US-China trade war escalates

In his quest to crush China’s technological advance, Trump is playing with a fire he cannot control.

Just as trade talks designed to avert a tariff war between China and the United States were drawing to a close, US president Donald Trump tweeted that with effect from midnight on 10 May his government would be reimposing 25 percent tariffs on $250bn worth of imports from China that had previously been reduced to 10 percent pending the outcome of the months’ long negotiations.

President Trump further threatened “shortly” to impose levies on hundreds of billions of dollars of another $325bn worth of imports – a threat that has since been carried out.

The Trump administration is justifying these provocative actions with allegations that China has flouted agreements it had previously made, but without giving any details or producing a shred of evidence.

It seems that the US will not be satisfied unless it forces China to implement by law measures that will hold back its technological development. It wants to outlaw government assistance for China’s industrial development – ie, subsidies – even though the US itself happily subsidises many of its own industries to a very high degree – eg, aerospace, fossil fuels, agribusiness, automobile manufacture, etc, etc.

The Chinese have made it clear that, while they are happy to eliminate any subsidies that contravene World Trade Organisation (WTO) rules, this is as far as they are prepared to go, and even Britain’s Daily Telegraph, in the person of its economics editor Ambrose Evans-Pritchard, considers this attitude more than justified:

“The US is demanding changes in Chinese domestic law, subject to a unilateral oversight mechanism …

“From what we know, the issues in dispute reach beyond intellectual property and forced technology transfers. They cover credit subsidies and policies that go to the heart of the Communist Party’s state-run economic model.

“This smacks of the ‘unequal treaties’ of the Qing dynasty in the 19th century so seared in the Chinese collective memory. These started with the imposition of ‘fair and reasonable’ tariffs by the British at the end of the first opium war in 1842, with Hong Kong thrown in as a bonus, and led to a parallel system of western law on the eastern seaboard.

“They culminated in the Treaty of Shimonoseki and the loss of Taiwan in 1895 after the Sino-Japanese war. That is the awful example now exciting so much rage on the Chinese internet, with Vice-president Liu cast as the latter-day ambassador of humiliation on his latest dash to Washington.” (Could Donald Trump be about to precipitate a worldwide recessionary shock?, 14 May 2019)

Thus, even though the Chinese people know that they will be hard hit by US tariffs, the overwhelming majority are willing to stand up and fight back – and, indeed, to demand of their government that it should do so.

Trump is no doubt hoping to terrorise China into making further concessions on top of the already-significant ones it has reportedly agreed to make in the hope of securing a deal. At the same time, the imperialist media are reintroducing a hue and cry regarding the Chinese government’s supposed ‘human rights abuses’ against muslims from the Xinjiang Uyghur autonomous region in northwest China, whom it sends to training camps for re-education if they show signs of jihadi radicalisation – a programme that it claims has been very successful.

The message is clear: if China does not submit to all US imperialism’s demands it can expect not only high tariffs on the goods it exports to the US, causing massive damage to its export market, but also sanctions against its top political and business officials.

In upping the ante in this way, Trump and the US imperialist interests that are egging him on are taking a huge gamble. To secure a deal, China was prepared to make significant concessions: “As part of the deal, China has promised to open its markets for American firms in the automotive, banking, insurance and securities industries, strengthen its protection of intellectual property, and make large purchases of American products, including soybeans and natural gas, among other proposals.” (Trump threatens China with more tariffs ahead of final trade talks by Ana Swanson and Keith Bradsher, New York Times, 5 May 2019)

Furthermore, “China has also proposed giving foreign cloud computing companies like Amazon, Microsoft and Apple greater ability to operate independently in China.” (As trade talks continue, China is unlikely to yield on control of data by Ana Swanson, New York Times, 30 April 2019)

This will all be lost if no agreement is reached.

Attempts to hold back Chinese development

However, what the US is really interested in is squashing China’s rise as an effective competitor against US imperialism. It has seen that China is rapidly gaining a technological edge, especially in the area of telecommunications and artificial intelligence, and it wants that edge seriously blunted.

Hence the measures it is currently taking to try to ruin Huawei, which, by dint of massive research and development investment, is well ahead in the development of the game-changing 5G technology. The US administration is engaged in a massive scaremongering campaign, spuriously claiming that the Chinese government will be in a position, through ‘back doors’ secretly installed in Huawei equipment, to spy on the whole world and to paralyse any and all telecommunications should they wish to do so.

According to this narrative, it would seem that the imperialist countries lack the necessary expertise to identify these ‘back doors’ – should they indeed exist!

Especially important to the imperialists, however, is the area of data collection. China currently restricts access to data harvested from within the its borders, and US imperialism desperately wants access to this for marketing and monitoring purposes, but China is unwilling to give this. At the same time, the US is trying to prevent China getting access to data outside China, which it hopes to achieve by outlawing Huawei telecoms equipment, among other things.

China is, of course, retaliating against US imperialist tariffs, so both countries will suffer from this outbreak of trade war.

World resistance to unreasonable US demands

Although some countries, such as Australia and New Zealand, have eagerly accepted the Huawei ban, many others have not. European countries are becoming increasingly incensed at the US’s high-handedness and its willingness to sacrifice their economic interests (eg, on the question of sanctions against Iran, and on companies involved with the Nord Stream 2 pipeline project that is bringing gas from Russia to Germany via the Baltic Sea), and are openly beginning to defy the US diktat.

“Germany’s telecoms regulator has given the clearest signal yet that equipment maker Huawei will not be excluded from the buildout of the country’s superfast 5G network, despite fierce pressure from the US to shut out the controversial Chinese supplier for security reasons.” (German regulator says Huawei can stay in 5G race by Tobias Buck, Financial Times, 14 April 2019)

Even Britain is likely to ignore the US’s ban.

Simultaneous trade war threatened against US allies

Incredibly, the US regime is so enamoured of the completely illusory idea that tariffs can save US industry that it is determined also to impose them on imports from countries that have been its traditional allies – eg, Europe and Japan.

“President Trump has stepped up his attacks on the European Union in the past few weeks, accusing it of being a ‘foe’ and a ‘brutal trading partner’, while threatening to ‘tariff the hell’ out of it if it doesn’t ‘play ball’. At the same time, he has ordered $11bn of tariffs to be imposed on European imports as part of a long-standing dispute over aircraft manufacturing subsidies, prompting the bloc to draw up its own list of retaliatory tariffs.” (Trump should think again before stepping up trade war with Europe by Simon Nixon, The Times, 25 April 2019)

He is also threatening similar measures against Japan – a country on the brink of recession, which, as we write, is hosting him in an official visit to that country.

“President Trump had no qualms on the eve of his Japan trip to issue an executive proclamation identifying the gem of Japanese industry, the automobile sector, as a national security threat to the United States. It had long been suspected that the commerce department would yet again make a spurious case to the effect that imports (even from allied nations) impair the national interest, a case the executive branch can try to make under Section 232 of the US Trade Expansion Act in order to justify the imposition of tariffs – as the administration did a year ago endorsing a ‘national security’ tariff of 25 percent duty on steel and aluminium.” (Order from chaos by Mireya Solis, Brookings, 24 May 2019)

China is an important trading partner for Japan, which does not relish any threat to its trade with that country, or exports from that country from Japanese financed enterprises.

“The pomp, sport and traditional Japanese hospitality won’t disguise the rising alarm that is felt here – and across most of Asia – at the fragile and increasingly volatile state of relations between the US and China …

“It is widely believed that the US is eagerly and quite deliberately creating the conditions for a new cold war with China, a struggle that goes way beyond the immediate issues of tariffs and trade deficits. The fear – and increasing expectation – is that, as with the original cold war, nations will be obliged to take sides in a global ideological struggle.

“The difference now is that, unlike the Soviet Union, the People’s Republic is an economic as well as a military superpower, and for countries in Asia, whose economies are largely sustained by China’s, the choice is as much about their prosperity as it is about their freedom.” (Asian allies won’t warm to Trump’s cold war by Gerard Baker, The Times, 23 May 2019)

The disastrous effects of trade war

Trump should realise that the effect of a trade war with China (and possibly also with the European Union, with which he is also at loggerheads over tariffs) will undoubtedly harm the US economy. Already, the higher prices generated by existing tariffs have effectively reduced the spending power of the US market, wiping out the benefit of his earlier tax cuts.

“Tariffs enacted last year reduced the inflation-adjusted income of American consumers by $4.4bn each month by November, according to one study. That loss, which arose both from the tariff and from more expensive or foregone imports, breaks out to about $419 per household over a year. The latest round of increases will push the per-household cost above $800, said David Weinstein, a Columbia University economist and a co-author on the research …

“‘There is absolutely no question that these tariffs, if imposed and sustained, increase the probability of a recession,’ Rob Martin, a former Fed section chief who is now an executive director at UBS, said of a potential escalation. ‘It makes you more vulnerable.’” (Trump’s trade war escalation will exact economic pain, adviser says by Jeanna Smialek, Jim Tankersley and Mark Landler, New York Times, 12 May 2019)

Moreover, following the Wall Street crash of 1929, the US government under President Herbert Hoover also tried to rescue the economy by introducing swingeing tariffs on imports, which of course led to retaliatory measures from the countries affected.

“The result was disaster: country after country erected their own barriers in retaliation, global trade plummeted, and American exporters saw their suffering intensify. By 1933, US exports and imports had fallen by about 60 percent.” (The history of trade tariffs warns against Trump protectionism by Richard Horowitz, Financial Times, 13 March 2018)

At the same time, the standard of living of the US masses plummeted. Is that for Trump a price worth paying in the forlorn hope that he can best China?