“We are like the piggy bank that everyone is robbing, but this is over.” With these words, US President Donald Trump announced that his country would not sign the G7 summit’s joint statement held in Canada on June 8-9.
By Marcos Margarido.
A few hours earlier, Canada’s Prime Minister Justin Trudeau announced that the meeting had been a success and that the seven countries had reached broad agreements on a range of economic and foreign policy goals, despite deep disagreements remained between Trump and the leaders of the other nations, especially on trade.
However, disagreements in trade were greater than the broad – and necessarily generic – agreements and the joint statement became a dead letter. Trump’s commercial war promise prevailed against what he calls unfair treatment of other nations over the United States. He specifically cited the 270% tariff on US dairy imported by Canada and “foreign cars flooding our market,” which he promised to tax.
A few weeks before Trump had already imposed tariffs of 10% on aluminum and 25% on imported steel, and 25% on Chinese electronics, aerospace and machinery goods worth $ 50 billion. All countries pledged to retaliate, such as China, which took corresponding measures of equal scale against US goods produced by Trump’s supporters, such as the agricultural sector. This tax accounted for more than one-third of total US exports to China, which totaled $130 billion in 2017, plus an additional $40 billion to Hong Kong.
The Chinese retaliation caused a fall of 3.78% on the Shanghai Stock Exchange and 5.77% on the Shenzhen Stock Exchange. Tokyo Stock Exchange followed the fall, down 1.77% and, possibly, European stock exchanges could be damaged too.
The possibility of a trade war between the major economies of the planet causes terror among the financial capital because it can lead to a shrinking of trade and thus aggravate the global economic crisis. It also threatens the stability of the World Trade Organization (WTO) created precisely to establish trade-opening rules and prevent the establishment of protectionist barriers against imported products. The WTO, based on the General Agreement on Tariffs and Trade of 1948, always worked to favor the export of the imperialist countries, under US hegemony, to the semi-colonies in the framework of the new post-WWII world division of labor.
Trump seeks a way out of the economic crisis
This happens at a time when the US economy performs well, as in the main imperialist countries. The GDP is showing positive results year after year although oscillating around 2% and lagging pre-crisis expansions.
The GDP forecast for 2018 is around 3% (2.3% in 2017) while for the advanced economies (according to the IMF classification) it is 2.5% (2.3% in 2017). This is not the sign of a new economic boom but the beginning of a slump.
The World Bank estimates a growth deceleration from 2019, with world GDP falling from 3.8% in 2017 to 2.9% in 2020. The IMF forecast for the United States is a reduction to 1,9% in 2020 and a continuous shrinkage over the following years. The advanced economies follow the same pattern.
According to the World Bank in its Global Economic Prospects report, “Notwithstanding the ongoing global expansion, only 45 percent of countries are expected to experience a further acceleration of growth this year, down from 56 percent in 2017. Moreover, global activity is still lagging previous expansions despite a decade-long recovery from the global financial crisis.” That is, the World Bank reckons that adding to short cycles of economic expansion and contraction, there is a general trend of slower economic growth in the long run.
It is in this scenario that the imperialist countries seek a way out that favors their bourgeoisie, where the United States seeks to regain its hegemony, now questioned by the growth of China and the strengthening of Germany and France through the European Union.
It should be reminded that the United States is not alone in this isolationist policy. Britain is shaping its Brexit, leaving the European Union amid endless political crises, and the new Italian government promises to follow suit. It is the “every man for himself” policy taking shape against the years of cooperation among these thieves of the rest of the world. Entities such as the UN and the World Trade Organization (WTO) are starting to show signs of saturation as they fail to establish a common policy among the imperialist countries.
The breakdown of the previous economic policy
On the one hand, imperialism faced the economic 2008-2009 crisis by attacking the achievements of the workers, in a permanent social war throughout the world. On the other, they applied a fiscal policy called quantitative easing to enable low-interest credit for industries, avoiding a total bankruptcy. The rescue of large companies and the exemption of all kinds of taxes for the industries is a complement to this policy.
In the United States, for example, the Federal Reserve (Fed) bought Treasury bonds worth $2 trillion, delivering enough cash to the government so that it could maintain low-interest credit in the following years. The European Union would apply the same policy some years later.
These two policies have failed to end the long-term crisis. Workers and peoples fought back, and are still fighting, causing revolutionary processes in North Africa and the Middle East, in Ukraine and in Nicaragua; large mobilizations that hit Latin America, the peripheral countries of the European Union (Portugal, Spain, Greece) and even the United States; and major strikes in many countries around the world.
The Fed ended quantitative easing in late 2014, resulting in an increase in the interest rate. Companies had taken advantage of low-interest rates to make loans that, according to Michael Roberts, generated a debt of $14.5 trillion (2017) and servicing of around $3.8 trillion per year. Raising interest rates by the Fed may create additional difficulties for them.
Productive or speculative investments?
In addition to indebtedness, the profitability of the productive sector has been steadily declining over the years, becoming less and less attractive to investors. According to Michael Roberts, in the cited article, profits of the US corporate sector increased by 6% in the first quarter of 2018, mainly due to the reduction of taxes made by the government. Before this reduction, there was a fall of 0.6% in that quarter, which followed a fall of 0.1% in the fourth quarter of 2017. According to him, “the average profitability in the G7 economies remains below pre-crisis levels even after ten years of recovery.”
Because of the low profitability of productive sector capital shifts to financial speculation to obtain fictitious profits. In Britain, a country where this movement is most pronounced, there is one of the largest declines in the productivity rate among the G7 countries. It fell to 0.2% after 2007 from an average annual rate of 2.2% before that year. Only Italy’s productivity rate performance was worse than Britain’s. It is no coincidence that both countries are looking for an isolationist way out.
There is the same tendency to increase fictitious capital and profit at the expense of investment in the productive sector in the US, although its fall in productivity has been the lowest in the G7. It is also no coincidence that this trend has been accentuated by quantitative easing. It was able to prevent a collapse at the height of the crisis, but only to push the problem forward and perhaps increase it, because the huge amount of fictitious capital makes it harder to increase the rate of profit in the productive sector.
Trade war and social war
The threat of trade war is only one aspect of the policy of the capitalist sector that is losing ground in the world market whose main representative is Trump. It is, in fact, a deepening component of the ongoing social war. If the escalation of tariffs and retaliation continues, customs barriers could lead to the closure of businesses and the loss of millions of jobs, which will lead to a reduction of wages by increasing competition among workers in the search for jobs. The consequence will be an even greater concentration of capital, an increase in the power of monopolies and an increase in social inequality in the world.
Trump tries to soften this effect on his white working-class electorate turning all his xenophobia, racism and sexism into the country’s official policy. But neither will this sector be free from increasing exploitation, because it always affects the whole working class and is a necessary condition for the productive sector to return to be attractive to capital in its quest for maximum profit.
Most of the American and world bourgeoisie claim the maintenance of the old cooperation between the imperialist nations and their world entities of exploitation and oppression. So do all the reformist parties and the trade union bureaucracy since this peaceful cooperation is the best scenario for the application of their class collaboration policy. However, history has already shown that all we can expect from it is the deepening of misery in which the most of humanity lives today.
As Lenin says in Imperialism, the Higher Stage of Capitalism, “when a big enterprise assumes gigantic proportions, and, on the basis of an exact computation of mass data, organizes according to plan the supply of primary raw materials… for tens of millions of people; … when a single center directs all the consecutive stages of processing the material right up to the manufacture of numerous varieties of finished articles; when these products are distributed according to a single plan among tens and hundreds of millions of consumers… —then it becomes evident that we have socialization of production,… that private economic and private property relations constitute a shell which no longer fits its contents,… but which will inevitably be removed” by the world socialist revolution. It will not be the threat of a trade war that will prevent the working class from completing this task initiated by the 1917 Russian revolution.