At the World Economic Forum in Davos, Switzerland on 17 January 2017, China’s President Xi Jinping warned that ‘no one will emerge as a winner from a trade war’. He was responding to the then President-elect Donald Trump’s threat to impose a 45% tariff on US imports from China and a 35% ‘border tax’ on Mexico’s exports to the US. Trump’s declaration of ‘America First’ signals a willingness to wreck the post-Second World War economic order imposed by a dominant US imperialism, and to unleash inter-imperialist rivalries not seen since the economic devastation of the 1930s, through which marched the forces that led to world war. Trevor Rayne reports.
‘But what the hell? I’ll wing it and things will work out.’ – Trump
In his inaugural address on 20 January President Trump said, ‘Protection will lead to great prosperity and strength.’ Three days later Trump withdrew the US from the 12-nation Trans-Pacific Partnership and said he intends to renegotiate the North American Free Trade Agreement between the US, Mexico and Canada, signed in 1993. One Chinese economics professor said before the Davos summit, ‘The US is declining and China is rising. China will defend the international system as the US, under Trump, goes in the opposite direction.’ A section of the US ruling class believes that by turning to protectionism it can reverse the relative economic decline of the US in the world. This will not happen nor will manufacturing jobs return to an imperialist US. However, the US and China are the world’s two biggest economies and increasing tensions between them means peril: economically and militarily.
While campaigning, Trump said, ‘We have a $500bn deficit with China … We can’t continue to allow China to rape our country.’ In 2015, the US trade deficit with China was $367bn. Trump asserts that ‘the concept of climate change’ was invented by the Chinese to hurt US industry. He has appointed Peter Navarro to head a new National Trade Council. Navarro authored a book and made a film entitled Death by China; he supports trade protectionism. At his confirmation hearing to become Trump’s commerce secretary, overseeing US trade policy, billionaire Wilbur Ross said ‘China is the most protectionist country of very large countries’ and added that the new US government would crack down on dumping by countries such as China. The US Vice President Mike Pence joined in the chorus with ‘We’ve been losing to China far too long economically.’ Astonishingly, Lieutenant General Mike Flynn, Trump’s National Security Advisor, claims China is in league with Islamic State and other jihadist groups to defeat the US.
The end of ‘Pax Americana’?
The menace contained in the new US administration’s tone is not lost on the Financial Times’s chief economics commentator Martin Wolf, who warned: ‘This approach could take us back to the kind of global trade-policy chaos that occurred between the first and second world wars’ (17 January 2017). Wolf foresees the escalation that would follow any punitive US tariffs on imports from China: ‘the EU is likely to follow suit in order to protect its producers from a surge of Chinese imports. China would then feel obliged to retaliate. The system of trade rules could collapse…the end of Pax Americana – the end of US hegemony since the end of the second world war.’ Staring at a vista of global disorder, Wolf laments that the world will not easily find a replacement for the US.
Following the 1929 Great Crash on Wall Street the capitalist world was plunged into financial crisis. It manifested a structural crisis for capitalism, as the 2007-08 financial crisis does. The crises are manifestations of the overaccumulation of capital, with too few opportunities for profitable investment, and an overproduction of goods relative to the prospects for their profitable sale. What began in the US in the 1920s as demands for protection of farmers from imported produce became a general clamour for tariffs across all sectors of the US economy. The 1930 Smoot-Hawley Tariff Act applied to 890 products. Britain followed with the 1931 Abnormal Importation Act and the Import Duties Act of 1932. Other countries retaliated, erecting their own trade barriers. Between 1929 and 1934 world trade shrank by 66%, and Britain’s trade fell by a half in the same period. US imports from and exports to Europe were quartered. Mass unemployment grew in the US and Europe. Hitler became German Chancellor in 1933 when unemployment in Germany was close to 30%.
Punitive tariffs
It is not just trade that is in jeopardy with any turn to protectionism; investment is also at stake. Trump said he intends to impose a ‘substantial border tax’ on goods made overseas by US companies and offer tax advantages to firms that manufacture in the US. One US analysis of foreign direct investment (FDI) flows found that US companies have made 6,677 investments into China since 1990, worth a total of $228bn. US technology companies depend on Chinese workers and consumers to drive their profits. A border tax imposed by the US will further squeeze their profits.
The US was the largest recipient of Chinese outward FDI in 2016, with $45.6bn worth of completed acquisitions and new start-up investments. Cumulative Chinese FDI in the US since 2000 now exceeds $100bn. 2016 was the first year that Chinese investments in the US were greater than US investments in China.
China has invested four times as much in the European Union as European companies have invested in China. In 2016 China invested almost $14bn in Germany compared with German investments in China of $4.5bn, making 2016 the first year in which Chinese investments in Germany exceeded German investments in China. The potential for European conflict with the US is increased by protectionism, especially if goods made by Chinese firms in Europe are subjected to punitive tariffs. Significantly, British companies have more FDI in the US than those of any other country, with $449bn invested by the end of 2015.
Competition between the US and China will impact on Latin America and the Caribbean and Africa. China’s trade with Latin America increased 22-fold from 2000 to 2013. In 2015 Chinese President Xi Jinping said that China intended to double bilateral trade with the region to $500bn by 2025. He also said that China would invest $250bn in the region in the coming decade. The Brazilian liberation theologian Leonardo Boff, commenting on recent developments, said that the political changes in Brazil (the impeachment process and removal from the Presidency of Dilma Rousseff) and Argentina (the restoration of a neo-liberal government) are linked to a new cold war that is being waged by the US and China. The US will seek to evict the growing Chinese economic influence in Latin America and in Africa.
Sabre rattling
President Trump’s nominee to be US Secretary of State, Rex Tillerson, likened China’s building of islands in the South China Sea to what he considers to be Russia’s annexation of Crimea and said ‘your access to those islands is not going to be allowed’. Any US blockade of the islands will be confronted by a Chinese challenge. The China Daily warned of a ‘devastating confrontation between China and the US’. Since former US President Obama announced the Pivot to Asia in 2009, the number of US reconnaissance missions by aircraft and ships off China’s coast has increased six-fold. The current US naval fleet consists of 272 vessels; Trump has called for a 350-ship US Navy. The Chinese government has responded to maritime aggression by stating that, ‘The traditional mentality that land outweighs sea must be abandoned, and great importance has to be attached to managing the seas and oceans and protecting maritime rights and interests.’ In December 2016, China returned to the US an underwater drone that it had taken from a US naval vessel. Trump said it had been stolen.
The Chinese government has threatened to break economic relations with South Korea if it does not reverse its decision to deploy a US missile shield on its territory. China impounded a Singaporean troopship carrier passing through Hong Kong on its way to Taiwan, where troops were to conduct military training. China sent an aircraft carrier through the Taiwan Strait and Taiwan responded by scrambling fighter jets.
The US and China established diplomatic relations in 1979, with the US respecting the One China policy that views Taiwan as a rebel province of China and not a separate nation. In December 2016 Trump took a telephone call from Taiwan’s President Tsai Ingwen. Trump later said that the One China policy was ‘negotiable’ if China does not make trade concessions. China has repeatedly said that it will go to war rather than accept Taiwan’s independence.
Trade wars and armed conflict
In a recent interview with The Times, Trump described NATO as ‘obsolete’, and, by supporting Britain’s vote for withdrawal from the EU, he has signalled that he wants the EU dismantled, saying that the EU was just a ‘vehicle for Germany’. He has questioned giving security guarantees to Japan and South Korea. At the same time Trump suggested that sanctions against Russia might be lifted in exchange for a nuclear disarmament deal. The head of Russia’s Security Council, Nikolai Patrushev, responded saying, ‘We do not harbour any illusions about an imminent easing of measures for the strategic containment of Russia.’
The new US administration might think it can secure Russia’s support against China and encourage rivalry over Central Asia. However, China’s growing economic weight in the region and its One Belt One Road policy, integrating China, Central Asia, Russia, Europe and the Middle East in an emerging trading alliance, offers Russia more long-term benefits than the US can provide.
The new US Secretary of State, Rex Tillerson, was Chief Executive of the US oil and gas multinational ExxonMobil from 2006 to December 2016. Tillerson strongly opposed US sanctions on Russia because they prevented US companies investing in Russia’s energy resources, losing out to such as Britain’s BP, the Anglo-Dutch Royal Dutch Shell and France’s Total. President Putin awarded Tillerson the Russian Order of Friendship in 2013, for his contribution to co-operation in the energy sector. Tillerson owns shares in a Russian internet-technology company, Yandex.
A US rapprochement with Russia would benefit US energy corporations, but US corporate ties to China are far stronger than they are to Russia. The US exports more to China in a month than it does to Russia in a year. In October 2016 China held $1.1 trillion worth of US Treasury securities, compared to Russia’s $75bn. US FDI in China is over five times that in Russia. In 2015, US companies earned nearly $10bn in China; 15 times what they earned in Russia. Together, China and Mexico account for a quarter of US trade. If the US launches economic warfare against them millions of US jobs will be lost and the production of many US goods will be severely disrupted.
US annual military spending is four times that of China and nine times that of Russia. The US has some 800 overseas military bases. It will remain the world’s dominant military power, possibly for decades, and as its economic hegemony over the world wanes, it may well resort to armed force to compensate for its weakening economic position. Unleashing a trade war is a prelude to armed conflict.
Fight Racism! Fight Imperialism! 255 February/March 2017
