The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Trump and His Trade War

Sep 8, 2018

Translated from “Lutte de classe” No. 194 (September-October 2018), the monthly magazine of Lutte Ouvriére, the Trotskyist organization in France.

Donald Trump’s recent vociferous statements have made the prospect of a global trade war seem more plausible than ever. Trump ranted against the Chinese, European and Canadian competitors of U.S. capitalists, proclaiming his determination to reduce the U.S. trade deficit. His decision to tax a number of imports was soon followed by China and Europe’s retaliation. Are we witnessing a return to customs barriers that could impede world trade and lead to an economic recession?

And how should one interpret Trump’s declarations, which are as brutal as they are contradictory? Are they the calculated lies of a poker player, trading on behalf of the American bourgeoisie? Or the demagogical cries of a U.S. president campaigning for the midterm election, who seeks popular votes by flattering American chauvinism? What has the economic crisis changed in the relations between the major economic powers of the planet?

Capitalism Is War

Since the origins of capitalism, the history of commercial relations between the different national bourgeoisies has been filled with a succession of commercial tensions but also and mostly of wars – wars to secure colonies, sources of raw materials, outlets for goods and capital. The imperialist rivalry between the European superpowers, whose capital and production capacities ran up against markets that were too narrow and fragmented, spawned the First World War.

For more than a century, the productive forces have been ripe for socialism. The level they have reached now requires rational and planned production, to take into account global needs and production capabilities at the scale of the world. The failure of the revolutionary wave of 1917-1921 gave capitalism a new lease on life. Humanity has paid a high price for that, with the major collapse of 1929 followed by a large-scale protectionist retreat, and a new world war that cost tens of millions of lives, and caused unprecedented suffering and material destruction. As a result, the U.S. emerged as the imperialist power dominating the planet, with the partial exception of the countries under the tutelage of the Soviet bureaucracy, until the end of the USSR in 1991.

But this supremacy has not done away with competition, which has never ceased. Although U.S. supremacy has been accompanied by a global free trade policy since the Second World War, protectionist measures and taxes on imports never disappeared. From the 1980s to 2000, when various free trade agreements between countries were negotiated under the auspices of the GATT (General Agreement on Tariffs and Trade) and later the WTO (World Trade Organization), tens of thousands of exceptions to free trade were introduced, in the name of health and quality standards, and in the name of national defense too. Haggling never stopped, as evidenced by the sheer weight of the appendices to the various treaties that were signed.

American administrations have defended, by any means necessary including military ones, the interests of the American bourgeoisie everywhere in the world. Since the end of the Second World War, there has not been a single year without a war somewhere on the planet involving imperialist powers, and usually the U.S. – be it through direct military intervention or via local armies or militias. This has been true in Africa, in the Middle East, and beyond. Not so long ago, U.S. ambitions concerning the countries of the former Soviet Union engendered the war in Ukraine. As for European imperialism, though they are weaker, they play the same bloody game. Twenty-five years ago, competing over Yugoslavia, France and Germany helped trigger a war in the very heart of Europe.

Today, as capitalism sinks into crisis, with a saturated world market, limited productive investments and an escalating financialization of the economy, competition is exacerbated between the capitalists and the powers that defend their interests. Today even more than before, “capitalism carries war just as the cloud carries the storm,” as a French socialist said in the period leading up to World War I. And the wars capitalism has in stock for us are not merely commercial ones.

The Power of American Imperialism

Trump’s electoral slogan, “Make America Great Again,” does not mean that U.S. capitalists have lost their supremacy. Trump is obsessed with the reduction of the trade deficit, a deficit of around 570 billion dollars a year, with two-thirds vis-à-vis China. But the fact that the U.S. imports more than it exports is not necessarily a sign of economic weakness for the American bourgeoisie.

A share of those imports comes from U.S. companies located abroad. When Apple sells iPhones that are “made in China”, the profits go to Apple shareholders. In today’s global economy, a country’s trade balance can hide very complex relationships. Michelin, Daimler, BMW and many others have dozens of factories in the U.S., from which they export throughout the Americas. These exports are “made in USA”. Similarly, Ford, General Electric and Carrier have built or bought factories in Europe. The products they sell are not included in U.S. exports, but the profits do go to the U.S. shareholders of these companies. As for the components used in the American factories, they are manufactured by subcontractors implanted in a multitude of countries. They cross seas and borders several times before being assembled.

Because the dollar is the currency of world trade, the U.S. can finance its trade deficit by lending dollars to the whole planet. The U.S. state lives on credit by issuing treasury bonds that owners of capital around the world are eager to collect. The Chinese state itself has invested part of its trade surplus in U.S. Treasury bonds. The central role of the dollar in world trade is a major political weapon for the U.S.

This weapon has recently forced major European corporations to leave Iran after Trump’s decision to renounce the Iran nuclear deal and reinstate the embargo. If they hadn’t, the US state would have punished them, in particular by depriving them of access to the U.S. market. As Patrick Pouyanné, Total’s CEO, explained to Le Monde on August 30, 2018: “The bulk of global capital and the financial system are in the hands of American investors and bankers: that’s the strength of American capitalism. A global group like Total cannot take the risk of being denied access to these financial resources. It is regrettable that the U.S. should use the force of its system to impose its law, but such is the reality of our global world.” In other words, Pouyanné recognizes that might is right, and that he has no choice but to comply with the rule of the strong.

If the U.S. remains predominant in all areas, in the economic, political and military fields, its hegemony must be constantly defended and reaffirmed by displays of strength. This is exactly what Trump is doing in the current economic context, with his brutal personal style and the political vision of a real estate mogul whose options are not necessarily approved of by every branch or member of the American bourgeoisie.

China and the United States: Unequal Relations

Trump’s first target was China. He accused the country of unfair competition because Chinese companies exporting low-cost goods get subsidies from the Chinese state and don’t comply with WHO rules. He also blamed China for forcing technology transfers and restricting foreign companies’ access to the Chinese market. In fact, as soon as it joined the WHO in 2001, China was taxed on a myriad of exported products, especially steel, which was taxed heavily before Trump, by both the United States and Europe. The majority of the anti-dumping duties against Chinese steel were implemented in 2015-2016 under Obama. Because of those long-standing taxes, Chinese steel exports to the United States are already close to zero.

Towards the end of the 20th century, international trade reintegrated China, but in a subordinate position. Because of the Chinese state’s history and the Maoist regime’s battle to recover national independence for the benefit of the Chinese bourgeoisie, the state played a major role in the development of large companies which were able to carve out their own niche in the global market. They often remain confined to the role of subcontractors and are often removed from certain markets, but they have become true competitors of their Western counterparts in various sectors. Chinese leaders have published a plan called “made in China 2025.” They have also publicized their ambition to take the lead in several technological sectors.

Year after year, Chinese exports to the United States are growing faster than U.S. exports to China. According to World Bank figures, the U.S. trade deficit with China rose from $80 billion in 2000 to $202 billion in 2005 and $367 billion in 2016. China is the world’s largest exporter with a 14% market share, far ahead of the United States (9%) and Germany (8%). This deficit reflects China’s role as “the workshop of the world.” China exports shoes, furniture and toys produced at a low cost, but also machines and electronic equipment. Some of these products are shipped to the four corners of the world, bearing the stamp of a subcontractor or of a Chinese-American joint venture – the U.S. side of which doesn’t want this unequal business to change in any way. Others are Chinese products that compete directly with U.S. products. Hence Trump’s wrath and his declaration of war – a commercial war – for the time being.

By unilaterally imposing tariffs on solar panels and washing machines in January 2018, then on steel and aluminum in March, Trump has sought to impose trade negotiations on the Chinese leaders and on the other trading partners of the U.S. Week after week, the list of Chinese products that are taxed or have limited access to the U.S. market is increasing. In late August, the U.S. administration announced a 25% tax on $50 billion worth of Chinese products, and in September it threatened to bring that figure up to $200 billion. According to Trump’s trade representative, Robert Lighthizer, the list “targets products that support China’s industrial goals while minimizing the impact on the U.S. economy.” In August, the U.S. Congress passed a law prohibiting federal government departments from using telecommunications equipment produced by Chinese firms ZTE and Huawei. Mergers or takeovers of electronics companies were banned because they were allegedly too favorable to China.

Unsurprisingly, China’s leaders have imposed retaliatory duties on U.S. products. They have targeted agricultural products, fruit, pork and soy, which American farmers sell massively to China. By targeting the U.S. agricultural states, which are Trump-friendly, Chinese leaders are exerting some political pressure. But their room for maneuver is apparently more limited than Trump’s – perhaps because they import less from the United States than they export, or because their domestic market is too small to absorb the products that are taxed by the United States.

Through blackmail and “fait accompli,” Trump wants to renegotiate the terms of trade with China, contrary to his predecessors who had gone through long negotiating sessions in the WHO. But the goal is the same: defending the interests of U.S. capitalists. However, U.S. capital-owners are far from being unanimous and have not closed ranks behind Trump. When the first protectionist measures were announced in March, many companies got in touch with Washington officials, asking for exemptions and challenging Trump’s policy. According to the U.S. press, groups like IBM and General Electric opposed the limitation of joint ventures, and banks like Goldman Sachs and Carlyle expressed concern over the restriction of investments in China. U.S.-based steelmakers perhaps liked Trump’s protectionist measures, but the taxation of foreign steel and aluminum caused prices to shoot up. The price of aluminum went up by 30% between March and June, to the chagrin of American automakers.

Relations between the European Union and the United States

Last April, French President Macron was hosted by Trump in the White House. He apparently did a lot of boot-licking but Trump was as brutal with him – and other European officials – as he is with China’s leaders. U.S. schoolchildren are taught that the U.S. is Europe’s historical ally. However, their relations have always been based on rivalry and competition. Two centuries ago, President James Monroe (1817-1825) chose to defend the interests of U.S. capital owners by proclaiming that America belonged to Americans. Then the U.S. shifted from defense to attack and shortly after World War I, Trotsky wrote that “the U.S. wanted to reduce Europe’s share drastically. This means that it will permit Europe to rise again, but within limits set in advance, with certain sections of the world market allotted to it.” (Perspectives of World Development, July,1924). This was in the interest of U.S. capitalists. In the wake of World War II, the U.S. launched the Marshall Plan and sponsored the birth of the Common Market (the European Union’s forerunner) to encourage U.S. exports which were hampered by Europe’s division.

Today, European capitalists are once again viewed as serious competitors by U.S. capital-owners, though those competitors have no intention to challenge U.S. economic supremacy. For years, the U.S. trade deficit with Europe has been approximately 100 billion euros per year. The U.S. is the E.U.’s first client but it is only the E.U.’s second largest supplier behind China. When Trump complains that there are “too many Mercedes in New York and not enough Chevrolets in Berlin,” he expresses GM’s concern with German car makers, who account for 8% of the U.S. market. When he criticizes Germany for buying Russian gas and supporting the construction across the Baltic Sea of a second gas pipeline that will allow Russia to increase its exports to Europe, he is defending the interests of U.S. oil companies which would like to sell their liquified shale gas to Europe. When he tweets, in the middle of NATO’s summit in Brussels on July 11, that “the United States is paying for the protection of Europe, then losing billions on trade,” Trump is just saying bluntly what his predecessors said in more diplomatic language: the U.S. military power is there to defend the interests of the U.S. bourgeoisie.

In their competition with American capitalists, European businessmen are handicapped by their own rivalries. Unlike the U.S., the E.U. does not have a state of its own. It is a mere free trade zone, permanently submitted to the contradictory interests of its member states, each of which defends the interests of its own bourgeoisie. For example, at a time when the E.U. was retaliating against the U.S. after the tax increase on steel, Angela Merkel suggested the abolition of all taxes on car imports to Europe – an idea which didn’t go down well with French car makers. Trump can almost at will stir up centrifugal tendencies inside the E.U., by encouraging xenophobic nationalists like Orban in Hungary and Salvini in Italy, or by advocating a “tough Brexit” between the E.U. and the United Kingdom.

Trump likes blowing hot and cold. After exchanging threats, Trump and President of the European Commission Jean-Claude Juncker announced in July that they had reached an agreement guaranteeing peaceful trade relations. Aside from the fact that both sides quarreled over its interpretation before the agreement was even published, Trump’s interventions increased the tension, instability and division already plaguing Europe.

Numerous Precedents

Trump is not the first U.S. president to have defended a protectionist policy. In 2002, George W. Bush, ignoring WHO rules, introduced strong tariffs on European steel. The E.U. responded by taxing four billion euros worth of U.S. products. The history of the E.U. is a succession of ruthless negotiations between gangsters trying to set standards to protect their home market from non-European competitors. As a result, the E.U. is permanently fighting over sanitary rules or “cultural” particularities concerning, for example, the cultivation of bananas, the making of roquefort cheese or the chlorine dipping of chicken carcasses.

In the 1980s, Ronald Reagan, who advocated economic liberalism for other countries, took strong protectionist measures against Japanese cars. When the oil crisis caused U.S. car sales to fall hard and fast, Reagan blamed the Japanese car manufacturers – who were then flooding the U.S. market with their small cars – for the massive job cuts devastating the car industry. He then imposed strict quotas on imports, a measure which did not benefit U.S. workers but U.S. and Japanese capital-owners.

In an article published on July 27 in the French business daily Les Echos, a journalist explained how Japanese manufacturers “started by obeying, but soon began to build plants in the United States, not in Detroit but in the Southern states devoid of trade-union traditions.” He concluded: “Today, Japanese cars, which account for nearly 40% of sales in the United States, are mostly manufactured in the United States.” When U.S. car manufacturers relocated part of their production in the same Southern states, they also cut tens of thousands of jobs in Michigan, and auto workers were the big losers. Whether exploited by U.S. or Japanese bosses, workers have seen their pace of work intensified, wages reduced and jobs cut.

A War Against Workers

Under Trump as under Reagan, in the U.S. as in Europe or China, workers will pay a high price if they listen to the protectionist and chauvinist tales of bourgeois politicians. Of course they will lose just as much if they let themselves be abused by the partisans of free trade, such as Macron or Merkel, whose attacks on workers’ rights and conditions are relentless.

Trump claims that he is waging a trade war to preserve U.S. jobs. The U.S. may have lost 5.5 million jobs, that is, 30% of all industrial jobs, in thirty years. But over the same period, U.S. industrial production has gone up by 60%! In other words, U.S. companies destroyed those jobs not so much because of competition but because they wanted to increase productivity... and satisfy the shareholders’ thirst for profit.

Working people are already footing the bill for Trump’s policy through rising prices. In 2018 the price of washing machines went up. Car manufacturers are also bound to raise their prices because steel has become more costly for them. And in China, retaliatory measures will affect the population in one way or another. At the end of the day, the cost of the Chinese government’s boycott or taxation of American hogs and soybeans will be paid by the ordinary people.

Above all, workers will pay a huge price politically if they do not put forward their own political interests, if they let politicians convince them that foreign workers are their adversaries, that they are competitors and not class brothers. In Europe, the rise of xenophobic, racist parties and their ascension to power in several countries is already a serious threat to workers. The same is true of the U.S., especially if Trump’s slogan, “America First,” receives massive popular support in the November mid-term elections.

Provocative Declarations in a Time of Economic Instability

As we are writing, the return to generalized protectionism is apparently not the U.S. bourgeoisie’s first choice. The Democrats’ denunciation of Trump’s postures is driven first and foremost by their political rivalry with the Republicans. But they represent the interests of the American bourgeoisie as much as the Republicans. This doesn’t mean that a real trade war is impossible: one provocative statement could lead to another, to retaliation and escalation, etc.

The European bourgeoisie would have more to lose in a trade war than its U.S. counterpart – though many U.S. capitalists could also lose out. In the E.U., bourgeois economists and official economic organizations have produced dozens of reports on the harmful effects of a generalized trade war – and the consequences would indeed be dire in an economic landscape that is much more interdependent than it was in 1929. For example, France’s Economic and Social Council wrote in a report published in July: “Our estimates suggest that [such a war] would have a similar effect, in terms of GDP per capita, on the three major world powers (the E.U., the U.S. and China): their GDP would fall by about 3 or 4%. The impact would be comparable to that of the great recession of 2008-2009. And it would be more serious still in small countries.” The 2008 crisis, from which the global economy has not yet recovered, resulted in the slashing of tens of millions of jobs worldwide. According to the same report, a generalized trade war would entail an average loss of 1,250 euros for each European.

These reports are revealing: they reflect the fears of economists who are aware of the fragility of the global economy and of its instability. There is no point in trying to speculate over Trump’s intentions. Yes, his bluff is a tool to seduce voters. He may well be irresponsible, as some senior executives in the White House have suggested. But one thing is sure: his statements have a real impact on this sick economy dominated by finance. The global economy is like a house of cards. It rests on a sea of floating dollars wondering where the next speculation is going to develop. The slightest uncertainty, the slightest crisis can be amplified and result in speculative attacks on the exchange rate of currencies, on the value of shares or government bonds.

While nothing has fundamentally changed in the relations between the U.S. and Turkey, who are still partners inside NATO, the fact that Trump announced a doubling of the taxes on Turkish steel and aluminum was enough, in a context of economic deterioration, for “investors” (in other words capitalists, bankers and hedge funds) to withdraw their money from the country. This sudden withdrawal caused by anxiety or opportunism led to the fall of the Turkish lira and to catastrophic inflation. For the financial markets, statements by political leaders, notably by central bank managers, have become top-notch indicators, on equal footing with unemployment rates and GDP growth rates. That is why, whether or not a trade war (of greater or lesser magnitude) is declared by the U.S., the EU or China, Trump’s policy is fraught with danger.

Trump, his advisers and the American capitalists who see quotas and taxes on imports as opportunities to make a lot of money are fully aware of the danger. But they don’t care. What matters to them is today’s profits – forget about tomorrow. As for those who would rather avoid a trade war and are critical of Trump’s policies, they will be in favor of customs barriers as soon as they think they can profit from them. The capitalist class is irresponsible, by definition. The only way for workers to protect themselves is to overthrow that class and expropriate it.