadir) that we won’t be able to claw our way back, as with hysteresis in aircraft maintenance, for example.
I worked for a tech firm that begin outsourcing to Asia in the 1990’s.
At first they told the US workers that only the excess capacity and easier to build products would be moved overseas and the US workers would continue to have jobs.
Then they started moving more complex products and the USA workforce started shrinking.
I believe the deskilling is a serious concern as when one loses close contact with production and manufacturing, many skills decline in the workforce.
It is not only the USA as I remember a printed circuit manufacturer shut down their flagship advanced technology German operation a few years ago.
In 2018, most of their remaining business was sold to a Chinese company.
https://www.multek.com/about/history
It has taken about 30 years to move much USA manufacturing overseas and it will take a similar amount of time to move it back.
The difference might be that the USA willingly moved the manufacturing overseas, while those countries manufacturing products overseas might be far less willing to let it be moved back.
The emphasis in the USA on finance, real estate and media/entertainment/sports as a way to earn one’s living further denigrates manufacturing as an interesting and productive way of life.
But maybe I’m a Luddite for thinking the USA needs to do manufacturing.
I think making things is a good thing in itself, much as excellence in (say) physical sports is a good thing. Manufacturing also makes us more resilient and jackpot-ready. Probably. I don’t think anybody said we had to “reshore” in the sense of making what we used to make. But a GND and a national industrial policy are the missing pieces.
May I ask why China (and Russia for that matter) needs to be “contained”? Cui bono? Isn’t the world at large better served when power (economic and military) isn’t concentrated in the coffers and armies of one country? Power differentials between countries, much like said differentials between people, result in all manner of warped thinking about “exceptionalism” and the like.
No, that is not allowed. Sorry.
‘contained’ is a euphemism for ‘defeated’ methinks…
The American national security establishment certainly seems to believe this, as do a number of EU countries. Best to ask them.
But that is THE main question. Why bother to analyse anything if one is just going to re-state blob’s positions without any pushback? It is precisely blob’s insistence on maintaining the US hegemony that is pushing the world into endless conflict, and even potentially driving to WWIII. If China is trying to create a more co-operative world, why would one oppose that?? What is the alternative?
(And the sentence at the beginning that “This creates a conundrum for the Trump administration: Beijing is increasingly viewed by many countries as an economic rival or a security threat to be contained, rather than a collaborative trade partner to be accommodated,” really is not borne out by facts. At the recent BRI forum, there “were 37 foreign leaders, including [Singapore] Prime Minister Lee Hsien Loong and all nine other Asean leaders, at this year’s forum, up from 29 in 2017.” And overall, 125 countries were represented at the BRI forum.)
https://www.straitstimes.com/asia/east-asia/xi-and-world-leaders-invite-countries-to-join-belt-and-road-reject-protectionism
https://www.scmp.com/business/banking-finance/article/3003038/europes-self-obsession-nurtured-its-naivety-about-china
https://www.scmp.com/business/companies/article/3011549/nasdaq-executive-dismisses-discredited-steve-bannons-call-bar (Bannon has come out just now for a total destruction of Huawei – and obviously other Chinese cos.)
I would say that us westerners need to get out of our cocoon (which, granted, has worked well in the last 500 yrs for the west; not so much for others) and open our collective eyes to what is really going on in the world.
(China’s push and BRI are, obviously, not without issues, but having one hegemon ruling over all is far worse – as the last 20 yrs have shown us.)
Minor correction:
A number of EU national security establishments (not whole countries) as US´s
That is because China is threatening the US role of controlling the trade routes. Their installation of defense capacity in the Spratley islands set off alarm bells.
Installation of cruise missiles on the Spratley islands
I believe this is what this whole trade fracas began over, and I would guess the US wants to bargain over it.
> The American national security establishment certainly seems to believe this
I’m all for realpolitik in geopolitics. However, it’s not clear to me that The Blob has the operational capability to execute successfully; the United States is not, as Putin says, “agreement-capable,” a condition that had evolved before Trump (though Trump catalyzed it, as he does with everything).
We also have a military that can’t win wars, at least not the Army, the Air Force, or our mercenaries du jour (Iraq, Afghanistan, Syria, Venezuela). The only branch of the service that hasn’t lost a war is the Navy (see “Fat Leonard” under Corruption; the USS John S. McCain under Incompetence). And the Navy may be given its own opportunity to lose a war in the South China sea.
I don’t see how to fix either state of affairs. Buckle up!
That’s a very good question. It’s like “American Exceptionalism” and the effort to contain all the others has proved itself to be the big contradiction to the goal of peaceful globalization. It’s just like the contradiction contained in the slogans about freedom and equality for all. In order to make global cooperation work everyone, including the “Indispensable Nation” must give a little. We clearly must give on the laissez faire mandate of our neoliberal ideologies. We were hypocrites anyway because we subsidized our industries coming and going, usually to gain a military advantage and control oil.
because US thinking is all about who get’s the biggest slice of the pie rather than let us all bake a bigger pie…
The US, the “exceptional nation”, simply can NOT tolerate Equals — let alone those with superiority.
As US power slips, its pathological arrogance & aggression increase.
For quite some time, there has been a general agreement in Washington’s foreign policy elite that either the US dominates the world or China will. There have been very few voices in the Washington establishment for a multi-polar world Russian and China favor. This is a cultural issue. The US and, btw, much of the European elites, see the US as the New Rome the ultimate dream of the West since Rome fell. And this notion also exists among most Americans on the right and left since they all, except radicals, believe in American Exceptionalism and that one world power (the USA) must dominate the world in order for civilization to flourish. This is why there is so little talk of world peace as a goal in either political party or among most citizens for that matter.
However, much of this depends on how multi-national corporations react to this drift into nationalism and I don’t think they like it very much. I believe, barring major war, that the next administration will belong to the Democratic Party, and they will be adopting whatever policies Wall Street and the finance oligarchs want and this trend will change. The business of America is still business and while war may be the biggest business I suspect it’s losing its charm among the elites.
What does China get if it “wins”? What did America get when it “won” after the fall of the Berlin Wall?
SImilarly, we can ask, do people like to see America decline?
Those who see America as a hegemon, do they like to see Trump’s MAGA lead to a declining America? Do they support Trump in this struggle?
Also, from today’s links, there is an article about China winning the Great Game. We can ask, is this merely America’s Dunkirk moment? Is it only the end of the beginning or the beginning of the end of the Great Game to determine the next hegemon (condolences to the little guys, the little nations who are not China, not the US, not Russia).
China needs to trade, hence the BRI project which allows it to do this, and a ‘win’ in the present impasse would allow it to go on doing this, possibly to everybody’s benefit. But China has no history of dominion, in the way the west has, and has had since the time of the Persian Empire and later Alexander the Great, and later still the Roman Empire. In our own times we are surrounded by the remains of the British Empire, a global monolith that the US largely inherited after WW2, and then expanded. What America ‘won’ after the fall of the Berlin Wall was the opportunity to extend its dominion, which it has tried to do at great expense to everybody including itself. Is it winning? Well it doesnt look like it right now, but it is still wilful and strong and can cause a lot of damage coming to terms with a reality in which it is not top dog.
> For quite some time, there has been a general agreement in Washington’s foreign policy elite that either the US dominates the world or China will
Fear of Russia had to be ginned up (by the Atlantic Council, liberal Democrats) etc. Fear of China did not; it’s organic and broadly based in the political class of which the foreign policy elite is a part. It’s been interesting to watch.
A real dilemma for the bipartisan US oligarchy of greed! Making America great again will of necessity require sharing the wealth – a concept that must be abhorrent to both the Wall Street FIRE sector and oil-military industrial complexes that provide the ‘bases’ for the US political system and its clones in other Western nations. An ill, impoverished, uneducated workforce it not going to ‘make America great again’. On the other hand a prosperous, educated populous is less likely to tolerate ‘great games’ – geopolitical and monetary. For Trump and his ilk money is power, all the disingenuous talk about just “keeping score” not withstanding. I’m guessing they are incapable of enlightened self-interest.
Yes, we have a bipartisan elite with a default setting of unenlightened self interest and short-termism. So what I would look for is a series of incidents designed to terrorize the publics of allies distancing themselves from US hegemony and so to provide political cover for politicians that support US hegemony. An export version of Russiagate, perhaps.
As for the domestic conditions you mention, I always wonder if our self-involved elite has even the necessary awareness of how poor a tool F-35 America will be in the global struggle for power.
> how poor a tool F-35 America will be
Or imagine an aircraft carrier being overwhelmed by a brute force drone attack so massive its systems fail.
Tariffs … if unaccompanied by a national industrial policy that focuses on American re-industrialization in order to create skilled, high-paying private sector jobs capable of profitably supporting workers with solid middle-class incomes.
Very true, and industrial policy comprises on using the Tariff revenue, which is paid by people i the US in toto, to fund local manufacturing and import substitution, who would only pay worker well if accompanied by strong Unions.
Unions are a reaction to Management – Thus Management and Companies get the Unions they deserve
A corollary is that a national development policy must be geared toward jobs that reflect the needs of the 21st-century economy…
Yes, probably enforced by internal Federal Taxes which discourage inter-state trade over vast distances – make and buy local.
Which Implies – Small Local Business and very few, if any, National Monoliths.
A process which I do not believe Washington would adopt. With will local economies, who needs a huge Federal Government?
Some thoughts off the top of my head after reading this article:
1. The US did develop behind very high industrial tariffs, as did most other developed countries. But those tariffs were part of a comprehensive industrialization policy, and Britain too established a national industrialization strategy under Robert Walpole before the US even did. That has been the norm with countries that have developed industrial economies.
2. Colonialism and imperialism are key to this, and so is forcing countries to adopt particular policies that may benefit private capital but actually hurt people within those countries and harm the environment. The British, for example, violently dismantled industry in places like India, Bangladesh and Egypt. In Egypt in particular there was some attempt at a national industrialization strategy, under Muhammad Ali. The British didn’t just sit by and say, cool, let’s compete. In fact, one politician at the time (forgot the name, it is in LS Stavrianos’s “Global Rift”) said explicitly that the British government would never allow Egypt to industrialize. They viewed Egypt as a threat, and it was around the time when the US started to put in place its protectionist industrial program (which violated Adam Smith’s advice to the early US). Now, we force the very opposite of the policies that led to development in developed countries on poor countries, which we do through deals like NAFTA, the WTO and the IMF.
3. In the old days, when there was less internationalization of production, it did seem that a national industrial program would apply largely to companies from the country implementing the program. Adam Smith’s invisible hand (mentioned once in the Wealth of Nations) was a situation where a British capitalist could ship production to Portugal but he would not do so because he had a home bias and preferred to be in his home countries. He didn’t make that decision because it benefited him economically, maybe it would be profitable to produce elsewhere, but because of his home bias. His decision to stay home would benefit the economy there, working people there and would have positive externalities, which wasn’t his intention. That was the invisible hand. However, a national industrial program in the US could, for example, benefit foreign auto makers in the US south. The only way I can see a national industrial program implemented by the US benefiting companies in the US in particular would be to strongly encourage companies that don’t allow for absentee ownership, which would be publicly owned companies or worker owned companies that are place based. It seems that if the international economy is to be more equitable, that might be important.
4. One thing I think that is important is the ideological composition of governments in the West. Even if governments in the West are led by socialist or social democratic parties, there is a big difference among socialists in regards to the relationship their countries have with poorer countries. Some leaders or parties on the left will not work to make trade more just or to try and support development in developing or developed countries because it would come at the expense of domestic industry. Some more radical socialists would have a truly internationalist outlook. If politicians on the left are more nationalistic, they will not change the relationship they have with developing countries, they will simply more equitably split up the spoils, whereas more radical politicians would work to change things at their root, which would leave less of a surplus to divide up in the first place. That would by itself set in motion many changes in those countries. Che gave a speech in 1964 at the UN where he strongly argued for free trade but wanted that to be accompanied by changes within the advanced economies. It wasn’t a support for free trade that kept things as they are.
5. The environmental crisis will massively impact this all, as right now production does take place where companies can create more social and environmental costs than they would be allowed in developed countries. That is having huge negative impacts, and so is the embodied carbon of having components shipped between multiple countries, assembled in places like China and then shipped thousands of miles to places like the US. It seems that localizing production would be needed to deal with the environmental crisis, and countries should agree to comprehensive environmental planning and standards that are enforceable. That should accompany moving away from some industries (like oil and coal) and moving towards others (comprehensive publicly funded education and training, renewable energy, ecological restoration programs and reforestation programs, investing when feasible in good public transportation, rebuilding infrastructure, etc.).
This is Friedman-esque handwringing, sorry. Even genuinely nice people succumb at times.
American citizens have been losing jobs — and losing GINI to their elite overlords — for decades, in part in service to the false gods of Free Trade always and everywhere.
Trump is who he is, sure, but at least he is not Obama, Bush, Clinton, or Bush when it comes to genuflecting before the PhDs who claim special economic insight.
But…, but… greed is good. right? /s
9 minute Thom Hartman show from 2014. And the deterioration continues…
https://www.youtube.com/watch?v=5cP7-b92XIY
As long as the US financial system accomodates excess savings abroad commercial deficits are granted. Tariffs migth help to reduce the fiscal deficit rather than commercial deficit and also reduce overall items imported. If the proceeds were invested in infrastructure, for instance, the net effect would be redistributive.
It might be more theatre than reality. Consider this: Both China and the US are deep into their own propaganda, each touting their preferred politics. But this chauvinism is too much of a luxury these days because we have to stop our turbo-competition and start taking care of the planet and the environment. China is very aware of this and so are we – but we are trying to make it look like everything is OK, nothing to see here. Environmentally that is. So my point is this – we are using time tested political tactics of blaming each other to slow manufacturing and begin to control CO2 accumulation. And it’s not like we are living in the 1800s with low tech industries. The whole world is very sophisticated these days. Sophisticated enough to rise to the environmental challenges – but getting people to cooperate without rioting in the streets is now the hard part. I can’t begin to imagine the US or China saying, Well we’ve really screwed up the planet and we have to stop and change our ways and we will all have to make sacrifices. When pigs fly, right? It’s much easier and quicker to make each other the proverbial enemy – “America has caused us to close these factories” and “China’s state capitalism has forced us to stop importing all that stuff that used to be so cheap.” And etc. At least this is the explanation that makes the most sense to me, given the times we live in.
If the conflict persists, international trade will likely shrink.
Will that lead to more local buying?
Will it slow down the coming 5G world (which many are not too thrilled about)? Will it lead to less fracking? Less air travel?
It’s my intuition talking here – I think it will be a controlled demolition of world competition and replacement with various degrees of “state” economies and cooperation. Intuition only because nobody will ‘fess up about what is really going on. I’m not paranoid, just very skeptical. As far as oil goes, it looks like duck and quacks like a duck. It looks like we are hell-bent on controlling every last drop and we are dedicated to exploration, perhaps even some creative horizontal drilling.
Specifically, if China wants to buy less natural gas, will that lead to less fracking?
Less air travel, with the replacement of ‘state’ economies?
Will it make slower the coming 5G, under a controlled demoliation of world competition?
I think so because economies will be focused on the environment. China won’t stop polluting, but it will slow down manufacturing. If something can’t go on forever, it won’t (to paraphrase Hudson).
Will continuing “conflict” help to cause an international slow down… or recession… or even a depression ?
Given the mountain of debt beneath the world economy, I’m not exactly optimistic.
USA will remain hegemon of Western Bloc, even if its economic policies harm old allies.
Why? Simple:
The capitalists who run those other countries all want a big military power to protect their investments around the world. But the capitalists who run those other countries are unwilling to try expanding their respective countries’ military power to that level.
That means USA will remain the world’s leading provider in the market for “global enforcement services.” A string of wrecked countries, all over the planet, brightly advertises the USA’s consistent ability and willingness to pile up corpses and wreckage, wherever global investors want to punish people for the crime of trying to govern themselves in their own way.
When global investors desire to inflict mass punishment in a timely fashion, or they want to impose sanctions du jour on the villain du jour, who do they call?
RF simply can’t provide those services, nor can PRC. They are both many years away from being able to globally project armed force in the way the USA can. That’s if they even wanted to distort their own economies in the way necessary to enter the top-level spontaneous country-wrecking market. And that’s if they don’t get into an armed conflict with the USA while trying to compete in that market.
RF and PRC have adequate armed force to discourage the Western Bloc from directly interfering in their own countries. Anything further is a big risk for them. Look how tentative RF has been over Ukraine (compare 1968 Czechoslovakia or 1956 Hungary, and you see the obvious difference between hegemon and non-hegemon).
The USA doesn’t have to be an efficient provider, since they have a monopoly. So F-35’s and other stupid wasteful crap just don’t matter very much. The USA can get it wrong, and do it wrong, and think it wrong, and all that happens is that the chaos in the victim country lasts longer and more people there get killed, maimed or rendered homeless.
Remember, the USA’s global enforcement supply is funded by MMT. Unless there is an actual physical resource crisis there is no limit to how much the USA can waste and squander and dissipate.
We have already seen that the American people are willing to suffer an actual reduction in living standards and life expectancy for the sake of maintaining the status of their ruling class. Therefore, even a physical resource crisis would have to be marked, or sudden. But if it’s just a case of boiling some frogs, well then they’re cooked. The USA ruling class is quite willing to engage in a policy of large-scale domestic population replacement, if that is necessary to ensure a politically and culturally docile body of subjects.
This is perhaps, too, a cultural/religious thing in today’s Western civilization. The modern Occidental is not nearly as secular or rational as they like to think. The rituals of power are deeply meaningful, even to those in the society who are harmed by them. That could also help explain the growing affection of Western “liberals” for violent modes of hegemony.
Last word: anti-imperialist Westerners should not think that anyone else’s power is going to save them from their own imperialists. Meanwhile, non-Westerners should not let themselves think that some sort of normal process in the West is going to save them from imperialist Westerners.
China knows all they have to do is guarantee the financial interests of the US elite / establishment.
But there is nothing that China can do with the hyper-violent and heavily armed US populace.
“For example, it largely tolerated Asia’s mercantilist trade practices in order to secure the region’s cooperation as part of a U.S.-dominated security umbrella (even though the resultant Asian export onslaught proved damaging to a number of American manufacturing interests)”
This was the beginning of the USG selling out its citizens interests in order to further the elites dreams of world domination. Remember, this was mostly about Japan supporting the US (with bases and political support) in the useless Vietnam war.
That was what our citizen’s interests were sold out for….with many more examples after that.
Giving a head start to Japan, Korea, and Taiwan wasn’t a bad idea. It helped several hundred million people get out of poverty, and gave everyone on the Pacific Rim a reason to be more interested in commerce than in empire.
The epochal blunder, in Asia and elsewhere, came in the immediate aftermath of the Cold War. That was when things should have “re-normalized.” Instead, capitalist elites throughout the Western and Westernized world went all nutso over their stupid globalization idea, while the USA got obsessed with being the indispensable world hegemon.
I remember shaking my head at just about everything that happened during that 1990’s silly season known as the Clinton administration (e.g. WTO, NATO expansion, end of Glass-Steagall, big SUV’s, what-have-you), but even then I no idea of just how bad the younger Bush was going to be.
Great comments here, Roland, many thanks.
Maybe Trump has seen the following chart-
https://en.wikipedia.org/wiki/File:Federal_taxes_by_type.pdf
And now he figures that up until the 1940s they had the right idea. By bringing back tariffs, he can run down the amount of taxes taken and spur some sort of super growth. Only problem is that we do not have the 1940s type economy anymore.
Not 1940s type economy anymore…
Whatever kind of economy we have today – we should change that.
The United States has increased tariffs on $200 billion worth of Chinese products to 25 percent, and Beijing has responded in kind on $60 billion worth of American goods.
Seriously, who thought Trump is a ‘save the planet’ kind of guy? Trump’s brilliant diplomacy- gets China’s president Xi Jinping on board as a team player in jump starting the Green Deal ‘Tariffs Initiative’ in the reduction of fossil fuels, plastics, carbon emissions and industrial pollutants. Trump will be known by future generations as the Father of Environmentalism… Well, that explains the democrats zeal in wanting to impeach Trump for stealing their idea…
Intentionally or otherwise, Trump may slow down the coming of the 5G world.
Another win?
Huawei has enough inventory to ‘weather’ US blacklist for months: Analyst
“Chinese technology giant Huawei has enough inventory to sustain its smartphone and 5G networking equipment business for most of the rest of the year, investment group CLSA predicts.
Huawei subsidiary HiSilicon, which designs chips for Huawei equipment, has been increasing its capability in the last few years, and is able to supply 80% to 90% of Huawei’s needs, according to Sebastian Hou, investment analyst at CLSA”
The new 5G networks rolling out in 2019 will offer faster speeds and better connectivity, but most people won’t be able to access them since they’ll only be available in a small number of markets next year. Plus, the way we use phones today won’t really require the faster data speeds 5G will offer. Today’s 4G LTE networks are more than fast enough for all the video and music streaming you want to do on your phone.
Marshall Auerback has written beautifully here. I could have been big as a writer of the spiritual practice of Bible & I Ching if they weren’t Stalinist Chinese Communists. Something about it not being proper to think well of Confucius. I started out Episcopalian. There is money in spiritual practices. I might have sold a big unified spiritual books theory & got people to read the I Ching & the Bible together as they are from different values for time. So Chinese Communist Party policies have hurt me as I pursue my goal.
Remember the phrase “Fair Trade”. Labor doesn’t mind a fair competition. Really, why not? US Engineers with their can do attitude are admired all over the world. We ran the money into Canada for the Carbon Engineering Private Industry 30 acre Hydrocarbon making Air Suck Carbon machine and system.
It is Systems matter more than their parts. Goals & Systems together defined like JFK saying “We will go to the Moon!” Money from the Treasury made it happen. Then what till now & McCain was aghast by the US purchase of myth story stainless steel closed loop rocket engines blew up when Galactic was getting good, Antaries blew up, and a Falcon blew up, August & Sept. 2015.
Putin kept getting his cash for astronaut delivery.
It is an insane set of values we are witness to. “Oil is Obsolete!” I love it. It is true. It is hopeless that the US is run by Oil. Simply ridiculous. Disturbing.
I’ve gone round the bend. Labor must unite & get free speech for each other since it is really wonderful. All my nationalism is invested in the defense of free speech.
Thanks. I apologize. What power the US has and it does not insist on the adherence to the Declaration of Human Rights & I get nervous.
Trumps tariff war will ultimately fail because it is based on the current American policy of perpetual war. There is no clearly stated goal of this war leading to an intended peace. It is war for war’s sake. It is a form of profiteering. The American citizenry being the ultimate losers. Look at the forms of hybrid war. Economic and information war (lies). Sanctions and misinformation.
What is needed is a new political synthesis. Western managed democracy has failed the people- government based on lies is weak and ineffectual for the citizenry and should not exist. Chinese and Russian forms of totalitarian capitalism should scare the daylights out of anyone- if their forms of government cannot control corruption and greed.
This synthesis always points toward more democracy. However, the contrary forces toward this trend always seem to overwhelm its creation and perseverance. For democracy to flourish, one needs peace. War is the antithesis of democracy.
A united people is the only way to go. The warmongers must be removed from political and public power. A peaceful multipolar world must be seen as a better world than a warlike hegemony.
Strength through peace should be the goal, but I don’t think that is part of the American social character. Strength in peace is defensive in principle. America does offensive wars masked through misinformation and subterfuge. In that respect, the US will not be the leader on a global scale. Change will happen in spite of the US. If the US elite feel threatened, that is a sign that events are moving in the right direction.
Sticking with the inverted theme of our times. Americans see themselves collectively as winners, but are in reality a collection of losers. This public state is more the result of elite failure than natural occurrence.
America does not do mutual benefit as a matter of principle, but as a personal choice. On a whim. In that sense it is transitory.
The best outcome is that the rest of the world is able to outwait US destructiveness.
“China, the world’s biggest soybean importer, almost tripled purchases from Russia amid a trade dispute with the U.S., the biggest producer.”
https://www.bloomberg.com/news/articles/2018-05-17/china-buys-record-amount-of-russian-soy-as-it-shuns-u-s-growers
China’s Smithfield Grains strategy has been cutting out the middlemen grain handlers such as Cargill, ADM, MaxYield Cooperative to name a few since 2016. Smithfield’s vice president for business development, Joe Szaloky, said the company has become a savvy buyer. “We think we can buy from farmers just as well as anyone else can,” he said
Chinese-owned pork giant Smithfield skips middlemen in grain supply chain (purchased by China’s WH Group in 2013 for $4.9 billion)
Smithfield Foods Inc., the world’s biggest pork producer, is buying grain elevators and purchasing grain directly from farmers, a move that hits grain handlers such as CHS already reeling from multiyear lows in corn and soybean prices.
Smithfield buys about 150 million bushels of corn, soybeans, wheat and sorghum per year to feed its 16 million hogs, according to a Smithfield spokeswomen. “Smithfield has always been uneasy about their dependence on feed,” said Chris Hurt, an agriculture economist at Purdue University who has advised the hog industry.
The company also is using a port it helped build in 2002, in Wilmington, N.C., to import feed from South America and Europe.
It has imported soy from Brazil and Argentina and feed wheat from Europe when it is cheaper than supplies shipped out of the Midwest, most recently with a bulk vessel of Brazilian corn that arrived in June. (2016)
We are in an economic war between China’s mixed economy and the west’s privatized economy. David Harvey (The Significance of China in the Global Economy} points out that China’s economy isn’t as centralized as it is made out to be. Each regional area has quite a bit of autonomy with the central government giving guidance and support. Each area has developed its own “Silicon Valley” where intellectual property rights are not respected. Competition is cut-throat. The central government supports industry through infrastructure investment (education, high speed rail, basic research etc.) keeping costs low for business. This is the same system the West had until the advent of Reaganism/Thatcherism, “government is the problem”.
The mixed economy approach is beating the pants off us. Trump is trying to force China to enter the privatized economy fold which China will never agree to. Western oligarchs will not agree to return to a mixed economy, making the west competitive again, because it will cut into short term profits. The west has made Intellectual Property rights sacrosanct, legalizing long term monopolies which provides oligarchs with huge incomes. The Blob is reticent to provide Rev Kev’s “sparkly ponies “. This will be an extended war with the west on the losing side.
The US is its own worst enemy.
They have no idea what they are doing.
2008 – “Oh dear, the global economy just blew up”
Its experts investigate and conclude it was a black swan.
https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png
It is a black swan if you don’t consider debt. They use neoclassical economics that doesn’t consider debt.
They can’t work out why inflation isn’t coming back and the real economy isn’t recovering faster.
Look at the debt over-hang that’s still left after 2008 in the graph above, that’s the problem. The repayment on debt to banks destroy money pushing the economy towards debt deflation.
QE can’t enter the real economy as so many people are still loaded up with debt and there are too few borrowers.
QE can get into the markets inflating them and the US stock market is now at 1929 levels. They have created another asset price bubble that is ready to collapse leading to another financial crisis.
We need a new scientific economics for globalisation, got any ideas?
What if we just stick some complex maths on top of 1920s neoclassical economics?
No one will notice.
They didn’t either, but it’s still got all its old problems.
1920s inequality was bound to come back along with a whole host of other problems.
The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.
What’s the problem?
1) The belief in the markets gets everyone thinking you are creating real wealth by inflating asset prices.
2) Bank credit pours into inflating asset prices rather than creating real wealth (as measured by GDP) as no one is looking at the debt building up
1929 and 2008 look so similar because they are; it’s the same economics and thinking.
https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png
What was just a problem in the 1920s in the US is now global.
At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
The 1920s problem in the US is now everywhere, UK, US, Euro-zone, Japan and China.
Let’s try and balance the Government budget and run a big trade deficit.
The Americans have no idea what they are doing.
This is the US (46.30 mins.)
https://www.youtube.com/watch?v=ba8XdDqZ-Jg
This is the flow of funds in the economy that sums to zero.
Central bankers should know about it, but the FED don’t appear to.