China—United States:
A New Stage in the Trade War

May 27, 2019

The following article is translated from an article in Lutte de Classe (Class Struggle), the magazine of Lutte Ouvrière (Workers Struggle), the revolutionary workers group active in France.

The United States’ blacklist of the Chinese telecommunications company Huawei, which took shape in Google’s ban on Huawei using its systems on its phones, marks a new stage in the ongoing trade war. This is not only due to the personality or political calculations of Trump, this demagogue who veers from one sweeping declaration to the next. It results from the aggravation of competition for the global market between companies in a capitalist economy in crisis. It adds uncertainty and tensions to an already-unstable economy. Workers in China, the United States, and elsewhere in the world are already paying for it.

The trade war first broke out in January 2018 with the rise in import taxes on various Chinese products, such as steel, aluminum, and washing machines. These tariffs are now hitting technological products, particularly those of the telecommunications sector.

From the start, Trump has blown hot and cold. There were many fewer tariffs actually applied than what he had announced and of those applied many were more limited. Each blow was followed by a caress, his goal being to influence the bilateral negotiations which he engaged in with China as well as other commercial partners. This has had a certain success. In this way, Trump could boast during the midterm elections last November that he had renegotiated NAFTA, the U.S. free trade agreement with Mexico and Canada, to the benefit of the U.S. auto industry and farmers. Trump profits from the economic power of the United States and the attractiveness of its vast market, which is essential for foreign companies, to impose his conditions. Alongside the new sanctions and the Chinese reprisals that followed, negotiations between China and the United States are continuing, with Trump trying to force the Chinese leaders to give in.

The U.S. bourgeoisie does not unanimously support Trump’s trade war against China. The capitalists like Walmart who import Chinese goods at low cost are hostile to increasing these tariffs. Those who have their products assembled in China, like Apple, are not especially favorable to them. Forty percent of Chinese exports are in reality due to foreign companies, mainly U.S. ones, for whom China remains an assembly workshop and who siphon off most of the value which Chinese workers add. U.S. consumers are paying for the rise in prices caused by the tariffs, since the capitalists pass them on in what they charge for their products. These price increases are also barriers to trade. In 2018, IBM and General Electric were notably opposed to this policy; many companies asked for exemptions in order to continue their joint ventures with Chinese firms.

For all that, the offensive against “Chinese economic expansionism” or against the supposed threats to “the security or resiliency of United States technological infrastructure or the digital economy of the United States,” to use the phrases from an executive order issued last May 16^th, is not just a whim of Trump. The Democrats, who are in direct political competition with Trump, have not denounced the decree banning U.S. companies from buying their equipment from companies whose activities are judged to be a risk to U.S. national security. In addition, these pressures on China are not frowned upon in Europe. They all seem convinced that the expansion of Chinese companies must be stopped, starting with telecommunications companies.

The War of Telecommunications Technology

Two companies, ZTE and Huawei, are Trump’s main targets. Last December, Meng Wanzhou, Huawei’s Chief Financial Officer and the daughter of the telecom company’s founder, was arrested in Canada at the request of the U.S. Department of Justice, which called for her extradition. The U.S. Department of Commerce just placed Huawei and its subsidiaries on the Bureau of Industry and Security’s “Entity List” of suspect firms. U.S. companies must now obtain government authorization to trade with Huawei. Right away, Google announced that it was “complying with the order and reviewing the implications.” It will no longer provide Huawei with its software updates. Google is all the more inclined to apply this embargo since the 800 million Chinese Internet users have until now mostly escaped from its dominance, as well as that of Facebook and Amazon, since the Chinese providers Alibaba, Tencent, and Weibo control this market. Evidently, several Silicon Valley companies are ready to follow on Trump’s heels. Intel, Qualcomm, and 2 other U.S. chip manufacturers have announced that they too will stop supplying the Chinese company until further notice.

For Huawei, which imports $11 billion worth of U.S. parts every year from more than ten companies, such a blacklisting has important consequences. It could seriously halt its development and block it from Western markets. Although Huawei may be able, without a doubt, to benefit from the help of the Chinese state and eventually replace its U.S. suppliers with suppliers from China or elsewhere, the inability of the users of its smartphones to access Google or Facebook could be crippling. Certain economists, like Nouriel Roubini, one of the rare ones to have predicted the crisis of 2008, fear a new version of the Cold War between China and the United States, which would bring about a division of the global economy into 2 blocs of incompatible technologies. Such a form of de-globalization would be an extra shock to an already-sick economy.

Huawei grew in the 1980s by producing material and networks for Chinese telephone operators and businesses. Since then, it has become the world’s second largest maker of portable phones, behind Samsung but ahead of Apple. Like all Chinese capitalists, its owners fully profited from state support. In the telecommunications sector, Huawei has become a serious outsider which its U.S. competitors want to remove from the scene. It seems to have taken the lead on the next generation of telephones, 5G, which is capable of transmitting much more data at 10 times the speed, which opens a path towards progress in artificial intelligence. According to a U.S. report, China already has 350,000 5G stations, which is 10 times more than the United States. This advance allows Huawei to offer its services to install 5G throughout the whole world, to the great detriment of U.S. operators.

No matter what the pundits say about this trade war, China and the United States are not playing in the same league. The United States is still the main global power. With its industry and research, the central role of its currency, and still more its army and military budget with no equivalent, the United States has multiple means to defend the interests of its capitalists. In most sectors, U.S. capitalists dominate their competitors. Although the Chinese government has allowed for the emergence of a few big corporations such as Huawei, COSCO, Tencent, and several others who set their sights on the global economy and no longer just on the interior market, they have until now had to content themselves with the less-profitable investments neglected by their competitors. This is the case with COSCO, which bought the port of Piraeus in Athens, and with Bluestar, which operates chemical factories in France that were sold by Arkema and Solvay. Even though Apple sells fewer smartphones than Huawei, it makes far more profits. For all that, in an economy in crisis with a saturated world market, competition between capitalists is raging, and an outsider is a rival who must be removed from the scene. In the jungle of capitalism, both during its youthful period and the senile phase in which we are living, supremacy is never reached and must be constantly defended, if not regained. This explains the U.S. offensive against Huawei.

A War with Multiple Targets

Trump and his administration invoke the risks of Chinese espionage and the threats it poses to national security. This is the pot calling the kettle black! The country with the means to spy on the world—including on its political friends, as Wikileaks revealed in 2016—is none other than the United States, with the great ears of the NSA and the personal data of hundreds of millions of people collected by Google, Facebook, and others. Edward Snowden revealed in 2016 that the NSA has had access for years to Huawei’s internal documents and to the secret codes of its products. The crusade against Huawei has no objective other than to get rid of an annoying competitor.

Since last summer, the United States has pressured its allies in this direction. Australia and New Zealand have blocked Huawei from their future 5G markets. In Europe, negotiations have been ongoing over Huawei’s participation in the rollout of 5G. During Chinese president Xi Jinping’s most recent visit to Europe, Italy and Monaco ostensibly signed an agreement with Huawei. In Great Britain, British Telecom at first announced that it would reject the Chinese manufacturer, before Theresa May partially reintegrated it in the future 5G network. Incidentally, this last decision cost the defense secretary his job for having leaked this clearly sensitive information to the media.

As in the case of the embargo of Iran, by targeting China, Trump is also intimidating other countries. By threatening to place heavy sanctions on firms who do business with Iran, Trump has forced Total and many European companies to pull out of the country. His means of pressure are cutting off access to the financial system of the dollar and blocking the U.S. market. These weapons, proof of the continued power of the United States, are clearly dissuasive. The United States can choose to enact such measures of retaliation against countries and companies who might decide to continue to do business with Huawei. A similar threat was put into action in the recent past when the United States targeted banks and auto manufacturers who made business deals with Iran or Cuba.

A War Full of Dangers

This is why the trade war against China is full of dangers. Each time Trump announces that he is raising tariffs on Chinese goods, there is a more or less temporary fall in the share prices of new technologies, and global financial markets become worried. This war prolongs and feeds the crisis which the world economy has not overcome since 2008. It threatens industrial production itself.

“Trade War: The Specter of Escalation,” “A Troubling Escalation,” “Global Alert against the Trade War,” “Trade Tensions Make the Markets Fall”—these are just a few recent headlines from the newspaper Les Échos, which is a faithful reflection of the concerns of the French bosses and their circle. Their fear is that the trade war which Trump has started will bring about a slowdown of exchanges and investment. And their fear is well-founded. China has exported less in the past year, and even though its growth rate officially remains 6%, this is the lowest it has been for 30 years. The drop in Chinese exports has already had repercussions on production in Taiwan, Thailand, and South Korea, since these countries supply China with many parts and components. The World Trade Organization (WTO) just lowered its predictions for the growth of trade in 2019 from 3.9% to 2.6%, citing “trade tensions between the world’s two largest economies.” For the WTO, “greater uncertainty results in less investment and consumption.” Each increase in tariffs in the United States results in measures of retaliation by its competitors. With the global economy more integrated than ever, no country can remain neutral, and these protectionist measures affect global trade. Various economists invoke the specter of the 1930s, with its heightened protectionist barriers, decline in trade, and ultimately a march to war.

The global economy is certainly not there yet. A direct military confrontation between the United States and China, or between other countries, is not on the order of the day, despite Trump’s repeated blows and the recurrent deployment of U.S. aircraft carriers to the China Sea. As a measure of the relation of forces between these two powers, China currently has only two aircraft carriers, one of which it bought at a discount from Ukraine, while the United States is able to simultaneously deploy 11 aircraft carriers across the globe. Although the Chinese army is growing in power from year to year, and China is investing in ballistic missiles, spacecraft, and its navy, the U.S. military budget remains 3 times greater than that of China.

Workers Foot the Bill

Although the trade war remains peaceful for the time being, it nevertheless has victims: workers in China and the United States. In China, the decline in exports due to U.S. tariffs has added to the economic crisis and the massive indebtedness of firms. It results in layoffs and firings. Tens of thousands of precarious workers, migrants from the countryside, are thrown out of work and forced to return to their regions of origin. In 2018, automobile and electronics production declined respectively by 17% and 14%. The layoffs also affect the skilled employees of U.S. companies with operations in China, such as the software developer Oracle, which just cut 900 jobs.

In the United States, the population is paying for this trade war by an increase in prices for consumer products. According to a study from the University of Chicago, the additional tariffs on washing machines represent an extra cost of $1.5 billion per year and raise the price of each machine by $86, and by $92 for each dryer. These tariffs have increased the rate of inflation in 2018 by 0.3%. Contrary to the lies Trump tells in order to win workers’ votes in the name of “made in America,” these measures do not protect jobs in the United States. They will probably destroy jobs in industries directly linked to commerce with China, in the ports, transportation, and in trade more generally.

Protectionism has never protected workers, whether it is put in place by Trump in the United States or by whatever nationalist leader in Europe. The trade war provides capitalists with a new pretext to heighten workers’ exploitation and to lower wages in the name of competitiveness. It adds to the attacks already imposed after 2008 in order to allow the big companies to increase their profits despite the stagnation of the market. It reinforces xenophobic demagogues everywhere who traffic in isolationism as their political currency. For the working class, the only way to halt the infernal machine that is slowly but surely setting itself in place is not to join ranks behind its own capitalists and their political representatives, no matter how varied they may be, but to prepare for their expropriation and for social revolution.