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Trump administration’s trade war with China and the fall of U.S. hegemony

By Masao Suzuki |
June 15, 2018
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San José, CA - On Friday, June 15, President Trump signed orders to place tariffs (taxes) on $34 billion of imports from China beginning July 6. The office of the U.S. Trade Representative (USTR) will be imposing tariffs on another $16 billion of imports from China in the near future for a total of $50 billion in imports facing 25% taxes. This represents another turnaround in trade from a few weeks ago, when Trump’s Commerce Secretary Steve Mnuchin said that the trade war was “on hold” after initial negotiation with the Chinese government, which had offered to increase purchases of U.S. goods and further open the Chinese economy to foreign investments.

This action against China is another sign of the rising power of trade hardliners in the Trump administration such as Peter Navarro, director of the White House Trade Council. Navarro was recently in the headlines for saying that there was a “special place in hell” for Canadian Prime Minister Justin Trudeau, after Trump refused to sign a statement of the Group of Seven (G-7) meeting of major capitalist countries. This hard line on trade can also be seen in the Trump administration’s imposition of tariffs on steel and aluminum imported from Canada, the European Union and Mexico on ‘national security’ grounds.

The Trump administration’s trade policies follow a mercantilist outlook that trade deficits are bad and that a country grows strong through a trade surplus. Mercantilism was adopted by early European colonial powers as they advocated taking colonies, taxing imports, subsidizing exports, and restricting trade to a few government sponsored monopolies. Many of the British colonists’ economic grievances against the King were caused by these policies.

The mainstream economic view of free trade was championed by Adam Smith, a British economist who published The Wealth of Nations in 1776. In his work, he used the term “the invisible hand” to describe the virtues of a free market, where small businesses would compete for customers by offering cheaper and better quality goods and services.

With free trade, countries would specialize, and Smith saw the British colonies as producing agricultural goods for British factories. While this was embraced by southern American plantation owners, who used slave labor to produce cotton for export, northern manufacturing interests wanted tariffs in order to develop American industries like weaving, with their cloth protected from cheaper British goods. These tariffs were passed in 1862 after the South tried to leave the U.S. over the issue of slavery.

As U.S. industries came to dominate the world capitalist economy, replacing Britain as the number one economic power, the U.S. took over Britain’s role as a champion of free trade. Towards the end of World War II, the U.S. set up a number of international institutions to bolster free trade and U.S. economic domination. The Bretton Woods currency agreement, which fixed foreign currency exchange rates where the U.S. dollar was paired up with gold to replace the British-led gold standard. The General Agreement for Tariffs and Trade, or GATT, which developed into today’s World Trade Organization or WTO was designed to lower tariffs and allow for more U.S. foreign investments. Finally, the International Monetary Fund or IMF and the World Bank would make loans to former colonial and oppressed nations to enforce free trade and government austerity in the interests of the U.S. and other former colonial powers in western Europe and Japan.

But the decline of U.S. economic hegemony has led to the unraveling of this web of institutions. Bretton Woods was first to go in the 1970s when the U.S. dollar lost its status as being ‘good as gold.’ Since 2005 the World Trade Organization has been deadlocked when developing countries, led by Brazil and China, refused to discuss U.S. demands for more free investments after the U.S. refused to discuss its own trade policies such as subsidies for agriculture. The World Bank is being challenged by a recent Chinese initiative, the Asian Infrastructure Bank, which has started up despite a U.S. effort to prevent other countries from joining.

The U.S.-dominated free-trade system is being challenged on two fronts. In the rest of the world, other economies are growing stronger and demanding more equal treatment from the United States, or absent that, setting up alternative institutions. One of the major economic threats to U.S. domination is China’s Belt and Road initiative that seeks to re-establish China-centered trade and investment links throughout the Eurasian continent.

The other challenge for the U.S. is that free trade policies have facilitated the export of capital, and along with that, jobs, especially in manufacturing. This is spearheaded by U.S. big business as well as European and Japanese corporations. For example, the United States now imports most of its cars (not including pickup trucks and SUVs) as big auto companies export their factories to take advantage of the North American Free Trade Agreement (NAFTA).

The Trump administration is trying to take the widespread discontent with free trade among the working class here, and trying to turn the working class against the rest of the world, painting other countries as the enemy. This is a common theme in the administration’s trade policy, their inhumane treatment of immigrants (such as separating children from their parents), and funding a major military buildup to prepare for more major wars abroad.

The challenge for labor movement and other progressive activists to try to build an alliance between workers and oppressed communities here in the United States with the working people in other countries who also do not benefit from corporate-led globalization.

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