Ever since his election, Donald Trump has threatened to impose tariffs and blamed “unfair trade deals” for hurting US industries. Now he is starting to act—threatening trade wars and destabilising global capitalism.
The bulk of the US ruling class, in both big business and the political elite, look with horror on Trump’s protectionist embrace of tariffs. Since the 1970s, US multinationals have backed free trade policies as the best way to boost their profits. In partnership with the European Union, the US has used bodies like the World Trade Organisation to force open other countries’ markets to US goods.
So it’s tempting to dismiss Trump’s actions as bumbling incompetence.
But his pursuit of tariffs is a response to real threats to the US’s economic and military power.
Trump has threatened a 20 per cent tariff on cars from the European Union, mostly produced in Germany. The US is the biggest export market for European cars. More than four times as many European cars are sold in the US as Europe buys from America. Trump wants to even this up.
The US is a superpower in decline. Its relative economic power has been in decline for decades, accelerated by the economic crisis after 2008. The credibility of its military power is also in tatters after the disastrous invasion of Iraq and its impotence in Syria.
After rapid growth in recent decades China’s economy poses a growing challenge to the US.
Trump has announced a 25 per cent tariff on around $70 billion of Chinese imports. This would increase the price of Chinese products sold in the US, encouraging customers to buy from elsewhere. China retaliated by announcing tariffs on an equivalent amount of US imports.
Trump has now raised the stakes by threatening tariffs on another $270 billion of Chinese goods, meaning half of all imports from China to the US would face tariffs.
The US imports almost four times as much from China as it sells there. So Trump thinks he can win a trade war, with China much more reliant on selling its products to the US than the Americans are on selling in China. He tweeted in March, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”
But the Trump administration has also cited technology theft by Chinese firms as an important reason for acting. Many of the good slapped with 25 per cent tariffs are in technology industries.
As Marxist economist Michael Roberts writes, the Trump administration is focused on, “stopping China from gaining market share in America’s key industries: technology, pharma and other knowledge-based sectors.”
While China has developed into a manufacturing powerhouse, many of the goods it produces include components manufactured or designed elsewhere. Apple’s iPhone, for instance, is assembled in China from high tech components produced in the US, Japan and South Korea.
China wants to take over these high tech sectors as well, through a plan known as “Made in China 2025”.
The Chinese government often forces US multinationals who want to manufacture in China to share technology with local firms. Trump wants to prevent this.
Trump claims that his tariffs will bring back jobs in American manufacturing, promising to make sure, “trade deals are in the interests of American workers”.
But tariffs won’t save jobs. A study cited in the bosses’ Financial Times showed that 85 per cent of jobs lost in US manufacturing between 2000 and 2010 were due to labour saving technology that allows factories to operate with fewer workers.
Trump and the bosses are not allies when it comes to boosting jobs. Their trade policy is run to boost corporate profits.
A full-blown trade war would create serious problems for corporations in the US. Recent decades have seen multinational companies develop production networks stretching across national borders. Many US companies run part of their production in China.
A trade war threatens widespread disruption and a new global recession. US motorcycle manufacturer Harley-Davidson has already announced that it will shift part of its production to the EU, to avoid loss of sales in Europe.
Trump’s aim is probably to force more beneficial trade deals from China and the EU—as well as renegotiating NAFTA with Canada and Mexico.
Trade negotiations with China have been going on for months. In April Trump economics adviser Larry Kudlow told the media, “This is a negotiation, using all the tools. What you’ve got is the early stages of a process which will include tariffs, comments on the tariffs, then ultimate decisions and negotiations.”
But Trump’s efforts to asset US power threaten chaos for world trade and the global economy.
By James Supple