A few days ago, the US president, Donald Trump, announced the implementation of tariffs on products imported from China, totalizing US$ 60,000 million. What are the meaning and possible consequences of this measure?

By Alejandro Iturbe.

 

Robert Lightizer, Foreign Trade Secretary, will be in charge of elaborating a list of Chinese products whose import will be highly tariffed. According to sources in the White House, this could affect over 1300 types of goods, from shoes and clothes to cutting-edge technology.

In 2016, during the electoral campaign, Trump emphasized the necessity of reducing the US trade deficit (imports minus exports) through measures of this kind. But, so far, he had just taken minor measures, and in 2017 the deficit increased 12% in contrast with 2016, raising up to US$ 566,000 million. Almost half of it comes from trade with China.

To Trump, this situation means that “We’ve had this abuse by many other countries and groups of countries that were put together in order to take advantage of the United States[1] and that “[this measure] it’s going to make us a much stronger, much richer nation[2] because it will help recover industries and jobs that were transferred to China and other countries in Asia, as well as to Mexico.

This was the meaning of America First, the leitmotiv of his electoral campaign. He was supported on these proposals by a segment of the US bourgeoisie increasingly displaced from the market, and, essentially, by a segment of white industrial workers prejudiced and wanting to go back to the “golden times.”

But the current reality of imperialist capitalism is much more complex than this simple analysis, and so much deeper are the contradictions that this type of measures generate.

A process of several decades long

The huge trade deficit of the US is the result of a deep process of imperialist capitalism that began with the economic crisis during the 70-80s.

From then on, the US economy “de-industrialized”. Industrial production (including construction, electricity and water services) went from 38% of the GDP (1965) to less than 19% (2004).

Parallel to this, the economy became more “financial,” speculative and parasite. Along those years, the “services” sector grew from 50% to 78%. Specifically, “finances, insurances and real estates” were already almost 21% – so, a higher influence than the rest of the “secondary sector” as a whole.[3] This sector continued to grow until the crisis opened in 2007-2008: in 2008, the economist Joseph Stiglitz said that “about 80% of new jobs and almost two-thirds of the US GDP increase over the last years came directly or indirectly from the real estates business.” [Our translation]

Facing the necessity of recovering its profit rate, the big industrial companies with base in the US began transferring their factories to countries with cheap workforce and much lower wages, like the “Asian tigers” and the Mexican maquilas – specially since 1990, these companies made major investments in China, which became “the world factory.”

While they were transferring the production to other countries, within the US those companies focused on technology products, and from it, exercising control of the value chain.

China, “the world factory” subject to imperialism

The main goal of Chinese industrial production is global export, particularly to the US. The country went from exporting some tens of thousands of million dollars in 1978 (less than 1% of the global amount) to almost 1,8 trillion in 2010 (almost 12%). Initially, they exported cheap products. Then they incorporated electronics, and finally, vehicles, machinery and rail industry products.

Let’s see two examples of the US domain over this investment-production-Chinese export-global commerce circle:

  1. In 2008, the supermarket chain WalMart controlled about 15% of Chinese exports (almost US$ 225,000 million) annually. Through several “Chinese” companies, it produces numerous industrial commodities (like small lawn mowing ATVs that the middle class uses in their backyards) than they later sell in their global-chain stores.
  2. An Apple I-Pod was globally sold for about 200 dollars. This and other products are made in China by the giant firm Foxconn. But China only keeps 4% of the income, the rest is appropriated by imperialism because of its control on technology and the commercialization chain.

Since 1990, there is something we have called the “economic tandem” US-China: the US bourgeoisie made major investments in China, country that sells their industrial production globally, including to the US itself. On the other side, a great part of the profit goes back to the US, mainly through the purchase of US Treasury bonds. Like this, part of the State deficit is financed and there is a feedback of the US economic-financial-speculative circuit.

In addition to this “financial feeding,” the US bourgeoisie takes advantage of this relationship with China in two ways.

First, by importing products cheaper than what they would be if those were produced within the US, they keep domestic consumption running. This is one of the main factors that allowed the US economy to overcome the deepest recession phase of the crisis and keep an “anemic growth” in the last years.

Second, it used it as an element to push down wages and labor conditions of the US workers. Since the GM reconversion, industrial workers’ wages lowered from 4800 to 2400 dollars. Among services, especially commerce and fast-food chains, the situation is even worst: the minimum wage, unionized, is 1200 dollars, and workers are fighting for US$ 15 an hour.

We talked about the “tandem mode” of the US-China economies. But both roles are not equal or equivalent. One is the main and controlling one (the US) and the other is a subsidiary, the dominated one (China). China became the “world factory” but not as a dominating power but as a subordinated country, in a model of accumulation controlled by imperialist capitals.

From this point of view, the global economic model of China is similar to those of the strongest semi-colonial countries, like Brazil.[4]

Trump’s contradictions

Trump waited over a year to announce the implementation of measures that he had already promised in his electoral campaign. So, why now? The main objective factor is, no doubt, the unstoppable grow of trade deficit.

To this, we have to add the fact that there are segments of the Chinese bourgeoisie hijacking technology created in the US, and selling all over the world products that compete with the US’ ones (including those made in China). It is the case of cell phones, computers and tablets.

Trump’s government weakened along his first year. Among other elements influencing, the economy does not get up enough to hold a sustained growth.

Trump needs to defend his image of “harsh.” Vice President Mike Pence stressed that “it was Trump’s election pledge: “Today’s action is a clear message from this president and his government to put the US first – the era of the economy that emerged before other countries.”[5]

To keep his image and show he is complying his electoral promises is particularly important to keep his electoral base, especially facing the middle-term parliamentary elections. If he is defeated there, his administration will be much more weakened.

Trump faces such perspective with his classic bully, cocky style. But between his intentions and the possibility of implementing his proposals, there is the economic, political and social reality of the US and the world. Thus, his government appears as oscillating and contradictory, because each one of his attempts collides with this reality conditioning him.

For instance, he went forward, back, and forward again with the anti-immigration laws; the wall with Mexico, so far, are just words; he threatened with attacking North Korea but he stepped back and went into the negotiations proposed by the Chinese government…

Regarding tariffs on Chinese products, these contradictions appeared almost simultaneously. On one side, at the end of last year, Trump held a meeting with the Chinese leaders to discuss agreements that could help balance the trade deficit. Among others, they signed agreements on the purchase of several airplanes of the US company Boeing and the European Airbus. On the other, a few months later he comes out aggressively announcing the implementation of tariffs unilaterally.

The possible consequences

The possible consequences of this policy are really deep. Mainly, it distances him and confronts him with the Chinese leaders, who are natural subordinated allies to “keep the world calmed” (see their action in Africa) and make good business. The measures announced by Trump threaten the dynamic of the “Chinese model” as a whole, in a moment when the latest presents serious signals of crisis.

Thus, the Chinese government warned that there could be an “international trade war” on tariffs and that if Trump goes forward with his tariff policy, China will respond equally. In a communicate, the Chinese embassy in the US said to the Trump administration: “We urge the United States to cease and desist, make cautious decisions, and avoid placing China-US trade relations in danger,” warning that they will directly harm the interests of US consumers, companies, and financial markets.[6]

As a retaliation, China could also impose tariffs on US agricultural products, like soy. In this case, rural producers would be the most affected, and they are a segment that voted for Trump. Several agricultural states, like Iowa, Colorado and Kansas already stated their concern. Also, the Chinese could cancel the purchase of airplanes agreed in Beijing.

Another major problem is that the measures announced by Trump go against the deepest tendencies of imperialist capitalism in general, and the US’ in particular. Especially against the great multinationals that own factories in China or associated to them. The measures also go against the policy and dynamic of other imperialist sectors and countries.

It is not by chance that he received criticism from “US businessmen, the G-20 countries, the WTO, the IMF and even from his own party.” Trump doubled the bet announcing that this measure “is the first one of many.”

It is not true that this policy will favor US workers. First, even if might create some industrial jobs, it will be under a new parameter: lower wages and harder labor conditions. Also, the implementation of tariffs will generate a prices raise, and with it a fall of consumption. As a consequence, it will generate a reduction of services’ jobs, particularily among sells.

In this frame: will Trump move forward with his policy or will he give in to the pressure against it? We do not know. It is possible that, like in other cases, he ends up a “neither-nor” line.

If he does move forward, it will generate major contradictions with other imperialist sectors, with China, and with the US workers themselves. If he doesn’t, or does it half-a-way, his weakening and semi-paralysis will increase.

In any case, the US and world workers’ task will still be to confront his government and imperialist capitalism as a whole, taking advantage of these contradictions, as much of this weakening.

***

Notes:

[1] https://www.usatoday.com/story/news/politics/2018/03/22/trump-proposes-tariffs-unnamed-chinese-ense-cjhitarfiforders-tarfiffs-offpoints-finger-china-over-tr/448446002/

[2] https://edition.cnn.com/2018/03/22/politics/donald-trump-china-tariffs-trade-war/index.html

[3] Data from La crisis del petróleo y sus consecuencias en la crisis de EE.UU., Efraín Baldaos Bensa.

[4] On this matter, see https://litci.org/en/certainties-and-questions-raised-by-chinas-economic-crisis-part-1/

[5] https://infoglitz.com/venezulaeng/donald-trump-imposes-customs-millionaires-on-china/

[6] http://usa.chinadaily.com.cn/a/201803/23/WS5ab49c2fa3105cdcf6513de1.html