The Global Trade War is Escalating

 

Trump’s new Tariffs on about $200bn worth of Chinese Imports Reflect the Accelerating Rivalry between the Great Powers

 

by Michael Pröbsting, International Secretary of the Revolutionary Communist International Tendency (RCIT), 19 September 2018, www.thecommunists.net

 

 

 

As the RCIT has pointed out repeatedly in the past years, the rivalry between the imperialist Great Powers – the U.S., China, Russia, EU and Japan – is one of the key features of world politics since the beginning of the current historic period in 2008. (1) These tensions have accelerated in the past years on various levels. There are increasing political and military conflicts in the Middle East as well as in East Asia. And, as we have predicted and analyzed on various occasions, there are also increasing economic tensions which have resulted now in the Global Trade War. (2)

 

This Global Trade War has now entered a new stage. US President Donald Trump has announced on 17 September that he will impose 10% US tariffs on about $200bn worth of Chinese imports. The new tariffs will take effect from September 24. It will increase to 25% on January 1 if Beijing refuses to offer trade concessions. Furthermore, Trump also warned China not to take retaliatory action. “If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267bn of additional imports.” (3)

 

On the next day, Beijing announced retaliatory tariffs on $60 billion of U.S. goods ranging from wheat to textiles, with 5% to 10% tariffs. "China is forced to respond to US unilateralism and trade protectionism, and has no choice but to respond with its own tariffs," the finance ministry in Beijing said in a statement on 18 September. (4) Tariffs of between 5 and 10% will take effect on some 5,200 US products on the same day as the new US duties. (5)

 

This is the latest round of an escalating Global Trade War. It brings all Chinese imports subject to added tariffs to $250 billion, roughly half of China’s shipments to the U.S. last year. The Trump administration in July and August already imposed 25% tariffs on $50 billion on Chinese goods, sparking in-kind retaliation. If the U.S. would go ahead with it threat to impose tariffs on additional $267 billion of imports from China, this would push the cumulative total beyond the amount of goods the U.S. bought from the Asian nation last year.

 

The capitalist stock markets – both in Asia as well as in the West – have reacted calmly to these developments until now. The reason for this seems to be that, as investors said, “the markets had already priced in 10 percent tariffs and that it could’ve been worse”. (6) There is still hope that the U.S. and China might still be willing to reach a trade deal. China’s finance ministry said that Beijing is still willing to negotiate. And Kevin Hassett, the chairman of Trump’s Council of Economic Advisers, said he expected that U.S.-China talks can still take place. (7)

 

 

 

China’s Options to Strike Back

 

 

 

China has announced it is lodging a new complaint at the World Trade Organization in its tariffs battle with the United States. It has already done so before but, unsurprisingly, the mills of the WTO bureaucracy grind slowly – particularly if a complaint is directed against Washington!

 

One important factor in the Global trade War is the limitation of option for China to retaliate in the field of trade tariffs and, at the same time, its manifold possibilities to strike back in other areas. On one hand China faces difficulty in responding on a scale equal to Trump’s new tariffs because its annual imports from America total only about $130bn, while its exports to the US total more than $500bn. In other words, China can not hit back as much as the U.S. as long as the conflict remains contained to trade tariffs.

 

However, China has several other options to retaliate. First, it can devaluate its currency and, by this, partially offset the effects of the additional costs for exports caused by Trump’s new tariffs. And indeed, China's yuan has weakened by about 6% against the US dollar since mid-June, offsetting the 10% tariff rate by a considerable margin.

 

Secondly, Beijing can target specific US companies – like Nike, General Electric and Apple – operating in China by increasing the regulation (termed “weaponising of regulation” by economists). Such disruption could range from invasive health and safety checks to tougher labour controls or rules on fire standards. Mergers and acquisitions could be made more difficult, and state contracts could be withheld from US firms.

 

This points to an important issue which is often overlooked (or brushed under the carpet). Trump always talks about China’s huge trade surplus against the US ($376bn in 2017), so that US goods exports to China are worth only a quarter of US imports from China. This is true. But it is also true that U.S companies, which are operating in China, sell a huge amount of commodities to the Chinese market. In fact, they sell much more than Chinese companies operating in the U.S. sell to American consumers. As a result, the net balance between the U.S. and China looks very different compared to the trade balance only.

 

A recently published study by the Deutsche Bank arrives to the following conclusion: “Our March 25 report corrected for these biases and found that US firms sold $372bn of goods and services to China in 2015, while Chinese firms sold $403bn to the US. The net balance, which we defined as "aggregate sales balance", is a surplus of $30bn from China's perspective, much smaller than the $367bn bilateral trade balance. We estimate that from the US perspective, this balance has turned from a deficit of $30bn in 2015 to a surplus of $7bn in 2016 and $20bn in 2017.” (8)

 

This means that the Chinese government can hit U.S. interests substantially by “weaponising of regulation”. It is therefore hardly surprising that leading U.S. multinationals like Apple are outraged about the trade warmongering of the Trump Administration.

 

Finally, as we have pointed out repeatedly in the past, China can put pressure on the U.S. since it is the largest foreign investor in U.S. Treasuries. This is an important factor as the U.S. is the largest debtor in the world and massively relies on foreign lenders. And indeed, similar to the currency, Beijing has also started to make the U.S. feel its weight on this terrain. China’s holdings of U.S. Treasuries fell to a six-month low in July, just as a trade war between the world’s two largest economies began heating up. China’s ownership of U.S. bonds, bills and notes slipped to $1.17 trillion, the lowest level since January and down from $1.18 trillion in June, according to data released by the Treasury Department. (9)

 

Obviously, each of these economic weapons bears a huge potential for escalation. It could add to the Global Trade War a Global Currency War as well as a stock market crash. In other words, the current trade conflict between the two biggest economic powers could easily trigger a major slump – worse than the Great Recession in 2008/09.

 

 

 

Is Global Trade War the New Normal?

 

 

 

The RCIT has pointed out since a number of years that the emergence of China and Russia as new imperialist powers is one of the key features of the current historic period. (10) Likewise, we have analysed in various studies the historic crisis of the capitalist world economy. (11) In the light of these historic tendencies, it is inevitable that the rivalry between the Great Powers is accelerating. We drew attention to this fundamental law of the present historic period already in our program six years ago.

 

“In the period of accelerated decline of capitalism the tensions between the ruling classes and states increase inevitably. If the prey gets smaller, the bandits fight harder for their share. Therefore, it is no wonder that the rivalry between the major imperialist powers exacerbates. The U.S. brace themselves against the end of its absolute hegemony as the imperialist leading power which lasted for more than half a century long. China has entered the arena as a self-confident new imperialist power and is expanding its influence. The EU is trying hard to become a unified and powerful force, and Russia are trying to increase its share in this geopolitical power struggle. Ultimately, the rivalry between the great powers threatens to lead to a new world war.” (12)

 

As a result of our analysis we have warned at the beginning of 2018 of the danger of a Global Trade War: “Given the aggressive protectionism advocated by the Trump Administration there is a realistic possibility that a trade war could start in 2018 between the U.S. and China which would trigger another recession.” (13)

 

This trade war has now entered a new stage of escalation. And, if negotiations between the U.S. and China in the next three months will not result in a compromise, another, even more dramatic, stage of the Global Trade War might begin. Of course, as we have said in the past, it would be foolish to exclude the possibility of a temporary compromise. But given the gravity of the economic and political antagonistic contradiction a full-blown Global Trade War is inevitable sooner or later.

 

It seems that this Marxist insight becomes more and more accepted even in bourgeois circles. A growing number of bourgeois economists and big capitalists take note that a long-term trade war is the new normal. Chang Shu, a Bloomberg economist, wrote: “The U.S.-China trade war is shaping up to be a long confrontation. In our view, piling pressure on China is unlikely to result in concessions. A strategic misstep by the U.S. risks further escalating the tariff war, which would add to the drag on growth -- with larger implications for Asia’s supply chains.” (14)

 

Likewise, the Asia Times write: “What started off as a low-level squabble has become a full-blown trade conflict with no end in sight, except a Cold War-style standoff.” (15)

 

Britain’s The Guardian warns: “Growing US-China strategic rivalry is a fact of 21st century life. Yet at present, Trump is relying on Chinese restraint in a wide range of problem areas as he focuses obsessively on his trade vendetta. It cannot be assumed Xi will be content indefinitely to play the role of “adult in the room”. His patience could snap. Few people predict a new cold war, just yet. But the warning signs are there for all to see.” (16)

 

An even more important statement has come from China’s billionaire Jack Ma, chairman of the Alibaba Group and the Chinese equivalent to Mark Zuckerberg. Showing the possession of a certain historic insight, China’s richest man said that the conflict between the U.S. and China “could last 20 years and persist beyond the presidency of Donald Trump, as the world’s two strongest economic powers battle for global supremacy.” He added: “This thing will last long. If you want a short-term solution, there is no solution.” In conclusion, he advised his country “to strengthen its economy to deal with the conflict and shift trade relations from the U.S. to regions like Southeast Asia and Africa.” (17)

 

In summary, even the smarter figures among the bourgeoisie recognize that capitalism is increasingly incapable to reconcile its accelerating contradictions. The Global Trade War is becoming the new normal of present-day capitalism.

 

 

 

The Need for a Socialist and Internationalist Response of the Working Class

 

 

 

As we have pointed out in past documents, most of the so-called “left” are incapable to understand the nature of the Great Power rivalry and, consequently, they fail to raise a program of struggle for consistent anti-imperialism directed against all Great Powers. They often fail to recognize the imperialist nature of China and Russia and, in the case of numerous Stalinist (and other) parties, they even praise imperialist China as a “socialist model”. A number of so-called “Marxists” see China and Russia not as “socialist” but nevertheless as a “lesser evil” which they, openly or hidden, support. An example for this is the misnamed “World Socialist Website” which denounced the RCIT’s stance as a “right-wing, bourgeois and pro-imperialist orientation”. (18) Other left-wing organizations don’t go that far but also fail to draw the necessary conclusions. (19)

 

However, the international working class needs a program of struggle which does not accommodate with this or that imperialist camp. It rather needs a socialist and internationalist response. It needs a program of revolutionary defeatism as it was developed by Lenin and the Bolsheviks and later carried forward by Trotsky’s Fourth International. (20) It needs a program which unconditionally supports the struggle of the workers and oppressed people against Great Powers and their local lackeys (as it is e.g. currently taking place in Syria). (21)

 

Consequently, revolutionaries must oppose the Global Trade War and deploy a set of anti-imperialist tactics. In our recently published joint statement with a number of other revolutionary organizations we named the following slogans and tactics as crucial for a consistent socialist and internationalist response of the international working class:

 

“In view of a looming global trade war, socialists call the workers and popular organizations around the world to act decisively on the basis of the principles of international working class solidarity. Such principles are valid in times of peace and war, in case of economic sanctions as well as in case of military aggression.

 

* No to a global trade war! Oppose Great Power jingoism in West and East! Against militarist saber-rattling! In imperialist states, socialists say: “The Main Enemy is at Home!” In case of sanctions or a trade war between the U.S., China, European Union, Russia, Canada, Japan, or other powers, socialists in all countries involved must oppose such sanctions.

 

* Down with imperialist sanctions against semi-colonial countries like North Korea, Iran, Zimbabwe, Venezuela and others! Defend these countries against all forms of imperialist aggression! But no political support for the anti-working class regimes in these states!

 

* Down with the imperialist border regime! Open the borders for refugees! Defend Muslim migrants against Islamophobic racism!

 

* Neither imperialist globalization nor imperialist protectionism! Against all Great Powers and capitalist corporations in West and East! For international solidarity and joint cross-border struggle in defense of the interests of workers and oppressed!“ (22)

 

Such a program is now, given the further escalation of the Global Trade War, more relevant than ever!

 

 

 

Footnotes

 

(1) For an overview of the development of our analysis of the present historic period see e.g. chapter 14(i) in Michael Pröbsting: The Great Robbery of the South. Continuity and Changes in the Super-Exploitation of the Semi-Colonial World by Monopoly Capital. Consequences for the Marxist Theory of Imperialism, RCIT Books, Vienna 2013, https://www.thecommunists.net/theory/great-robbery-of-the-south/, pp. 372-382 as well as Michael Pröbsting: Building the Revolutionary Party in Theory and Practice, RCIT Books, Vienna 2014, https://www.thecommunists.net/theory/rcit-party-building/, pp. 81-84, pp. 101-103

 

(2) See e.g. our recently published documents: Global Trade War: No to Great Power Jingoism in West and East! Neither Imperialist Globalization nor Imperialist Protectionism! For International Solidarity and Joint Struggle of the Working Class and Oppressed People! Joint Statement of the Revolutionary Communist International Tendency (RCIT), Marxist Group ‘Class Politics’ (Russia), Alkebulan School of Black Studies (Kenya), Pan-Afrikan Consciousness Renaissance (Nigeria), Courant des Jeunes Penseurs Congolais (Democratic Republic of Congo), and Sınıf Savaşı (Turkey), 4 July 2018, https://www.thecommunists.net/rcit/joint-statement-on-the-looming-global-trade-war/; Michael Pröbsting: The Global Trade War has Begun. What is its Meaning and what should be the Response of Socialists? 13 July 2018, https://www.thecommunists.net/theory/the-global-trade-war-has-begun/; Yossi Schwartz: Capitalist Trade and the Looming 3rd World War, 15 July 2018, https://www.thecommunists.net/theory/capitalist-trade-and-looming-3rd-world-war/; Michael Pröbsting: Where Do Socialists Stand in Face of the Looming Global Trade War? A Showcase of the Practical Consequences of the Assessment of the Class Character of the Chinese State, 17 June 2018, https://www.thecommunists.net/theory/where-do-socialists-stand-in-face-of-the-looming-global-trade-war/; Michael Pröbsting: World Perspectives 2018: A World Pregnant with Wars and Popular Uprisings. Theses on the World Situation, the Perspectives for Class Struggle and the Tasks of Revolutionaries, RCIT Books, Vienna 2018, https://www.thecommunists.net/theory/world-perspectives-2018/

 

(3) Richard Partington and Dominic Rushe: Trump imposes $200bn of new import tariffs on China as trade war escalates, 17 Sep 2018 https://www.theguardian.com/us-news/2018/sep/17/donald-trump-united-states-threatens-to-impose-200bn-import-tariffs-on-china-in-trade-war

 

(4) China hits back at latest US tariffs with measures on $60bn, 2018-09-18 https://www.aljazeera.com/news/2018/09/china-hits-latest-tariffs-measures-worth-60bn-180918135819697.html

 

(5) For an overview of the escalation of the Global Trade War in the last days see here: Alex Wayne: Trump Threatens `Retaliation' If China Targets U.S. Farmers, September 18, 2018, https://www.bloomberg.com/news/articles/2018-09-18/trump-threatens-retaliation-if-china-targets-u-s-farmers?srnd=premium-europe; China hits back at latest US tariffs with measures on $60bn, 2018-09-18 https://www.aljazeera.com/news/2018/09/china-hits-latest-tariffs-measures-worth-60bn-180918135819697.html; Enda Curran, Andrew Mayeda and Jenny Leonard; China strikes $60 billion of US goods in widening trade war, Bloomberg Sep 18 2018. https://www.bloomberg.com/news/articles/2018-09-17/trump-ratchets-up-tariff-pressure-on-china-with-200-billion-hit?srnd=premium-europe Richard Partington: China hits back at US with $60bn of new tariffs, 18 Sep 2018 https://www.theguardian.com/business/2018/sep/18/china-us-new-tariffs-donald-trump-trade-war; Andrew Mayeda, Jenny Leonard, and Enda Curran: China Vows to Retaliate After Trump's $200 Billion Tariff Hit, September 17, 2018, https://www.bloomberg.com/news/articles/2018-09-17/trump-ratchets-up-tariff-pressure-on-china-with-200-billion-hit?srnd=premium-europe; US slaps tariffs on $200bn in China goods as trade war escalates, 2018-09-18 https://www.aljazeera.com/news/2018/09/slaps-tariffs-200bn-china-goods-trade-war-escalates-180918000824791.html; Enda Curran, Andrew Mayeda, and Jenny Leonard: China Fires Back at Trump With New Tariffs on $60 Billion, Bloomberg, September 18, 2018, https://www.bloomberg.com/news/articles/2018-09-18/china-fires-back-at-trump-with-tariffs-on-60-billion-of-goods?srnd=premium-europe; Richard Partington and Dominic Rushe: Trump imposes $200bn of new import tariffs on China as trade war escalates, 17 Sep 2018 https://www.theguardian.com/us-news/2018/sep/17/donald-trump-united-states-threatens-to-impose-200bn-import-tariffs-on-china-in-trade-war; Kollateralschäden im Handelskrieg, 19.09.2018 https://www.german-foreign-policy.com/news/detail/7727/

 

(6) Enda Curran, Andrew Mayeda, and Jenny Leonard: China Strikes $60 Billion of U.S. Goods in Growing Trade War, 18. September 2018, https://www.bloomberg.com/news/articles/2018-09-17/trump-ratchets-up-tariff-pressure-on-china-with-200-billion-hit?srnd=premium

 

(7) Enda Curran, Andrew Mayeda, and Jenny Leonard: China Fires Back at Trump With New Tariffs on $60 Billion, Bloomberg, September 18, 2018, https://www.bloomberg.com/news/articles/2018-09-18/china-fires-back-at-trump-with-tariffs-on-60-billion-of-goods?srnd=premium-europe; Samuel Potter and Sarah Ponczek: Stocks Gain Even as U.S.-China Trade Tensions Grow: Markets Wrap, September 17, 2018, https://www.bloomberg.com/news/articles/2018-09-17/stocks-in-asia-face-slide-on-next-trade-war-salvo-markets-wrap?srnd=premium-europe

 

(8) Zhiwei Zhang and Yi Xiong: US economic balances with partners, Deutsche Bank Research, 11 June 2018, p. 1

 

(9) Sarah McGregor and Katherine Greifeld: China Cuts U.S. Treasury Holdings as Trade War Intensifies, Bloomberg, September 18, 2018, https://www.bloomberg.com/news/articles/2018-09-18/china-cuts-u-s-treasury-holdings-as-trade-war-starts-heating-up

 

(10) On the RCIT’s analysis of China and Russia as emerging imperialist powers see the literature mentioned in the special sub-section on our website: https://www.thecommunists.net/theory/china-russia-as-imperialist-powers/. Concerning China, we refer readers in particular to Michael Pröbsting: The China-India Conflict: Its Causes and Consequences. What are the background and the nature of the tensions between China and India in the Sikkim border region? What should be the tactical conclusions for Socialists and Activists of the Liberation Movements? 18 August 2017, Revolutionary Communism No. 71, https://www.thecommunists.net/theory/china-india-rivalry/; Michael Pröbsting: The China Question and the Marxist Theory of Imperialism, December 2014, https://www.thecommunists.net/theory/reply-to-csr-pco-on-china/; Michael Pröbsting: China‘s transformation into an imperialist power. A study of the economic, political and military aspects of China as a Great Power, in: Revolutionary Communism No. 4, http://www.thecommunists.net/publications/revcom-number-4.

 

Concerning Russia, we refer readers in particular to Michael Pröbsting: Lenin’s Theory of Imperialism and the Rise of Russia as a Great Power. On the Understanding and Misunderstanding of Today’s Inter-Imperialist Rivalry in the Light of Lenin’s Theory of Imperialism, August 2014, http://www.thecommunists.net/theory/imperialism-theory-and-russia/; Michael Pröbsting: Russia as a Great Imperialist Power. The formation of Russian Monopoly Capital and its Empire – A Reply to our Critics, 18 March 2014, Special Issue of Revolutionary Communism No. 21 (March 2014), https://www.thecommunists.net/theory/imperialist-russia/.

 

(11) On the RCIT’s analysis of the world economy see For the RCIT’s analysis of the capitalist world economy since the Great Recession in 2008/09 see e.g. Michael Pröbsting: World Perspectives 2018: A World Pregnant with Wars and Popular Uprisings, see link above; RCIT: World Perspectives 2017: The Struggle against the Reactionary Offensive in the Era of Trumpism, Chapter I, in: Revolutionary Communism No. 59, https://www.thecommunists.net/theory/world-perspectives-2017/; RCIT: Advancing Counterrevolution and Acceleration of Class Contradictions Mark the Opening of a New Political Phase. Theses on the World Situation, the Perspectives for Class Struggle and the Tasks of Revolutionaries (January 2016), Chapter II and III, in: Revolutionary Communism No. 46, http://www.thecommunists.net/theory/world-perspectives-2016/; RCIT: Perspectives for the Class Struggle in Light of the Deepening Crisis in the Imperialist World Economy and Politics. Theses on Recent Major Developments in the World Situation and Perspectives Ahead (January 2015), in: Revolutionary Communism No. 32, http://www.thecommunists.net/theory/world-situation-january-2015/; Michael Pröbsting: World economy – heading to a new upswing? in: Fifth International, Volume 3, No. 3, Autumn 2009, https://www.thecommunists.net/theory/world-economy-crisis-2009/; Michael Pröbsting: Imperialism, Globalization and the Decline of Capitalism (2008), in: Richard Brenner, Michael Pröbsting, Keith Spencer: The Credit Crunch - A Marxist Analysis, London 2008, https://www.thecommunists.net/theory/imperialism-and-globalization/

 

(12) The Revolutionary Communist Manifesto, Programme of the Revolutionary Communist International Tendency, Vienna 2012, p. 61

 

(13) Michael Pröbsting: World Perspectives 2018: A World Pregnant with Wars and Popular Uprisings, see link above, p. 40

 

(14) Andrew Mayeda, Jenny Leonard, and Enda Curran: China Vows to Retaliate After Trump's $200 Billion Tariff Hit, September 17, 2018, https://www.bloomberg.com/news/articles/2018-09-17/trump-ratchets-up-tariff-pressure-on-china-with-200-billion-hit?srnd=premium-europe

 

(15) Gordon Watts: Typhoon Trump signals stormy times ahead in China trade war, Asia Times, September 18, 2018 http://www.atimes.com/article/typhoon-trump-signals-stormy-days-ahead-as-china-vows-to-retaliate/

 

(16) Simon Tisdall: Donald Trump's reliance on Chinese restraint is risky, 18 Sep 2018 https://www.theguardian.com/us-news/2018/sep/18/donald-trumps-reliance-on-chinese-restraint-is-risky

 

(17) Lulu Yilun Chen: Alibaba's Ma Warns U.S.-China Trade War Could Last 20 Years, September 18, 2018, https://www.bloomberg.com/news/articles/2018-09-18/alibaba-s-jack-ma-warns-u-s-china-trade-war-could-last-20-years?srnd=premium-europe

 

(18) See Johannes Stern: Behind the designation of Russia and China as “imperialist”: A case study in theoretical charlatanry, WSWS, 14 April 2016, http://www.wsws.org/en/articles/2016/04/14/prob-a14.html. We have published two replies: Michael Pröbsting: The Involuntary Self-Exposure of the WSWS. A Brief Reply to a Lengthy Attack by David North’s WSWS Attack against the RCIT, Revolutionary Communist International Tendency (RCIT), 18.4.2016, https://www.thecommunists.net/theory/reply-to-wsws-short/; Johannes Wiener: In Response to the Self-Proclaimed “Leadership” of the World Socialist Movement- A Reply to the Recent Polemic of the ICFI/WSWS against the RCIT, 30 April 2016, https://www.thecommunists.net/theory/reply-to-wsws-long/

 

(19) For our criticism of the analysis of China and Russia by various socialist organizations, see e.g. the RCIT pamphlet by Michael Pröbsting: Syria and Great Power Rivalry: The Failure of the „Left“. The bleeding Syrian Revolution and the recent Escalation of Inter-Imperialist Rivalry between the US and Russia – A Marxist Critique of Social Democracy, Stalinism and Centrism, 21 April 2018, https://www.thecommunists.net/theory/syria-great-power-rivalry-and-the-failure-of-the-left/. Furthermore we have elaborated our criticism of various organizations on this issue in the literature mentioned in the special sub-section on our website: https://www.thecommunists.net/theory/china-russia-as-imperialist-powers/

 

(20) See on this e.g. RCIT: Theses on Revolutionary Defeatism in Imperialist States. Resolution of the International Executive Committee of the Revolutionary Communist International Tendency (RCIT), 8 September 2018, https://www.thecommunists.net/theory/theses-on-revolutionary-defeatism-in-imperialist-states/

 

(21) See the numerous articles and statements of the RCIT in support of the heroic Syrian Revolution. They are collected in a special section of our website: https://www.thecommunists.net/worldwide/africa-and-middle-east/collection-of-articles-on-the-syrian-revolution/.

 

(22) Joint Statement: Global Trade War: No to Great Power Jingoism in West and East! See link above