Trump’s trade wars

US tariffs have increased the uncertainty in an already volatile system, and represent a new milestone in its aggressive policy towards China.

Lalkar writers

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Lalkar writers

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June has been an important month in the history of United States trade relations. By 10 June, the New York Times described events as “Trump upends global trade order built by US”. Strong words.

What started as tariffs on steel and aluminium coming into the US has escalated – first with an extension of these tariffs on 1 June to countries supplying 81 percent of steel and 96 percent of aluminium to the US. This has now developed into a large-scale trade war and the US is moving ahead with implementing tariffs of 25 percent on $50bn-worth of Chinese goods.

China has announced that it will retaliate with reciprocal sanctions of its own at 25 percent. These include for instance tariffs on soybeans, a critical US agricultural commodity of which China is the main supplier. As an example of the immediate impacts of these trade tariffs, American soybean futures contracts fell to a ten-year low.

US President Donald Trump has now threatened a 10 percent tariff on an additional $200 bn-worth of Chinese commodities. It seems that after months of ‘is it, isn’t it’ about the US trade deficit, we are finally in a situation of trade war between the US and primarily China, but also to a lesser extent the imperialist allies of the US such as Germany.

These new tariffs have been targeted, according to the statement from the US trade representative’s office, against technologically advanced industries such as robotics, aerospace, communications and information technology, cars, and industrial machinery, rather than against consumer electronics such as smartphones.

While this might appear sensible on the surface, it seems that the US is attempting to have its cake and eat it too – to impose large sanctions against its largest ‘trading partner’, and to claim that this will only have positive impacts, seems both premature and unrealistically optimistic.

Without a doubt, this will be financially damaging to the US and its population as a whole. US consumers rely heavily on the availability of cheap commodities. Even when you have nothing else in the USA, you can always rely on low prices in the store – at least for now.

Higher prices for consumer goods are dangerous. In imperialist countries the populations have long become accustomed to inexpensive consumer goods. In many ways this is the one ‘imperialist privilege’ that everyone in the US can access, regardless of class position. Despite assurances that these tariffs are directed against ‘China’s unfair competitive practices’, there will be far-reaching impacts. With the degree to which the economies of China and the US are enmeshed, this is inevitable.

Higher prices for imports will have effects all along the commodity chain, increasing the price of raw materials and of consumer goods, affecting not just US capitalist businesses but also personal finances – even if tariffs have been ‘specially selected’ to impact only high-technological industry, it seems wishful thinking to assert that there will be no knock-on effects to consumer goods.

Consider that if the cost of industrial machinery is 25 percent higher, then US capitalists, if they chose to produce in the US say, will have a higher proportion of capital tied up in fixed means of production (what Marx called ‘constant capital’). This reduces the rate of profit because the ratio of constant capital (machinery, plants, raw materials) to variable capital (wages of employees) is now greater. Since surplus value is only produced by living workers, not by machines (which simply transfer their existing value to the product), a higher ratio of machinery to employees will reduce the rate of profit for US capitalists.

Marx showed how the rate of profit between different industries tended towards equalisation as capitalists moved their capital around from less profitable to more profitable investments. If returns on investment in industrial production in the US fall below the average rate of profit, then capital will flow out of US industrial production and into other, more profitable investments.

We can see now that this has the potential to exacerbate and accelerate US industrial decline. These tariffs, far from being a guaranteed protection of US industry may well accelerate the movement to ‘export manufacturing zones’ into the periphery (the non-imperialist countries where labour and other overheads are cheaper). One of the chief characteristics of imperialism is the export of capital – the location of industrial production abroad – for the national boundaries are too narrow, and the opportunities for profitable investment too few to contain the continued expansion of capital.

Capital, in its never-ceasing search for maximum profits, makes a dash for areas of the world where labour is cheap, land is available in abundance, regulation is far less strict, and trade unions are not very strong. In doing so, it reaps fabulous profits – superprofits. But in the process it undermines manufacturing industry in its own homeland, while creating formidable rivals and competitors that undermine the very basis of its dominance. China is a perfect, but not the only example of this phenomenon.

The export of capital from the US, or any other imperialist country, is not going to cease, for export of capital is the lifeblood of monopoly capitalism. Nor is monopoly capital going back to the non-monopoly stage of free competition for it is the latter, after all, that has produced the former. For monopoly capital to cease to be so would be for it to cease being capital.

Even if by some special measures some US manufacturing, presently being conducted abroad, were to be repatriated to the US, it would not result in an increase in employment for the US working class, since, on order to be competitive, it will have to be highly capital intensive, with the resultant increase in productivity to compensate for the relatively high wages of US workers – as against, for example, Chinese workers.

Whichever way one looks at it, Trump’s ideas of bringing industry and jobs home is a non-starter, and quintessential economic nonsense under the conditions of capitalism.

For all the noise about ‘protecting American steel’, or whatever the latest wheeze is, these tariffs seem to really be aimed at damaging the Chinese economy, slowing its growth, and preventing the development of key domestic Chinese industries such as semiconductors, one of the few high-tech industries in which China for the moment seriously lags behind the US and its allies.

Moreover, although China buys less from the US than the latter buys from China, this is due in no small part to US restrictions on Chinese investment in the US – on spurious national security grounds.

All the same, China has the ability to retaliate against US punitive tariffs on Chinese goods entering the US. US corporations that have been investing in China produce a lot there, not all of which is exported. These corporations play a significant role in the Chinese domestic market, selling in excess of $200bn of products annually. The Chinese are quite capable of hitting these sales through non-tariff means such as a boycott of these products by consumers.

These measures have been successfully applied in the past against Japanese and south Korean companies to devastating effect. Let the US authorities take cognisance of this self-evident, and only too likely, Chinese response to any attempt to punish China for its commercial and manufacturing success.

Technological monopoly

It is interesting that the rationale for tariffs against China has been couched in terms not just of ‘China’s unfair trade practices’, whatever those might be, but also in terms of US intellectual property – technology, patents and the like.

In Trump’s own words in his announcement on 15 June: “This includes goods related to China’s ‘Made in China 2025’ strategic plan to dominate the emerging high-technology industries that will drive future economic growth for China, but hurt economic growth for the United States and many other countries.” And further: “We have the great brain power in Silicon Valley, and China and others steal those secrets. We’re going to protect those secrets; those are crown jewels for this country.” (Fox and Friends, a daily talk show on Fox News)

With the export of capital and manufacturing from industrial heartlands in the imperialist countries to low-wage countries, the US and other imperialist countries have lost their monopoly on manufacturing technology, much as in the same way as Britain went from being the ‘workshop of the world’ at its height, to what it is today.

The loss of manufacturing from under direct control of capitalists in the imperialist countries means that the maintenance of intellectual property laws, patents and other legally enforced monopolies plays a crucial role in maintaining the dominance of the imperialist countries over the vast masses of humanity.

Such patents and intellectual property allow businesses legally to prevent others from using their technology, often granting the owner of the rights an exclusive monopoly on production. This is most overt in the pharmaceutical industry where medications are priced at many times their manufacturing cost – sometimes many thousands of pounds per dose.

China has long been accused by successive US governments of ‘stealing’ these technologies – in effect, ‘monopoly busting’. But this is the law of the market: the value of commodities is determined by the labour that goes into creating them, not by one person saying that they have the exclusive rights to produce them and threatening those who disagree.

By eroding US technological monopolies, China has simply demonstrated the superior force of market laws over monopolist attempts artificially to restrict the use and proliferation of technique.

Industrial cycle perspective

These are extremely dangerous times. Every day the bourgeoisie business press has at least one person warning about the dangers of a coming crash.

This is an inevitability of the capitalist business cycle. It has been ten years since the last recession and we are well overdue for another. The hope of the US government is that the onset of recession can be delayed until after the next election, as a recession now would impact Trump’s ability to win a second term. These tariffs have the potential to accelerate the arrival of the crash, however.

What is certain is that these tariffs have increased the uncertainty in an already highly unpredictable and confusing system, and they represent a new milestone in aggressive US policy towards China.