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From The Socialist newspaper, 28 August 2019

Imperialist tensions escalate as world economy teeters

US President Donald J. Trump and China's President Xi Jinping

US President Donald J. Trump and China's President Xi Jinping   (Click to enlarge)

Robin Clapp, Socialist Party national committee

In a special report that scrutinised the increasingly tense breakdown in geopolitical and economic relations between the United States and China, the Economist sombrely concluded on 18 May that the world has entered "a new kind of cold war."

While trade between the two reached $2 billion a day in 2018, Trump's 'America First' policy has slapped harsh tariffs on Chinese imports. This has prompted reprisals from Beijing against "naked economic terrorism, economic homicide, economic bullying."

The epoch of globalisation, around 25 years up to 2007, which demanded completely open, largely unregulated markets, has decisively ended. Geopolitical relations have not been this disturbed since the era of the Great Depression in the 1930s.

Lubricated by unprecedented levels of unrestricted speculative finance capital, the boom contained the seeds of its own destruction. The bursting of the bubble in 2007-08, and the severe world recession that followed, lit the fuse for today's slow unravelling of the great neoliberal convergence.

Doom-laden capitalists peer myopically into a future they describe as a 'post-global world'. One where regulatory harmonisation is breaking down, global supply chains are seizing up, and cross-border investment is slowing - already dropping by 20% in 2018.

A fragmenting world economy is one more manifestation of changed capitalist global relations since 2008. Trump's punitive tariffs are mainly aimed at China, which he decries as a "currency manipulator." But he has threatened or applied them increasingly indiscriminately, against Mexico, the European Union, and other nations seen to threaten America's economic interests.

Economic tsunami anger

The anger of working and middle-class people suffering this economic tsunami have not in general turned into victories. This is a result of the unpreparedness, and in many cases unwillingness, of workers' leaders to coordinate struggles and argue for socialist policies.

Hundreds of millions continue to protest against capitalism's consequences, but feel utterly disenfranchised by the established parties that claim their support. Where left-wing leaders use class language to condemn capitalist austerity and advance even a limited vision of a socialist alternative, their message is embraced enthusiastically.

Witness the swing to Jeremy Corbyn in 2017, and Bernie Sanders' campaigns for the Democratic nomination in 2016 and today. Into these charged conditions, a new breed of right-wing populists has emerged.

They feed on workers' alienation towards politicians who bailed out the bankers but consigned ordinary people to a diet of austerity. They seek to capture the ground vacated by these discredited parties to refashion capitalism for this new age.

Jair Bolsonaro in Brazil condemns ineffective rivals and has a special venom for the Workers Party, while claiming to be the friend of ordinary people standing up against the rich. Yet he has given the keys to the precious Amazon rainforest - the lungs of the world - to rapacious capitalists hastening its destruction.

He lambasts other Latin American leaders and the UN, who plead with his government to halt - or at least slow - this reckless destruction. Brazil's economy minister contemptuously asserts that other countries should pay Brazil for oxygen produced there and used elsewhere!

The arch-right-wing populist Trump government, not content with economic conflict with China, tries to bully an incredulous Denmark to sell it Greenland! Its valuable minerals are now more extractable, due to faster melting of permafrost resulting from climate change.

Another breakdown

In another breakdown of international relations, the US administration has announced it will leave the Intermediate-Range Nuclear Forces Treaty signed with the then Soviet Union in 1987. Trump barely conceals his contempt for the western capitalist military alliance Nato, condemning erstwhile allies for not paying more to relieve the US of its 'burden'.

The US has now begun to unilaterally test a new generation of cruise missiles. This has prompted condemnation from the Russian state, and a warning from the Chinese regime that further testing could lead to "another round of the arms race" with a "serious negative impact" on global security.

Trump's stoking of nationalism and interference in free trade has been condemned by the boss of BHP, the world's biggest mining company. He warns that deteriorating relations between Washington and Beijing will do inestimable damage to world relations and the global economy, unless both sides pull back.

Similar warnings are heard in boardrooms across Britain and the EU, as the clique around Boris Johnson seems to be hurtling towards an acrimonious 'no-deal' Brexit. This would cause further economic chaos for business at a time when the spectre of another recession looms large over the world economy.

The EU wants to avoid the UK crashing out without a deal. Brexit is just one symptom of the growing centrifugal forces in the EU.

Right-wing populists in eastern Europe increasingly ignore Brussels' entreaties. In Italy, Matteo Salvini ridicules EU institutions, while crudely attempting to breach laws that have been pivotal to maintaining this club of capitalists for over 60 years.

In Asia too, old rivalries have once again exploded into life. Japan and China are locked into an unresolvable struggle over disputed ownership of the Senkaku Islands, rich in oil.

Now Japan in seeking to flex its muscles against South Korea, has taken a leaf out of Trump's book by restricting exports of three specialist chemicals used to make semiconductors and smartphones.

Japan accounts for 90% of global production of these commodities which are integral to South Korea's ability to manufacture memory chips.

In turn, as South Korean firms produce most of the world's memory chips, Japan's move will not only curtail production and therefore profitability, but also have a destabilising impact across global tech supply chains.

China likewise threatens to restrict rare earth elements going to the US, designated as critical for sectors including national defence by the US Geological Survey.

The World Trade Organisation is supposed to settle disputes of this sort. But it seems an impotent relic of a bygone age, when multilateral trade agreements and supra-national institutions like the IMF, World Bank, UN and Nato were partly able to smooth the progress of production, trade and investment.

It is clear that the US ruling class sees China as its most threatening economic, political and military rival. China's regime cannot afford to be frozen out of the US market, but faced with mounting economic difficulties of its own, cannot either acquiesce to Trump's bullying.

Trade war blow up?

Even if Trump pulls back from further tariffs, this is an unpredictable era. There is no guarantee that the trade war won't extend into a full-blown technological cold war after his threats against Chinese tech giant Huawei.

The credit rating agency Moody's estimates that such a conflagration would hit real GDP in the US by 1.8% in the first year and reduce growth rates throughout Asia by 1% or more.

These figures would be sobering enough if capitalism was otherwise in rude health. Given the unresolved economic hangovers from 2007-08, however, such a precipitous curtailing of productive forces would have a calamitous impact, far greater than so far predicted by the soothsayers of private enterprise.

Already, investment bank JPMorgan Chase has suggested that global capital spending is slowing, and survey after survey illustrates business investment confidence collapsing.

In the rarefied world of the international bond markets, investors are spooked by the appearance of an 'inverted yield curve'. Traders now think that debt due to be paid back in the short term is so risky that they will pay more to have their money inaccessible in ten or 20-year bonds, an inversion of the normal relationship.

All these phenomena, and many more indicators beginning to flash red, show that capitalism is likely heading towards imminent recession, but with far fewer tools for combatting slowdown than in 2008.

Then, central banks cut borrowing rates aggressively; pumped cheap money into their economies through 'quantitative easing'; rescued collapsing banks with taxpayers' cash; permitted larger budget deficits in most countries; and crucially, cooperated across international borders to resuscitate the economy.

The IMF warns that growing numbers of homes in both China and the US are teetering on the brink of a price slump, the UK economy has contracted in the last quarter by the largest amount since 2012, and Germany seems set to enter recession.

Brazil is weakening as a result of reduced demand from China for raw materials. Economies from Singapore to Australia are affected by blowback from the US-China trade war.

This, and social and political instability in Hong Kong, are draining confidence from the world's money markets.

One inevitable consequence of the next recession, whatever its character and depth, will be a further escalation of imperialist rivalries.

Even now, Japanese capitalism is contemplating risking US wrath by devaluing the rising yen against the dollar. This would make Japanese exports to the US better value relative to US imports to Japan, precipitating another phase in world currency wars.

Trump has announced new 10% tariffs on $300 billion of Chinese goods. Although he subsequently postponed some of them until December, they hang over a weakening Chinese economy. In response, the Chinese state bank has let its currency value fall in an attempt to offset tariffs making its export less competitive.

Unemployment in the US is at a 50-year low. But storm clouds are unmistakeably present for those with eyes to see beyond Trump's Twitter account.

Business investment is declining, despite a 2.1% annual growth rate in the second quarter of 2019. And the Federal Reserve has cut interest rates for the first time since 2015, in a sure sign that policymakers anticipate choppy waters ahead.

Never harmonious

So-called 'globalisation' never described a harmonious world economic and social order. It was a euphemism to disguise the modern intensification of the struggle between capital and labour, leading to a spiralling polarisation between the poor and the super-rich.

The present economic and social crisis reveals the contradictions inherent within the capitalist system in this new era of more aggressive imperialism. Old alliances are fracturing.

Proxy wars to secure territorial and geopolitical interests can in the future boil over into outright military exchanges, as is latent between India and Pakistan in the dispute over Kashmir.

There cannot be a stable integrated world system resting on market forces, any more so than when Lenin traced the rise of modern imperialism.

The unipolar domination of US imperialism after the demise of the Stalinist Soviet Union in 1991 has given way to an unstable, multipolar world.

Politics is concentrated economics, and decaying imperialism is the essential manifestation of modern capitalism.

It is only the working class internationally that can liberate the world from what Lenin correctly called capitalist "horror without end."

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In The Socialist 28 August 2019:


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