2018: An year of trade war or capitalist crisis

Ankit Bhatia
Ankit Bhatia Indian Institute of Foreign Trade

Historically, world trade has grown much faster than global production, thus facilitating the growth of the world economy. However, in the recent period, with the start of a skulking trade war by USA with its business rivals and allies, the growth of world trade has slowed to a level lower than that of GDP, hence threatening the world, both economically and politically. Global trade as a percentage of GDP peaked at 61% twice, in 2008 and 2011, but now it has fallen to 56% or so and is supposed to fall further under various startling decision of USA including slashing down of TPP & TTIP, pulling out of NAFTA to boost the country’s interests and intimidating to paralyse the WTO by blocking the replacements of judges to its tribunals.

All this has not only tempted the national governments worldwide to protect their own markets on national security grounds but has also impacted the credibility of a global institution (WTO) as the protector of the rule based trading system.

The most recent global financial crisis of 2008, represented a fundamental turning point for the initiation of all these events. Since the beginning of the financial crisis, the advanced capitalist countries like UK, Spain, Germany, France, China etc. have been taking intense measures to increase their trade surpluses majorly through number of protectionist moves. In fact, financial crash of 2008 was not a normal cyclical crisis but a reflection of an organic crisis of capitalism. Aftermaths of which were the imposition of the austere measures (protectionism) for the development of the economy by the bourgeoisie or the so called capitalist countries which has ultimately restored the economic equilibrium but at the same time has affected the political and social equilibrium.

The question now arise is that whether this current trade spat really a trade war or not?

As per some renowned scholar’s and economist, this trade war is another phase of capitalist crisis that stems out from the dynamics of capitalist imperialism. Until recently, China’s technological acumen was quite low, and was being controlled by big US business in the division of labour. China used to produce toys, clothes etc. to sell to the USA consumers through powerful retailers of the likes of Walmart, while the USA used to produce aircrafts and advanced computer components to sell to China. In both the cases, the profits were being repatriated to the USA’s economy.

But now, if we flash this in current scenario, we will find it to be completely reversed. China is now a technological frontier in many advanced industries, thus is no longer an ally of US but a rival, and hence, is driving the current trade war towards capitalist imperialism of earning profits through complete control over the entire factors of production. This impels the China, to exercise political dominance over as much of the world as possible.

This raise another question, is it only China? What about other world tech frontier countries such as Finland, Germany, UK etc. Well, its answer lies in the fact that US – a dominant imperial power since World War II, can tolerate the small advanced countries and can dominate the same at times. Precedents also exist from the time of 1970s – 80s, when Japan was a dominant exporter of automotive vehicle to the US markets, it had to face the nationalist wave of US and was forced to accede to demands for limits on exports. But this is not the case with China. Today, China is on the verge of making a transition from developing to “developed country”. Being a very large country, with institutions effective enough to promote economic development, and with a state government capable enough to renounce the demands of US, China’s ascent is seen by the US capitalist ruling class as a threat to American supremacy.

So far, the most direct harm of this ever increasing American Supremacy in world trade has been the loss of export sales by many countries worldwide, supply chain disruptions, the associated losses of jobs and declines in output. However, the question that remains is, what are we truly dealing with? Because, the import restrictions announced by the USA are likely to cause damage not only outside the US, but also to the US economy itself, including to its manufacturing and construction sectors, which are major users of steel and aluminium. In short, the net effect of these tariffs will be larger economic damage, greater geopolitical uncertainty and higher inflation, globally.

The proposition of these crises can also be derived from another school of thought which consider the capitalist system to be the subject of periodic crises of overproduction. Increased investment by the so called capitalist countries simply results in greater productive capacity and the increased release of commodities for sale, under which the limited purchasing power of smaller markets (developing or under developed markets, in particular) collides with ever increasing expansion of the productive forces (like US and China), leading to a slump.

The current trade spat led by USA and followed by others reflects the greatest bottleneck of the capitalist system. The private ownership of the means of production, together with the nation state, has become a massive barrier to economic development, globally. Furthermore, many countries will become politicised for getting a way out of the crisis. There will be massive class polarisation, austerity and massive attacks, not only against the US or China, but also aimed at other members of the global trade establishment (WTO), damaging its reputation beyond repair.

All these coercions are nothing but the crisis of the system, similar to that of the great depression of 1930s, where the capitalist system went into a catastrophic downward spiral. This might also precipitate into another wave of uprisings similar to the Arab Spring in 2011 in many under developed countries such as Africa, who are mainly dependent on steel and aluminium exports to the US worth millions of dollars.

Further, this capitalist crisis of US and China also highlights a culture clash between Chinese tendency to wait out confrontation and USA’s instant satisfaction. Based on historical evidences, it is a fact that the Chinese tend to seek balance in all things, right from their economy, businesses, architecture, culture, mannerisms, relationships and politics. They prefer to have win-win solutions through talks to solve common problems over “winner takes all” phenomena. And it is only because of these differences, the US would end up hurting itself more than China, evident by the recent Chinese moves to frustrate supply chains of US tech suppliers.

The question that finally arise is that who is going to control these giant capitalist monopolies desperately fighting to increase market share, cut costs and keep up profit levels by putting up national barriers because WTO has already failed to do so. Is it right to say that, “WTO is just a symptom, the main disease is capitalism in the global trade market” since WTO – an organisation of fair trade is nothing but a part of the club run by the richest capitalist powers and their multinationals. One thing is for sure though – WTO or not WTO, global capitalism is creating the basis for a wide-reaching global resistance in trade.

The only way to end this capitalist crisis is to have a socialist transformation of society. Only a socialist planned economy, under the egalitarian control of the working class, is a way forward. Only if the capitalist powers abolish their profit motive and the despotism of the ‘market economy’ can we expect to use the talent, resources and factors of production of society for the well-being of all. In fact, US only has to act upon to be the enforcer and guarantor of free trade in the capitalist part of the world like it was doing for the past 70 years. After all, since ages, America has presented itself as a place where liberty, freedom and openness came from.

Ankit Bhatia

Ankit Bhatia

Ankit had worked as a Management Consulting professional with the Infrastructure, Government and Healthcare (IGH) practice of KPMG Advisory Services Private Limited. He has extensive experience in policy research and formulation, sectoral analysis and raw material sourcing strategy while advising the Ministry of Steel on key policy reforms in iron & steel industry. He is currently pursuing Masters in Business Administration in International Business (MBA-IB) at the Indian Institute of Foreign Trade (IIFT), New Delhi.

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