At the root of the US-China ‘trade wars’ lies the crisis of capitalism

The release of the Huawei executive, Meng Wanzhou, on bail will not make the ongoing trade negotiations any smoother.

December 12, 2018 by Anish R M
US China trade war
United States and China agreed upon a deal to postpone the implementation of heavy tit-for-tat tariffs, imposed on billions of dollars of goods.

On December 1, the United States and China agreed upon a deal to postpone the implementation of heavy tit-for-tat tariffs, imposed on billions of dollars of goods. This deal was to last for 90 days until the end of February 2019, pending trade negotiations. The supposed ‘truce’ was arrived at in a meeting between president Donald Trump and President Xi Jinping in Buenos Aires, held after the 13th G-20 Summit. But the announcement of this deal coincided with the arrest of the vice-chair and global chief financial officer of Huawei, Meng Wanzhou, in Vancouver, Canada, based on an extradition request from the United States.

The negotiations for a lasting trade deal did begin in the earnest. The Trump administration announced some significant concessions that were apparently made by China but the latter is yet to confirm them. With the arrest of the Huawei executive Meng Wanzhou, the negotiations seem to have hit a major roadblock. Although, Meng has been granted a conditional bail by a court in Vancouver, President Trump has explicitly stated on December 11 that his administration will intervene in the case, if it gives them leverage over China in the negotiations. Such unrelenting attitude is cause of much worry, considering how seriously it can damage prospects of a lasting and sustainable trade deal.

President Trump’s administration has been imposing various import tariffs on Chinese goods and services since at least January 2018. But it was in June 2018 that the administration began a full-fledged offensive against Chinese goods by announcing an increase in the tariffs by 25% for over 50 billion USD worth of imports from China. The Chinese government reciprocated with its own set of tariffs against imports from the US for goods worth the same value. This set off a series of tariff impositions on a whole range of goods and services that move between them, for the next few months. So far the US has announced tariffs on goods worth 250 billion USD imported from China, while the Asian nation has imposed tariffs on goods worth 110 billion USD from the US. Most of these tariffs have not been implemented so far, except for the ones levied on 16 billion USD worth of goods each by the two in September. The trading dispute has had a significant impact on both the economies and, by virtue of their size and reach, the global economy. The stock markets have seen severe dips across the world, especially hitting tech companies in both the US and China.

The US government’s rationale behind such exorbitant tariff impositions is that China follows unfair trade  practices, at the expense of US companies. The concerns have largely focused around the supposed ‘theft’ of intellectual property of the US companies, forcible technology transfers to China’s state-owned enterprises, lack of any fair competition in China’s consumer market that are dominated by government-run establishments, and the artificial depreciation of China’s Renminbi. There have also been allegations of theft through hacking and various other illegal mechanisms, which were supposedly left unchecked by the previous administrations. China, on the other hand, has maintained that its trade relations are not in violation of international conventions and has accused the US of singling it out for commonly followed trade practices because it does not suit the interests of their corporates. China has also denied allegations of forcing foreign companies to transfer their technologies.

The fact of the matter is that the US is seriously threatened by the emergent China. The penetration of Chinese manufactured goods into its consumer markets at very competitive prices has been the biggest cause for concern for the US. In 2017, imports from China were around four times larger than the US exports to China. It has been estimated that over two-thirds of China’s trade surplus in the same year came from the US alone. The United States has also come to owe Chinese banks over 1 trillion USD since 2010, usually hovering around one-fifth of the debt owed by foreigners. While the market penetration has actually allowed China to expand its economy, it has only added adversely to the sovereign debt and balance of payments for the US. Moreover, much of the Chinese economy is still centrally planned by the government, with several crucial industries and sectors being either dominated or monopolized by public enterprises. While its capital market has been globalized, its consumer market is still very difficult to penetrate and much of the socialist nation’s productive sectors are still publicly owned and protected. In fact, immediate access to the consumer market is a priority demand that the Trump administration has put forward in their negotiations.

China has also been on a large-scale global investment spree, estimated to reach upwards of 4 trillion USD, through the Belt and Road Initiative. They have offered cheaper loans and affordable infrastructural cost to developing countries in Asia. Many of them have gained access to aid and technology necessary to advance themselves. These overtures to countries across the Global South, many of whom give China preferential treatment as a trading partner, have upset the existing imperialistic dispensation of the West, especially the United States.

Economist Prabhat Patnaik, a professor at Jawaharlal Nehru University, New Delhi, has often pointed out how US-led imperialism has been crucial in the consolidation and development of global capitalism after the Second World War. A stable military superpower, whose military expenditure has consistently outranked the next ten military budgets put together, was crucial in transforming the capitalist classes, limited by their respective national borders, to an interconnected global system of orchestrated value extraction.

Globalized capital required a relentlessly expanding national military-industrial complex by the US, which came at the expense of the national economy. Today, the US national debt stands at 21.6 trillion USD, compared to a GDP of 20.7 trillion USD at nominal rates, with a debt-to-GDP ratio of approximately 105%. Such a ratio is highly unsustainable and can cause high inflation rates, raising the cost of living with a stagnation or decline in real wages. Such high rates of debt are incurred by decades of severely high expenditure on the military. The Department of Defense gets anywhere between 15% to 20% of the national budget and often results in eating up most of the discretionary spending budget, which in turn pushes the military spending to anywhere between 25% to 38% of the federal budget. The end product of such lavish military spending is dozens of foreign military bases, on every continent around the world, and an infamous espionage network. This comprehensive military-industrial complex is directly responsible for innumerable coups, color ‘revolutions’, induced regime change, and many ‘humanitarian’ interventions that have destroyed countries for the purpose of serving the interests of the globalized capital. But as the arrangement proved to be extremely unsustainable, it has pushed both the ruling elite of the US and the capitalist class to desperation in the face of a strong and stable challenger like China.

The current ‘trade war’ that the US has waged with an emerging superpower is being dubbed by many as the beginning of a second cold war. Regardless of the veracity of that view, the recent developments are not only a desperate and crude attempt at killing off a more democratic and multipolar world order but also point to the fundamental crisis of capitalism itself.