Whether in relation to trade wars with China or Russia, it is the USA’s insistence on its economic supremacy which puts the world in danger, argues Dominic Alexander

The twenty-first century has so far seen a litany of disastrous, deadly wars whose aftermaths have unleashed yet more horrors. In September this year, the collapse of two poorly maintained dams above the city of Derna in Libya led to tens of thousands of deaths. Disaster on such a scale would not have happened but for the Nato intervention in Libya in 2011. Western media affected consternation and surprise that many countries in the developing world declined to support US sanctions against Russia or even condemn outright its aggression against Ukraine. However, the rest of the world has not forgotten the US’s illegal invasion of Iraq and the horrors it directly led to in Iraq, and then Syria, nor the destructive toll in Afghanistan, nor Saudi Arabia’s Western-backed war on Yemen. Many see all too clearly through the claims that Nato, or the US and its allies act for humanitarian reasons or to protect the right of self-determination. This was so even before Israel’s latest genocidal assault on Gaza.

Rather, Western foreign policy is generally seen to be enforcing the primacy of US strategic and economic interests on the world, regardless of the lives lost in the process. The US dollar’s domination of the world financial architecture has been used offensively to try to destroy the governments of weaker countries seen as a threat to US interests, most famously Cuba, Iran and Venezuela. These cases in particular are widely seen as notably unjust, even counterproductive, especially when sanctions are widened to include third-party countries, which the hegemonic nature of American financial power makes possible.

The neoliberal era of ‘globalisation’ has been declared dead, and we are perilously close to tensions between Russia and China on one side and the West on the other becoming direct confrontations, rather than proxy wars and economic conflicts. From the US side, the ostensible reasons for an increasingly hostile approach to China, and one of its leading technology companies, Huawei, are its supposed threat to Taiwan, as well as concerns over security from Chinese cyber spying. However, it is somewhat hypocritical for America to complain about the possibility of digital espionage, when until recently it itself was not considered safe by the EU in terms of privacy. As a result, EU citizens’ data was not allowed to be processed in the US, because there were no guarantees it would not be accessed by the American security services.

Banning Huawei

Most Western countries have now fallen in behind America’s attack on Huawei, but to begin with, as Chris Miller notes in Chip War, opinions differed. Australia and Poland, for example, banned the company from its 5G networks. However, other European countries, particularly Germany, were loath to lose trade with China. Britain, normally pathetically subservient to the US and its security demands, ‘concluded the risk of Huawei’s systems could be managed without a ban’ (pp.312-13). The different judgements were not about ‘technical disagreements’, rather they were about China’s growing role in the world’s tech infrastructure: ‘Many Europeans also thought China’s technological rise was inevitable and therefore not worth trying to stop’ (p.313). It was this rise which was unacceptable to the US.

While for decades, China’s rapid economic growth was largely welcomed, this was because it was still firmly below America in the value hierarchy; the manufacturing of all kinds of goods could be outsourced to China, so long as the US retained a clear lead in the most advanced industries, which also tend to be the most profitable. However, Huawei began to move into leading telecom and networking equipment and its ‘annual R&D spending now rivalled American tech giants like Microsoft, Google, and Intel’ producing both the hardware for cell towers and designing cutting-edge smartphone chips. This was threatening American economic leadership over a defining advanced industry. Free trade is only a good thing if you’re the one who is winning. Miller insists that security concerns were entirely secondary in the Trump administration’s imposition of restrictions on Huawei:

‘The point was less that Huawei was directly supporting China’s miliary than that the company was advancing China’s overall level of chip design and microelectronics know-how. The more advanced electronics the country produced, the more cutting-edge chips it would buy, and the more the world’s semiconductor ecosystem would rely on China, at the expense of the United States. Moreover, targeting China’s highest-profile tech form would send a message worldwide, warning other countries to prepare to take sides. Hobbling Huawei’s rise became a fixation of the administration’ (p.314).

This belligerence was not simply a reflection of the erratic Trump presidency, since President Biden has greatly extended the sanctions against the company.

Trade wars past

The trade conflict with China is not in fact the first time in the history of the electronics industry that the US has found itself first encouraging the industrial advance of another country, and then railing against it, when the competition began to grow somewhat sharp.

Miller points out that it is no accident that Taiwan has become the vulnerable centre of high-tech chip manufacturing. Decades ago, particularly from the 1970s, US industry was attracted to ‘Asia’s vast pool of cheap labour’ for low-cost manufacturing, and so the extended supply chains that now complicate the world economy began to take shape. This was not just a matter of firms trying to bolster their profit rates, but was part of a grander strategy for Washington ‘to bind Asia to an American-led world’ (p.xxvii).

This was the US post-war strategy for Japan as well, which was deliberately integrated into the American semi-conductor industry (p.45). Starting with Sony’s transistor radios, Japan rapidly built a thriving consumer electronics industry during the 1960s, but at this time ‘US chip firms like Fairchild continued to dominate the cutting edge of chip production’, and moreover ‘Japanese firms paid sizeable licensing fees on intellectual property’ (p.48). America was not worried about technological transfers to Japan at this time, as its firms were well behind the US lead. The imperialist hierarchy of international economy was not under threat.

Things began to change in the 1980s, once Japanese companies had narrowed the technological gap with Silicon Valley. Where once Japanese goods were competitive simply due to cheapness, now ‘American industries from cars to steel were facing Japanese competition’ on efficiency and quality (p.82). The ability of Japan’s industries to catch up with American rivals had something to do with the conditions of intense exploitation there, as is always necessary for profitability in economies in the lower levels of the international hierarchy of value. However, American bosses lauded the ‘pro-company’ culture in Japan (p.84); it was not that which caused conflict. Japan had been determined to rise above its place in the value hierarchy, otherwise it would be consigned to ‘second-class status and second-rate profits’ (p.83).

There had long been accusations that Japanese businesses stole tech from the United States, but once it appeared that Japan was escaping its subordinated position, then accusations and complaints against unfair competition escalated within the American corporate world. One notably pugnacious tech executive, Charlie Sporck, declared that: ‘We’re at war with Japan … an economic war with technology, productivity, and quality’. Japanese chip firms were accused of winning through ‘intellectual property theft, protected markets, government subsidies and cheap capital’. There may have been some industrial espionage, but as with the other kind of spookery, this seems to be something in which industries of all countries indulge (p.86). It is the recurring complaints about state subsidies and cheap capital that have a wider importance as factors at which advanced economies complain, whenever competition from below threatens their predominance.

The fact is that without state involvement, it would be impossible for a less developed nation to catch up with the most advanced economies. This is particularly the case by the mid-twentieth century, once technology had become sufficiently complex that the concentrations of capital required to finance leading industries absolutely required co-ordinated investment on huge scales. Since it is precisely such leading industries which capture the most surplus value being produced in the world economy, not attempting to do this would condemn an economy to perpetual underdevelopment. The subordinated position also means that capitalists in such a country tend to exploit their workers more intensely just to keep up with the profit rates of more advanced countries.

The response to the Japanese threat to move up in the economic hierarchy was ferocious, considering it was an allied country, and no military threat whatsoever. ‘CEOs of America’s biggest chip firms spent more and more time in Washington, lobbying Congress and the Pentagon. They set aside their free-market beliefs the moment Japanese competition mounted, claiming the competition was unfair … Their chips merited government help, they insisted, because they were strategic …’ (p.118). In the end, the American chip industry rebounded, and the Japanese surge receded, for a variety of reasons, including the fall of US interest rates, and the doubling of the value of the yen (p.126).

The rise of China

Although Miller downplays the role of the US military, in favour of emphasising Silicon Valley’s orientation towards consumer products, it is clear that the military was important in the early stages, and became important again from the 1980s with funding from Darpa, ‘the Pentagon unit that invests in speculative technologies’. Darpa remains an important source of investment to this day. Another crucial factor in the 1980s was the sky-high interest rates in the US, which in a capital-intensive industry, such as computer chips, mattered a great deal. Yet, it was hardly reasonable for US industry to label as unfair the availability of cheaper capital in Japan, when that was due to the very political decision of their own government to use interest rates as a weapon in the neoliberal class war of that decade.

However, the most consequential factor in the sidelining of Japan was the deliberate encouragement of the chip industry elsewhere in Asia, particularly in South Korea and Taiwan. China’s involvement in the chip industry was at first restricted to quite low-level assembling, while high-value aspects of the industry, such as design, were located elsewhere. Due in large part to the colossal capital costs of the most advanced chip manufacturing, (by 2014 an advanced chip factory, or ‘fab’, cost over $10bn, p.251), this part of the industry has become maximally concentrated, and the advanced fabs are now exclusively Taiwanese and South Korean. Japan, for its part, entered a seemingly permanent economic malaise in the 1990s, and although it remains one of the richest and most advanced countries in the world, its 1980s heyday is well past; at its peak in 1995, Japan’s per capita GDP was 81% of that of the US. Currently, Japan is 38^th in the ranks of highest per capita GDP countries, below the US at 8^th place; South Korea, even, is above it at 30^th.

China, unsurprisingly, had ambitions to rise above its lowly position in the globalised industry’s value chains. Miller acknowledges a level of hypocrisy in the US attitude to this, writing that US officials worried over China’s growing ‘leverage over the world’s critical technology systems’: ‘They presumed China would use its position as the world’s key manufacturer of electronics to insert back doors and to spy more effectively, just as the US had done for decades (p.298, my emphasis). Nonetheless, Miller, in the course of describing the complexities of the chip industry’s supply chains, claims rather disingenuously that: ‘If China only wanted a bigger part in this ecosystem, its ambitions could’ve been accommodated.’

The reality, as Miller admits elsewhere, is more complicated: ‘… Beijing wasn’t looking for a better position in a system dominated by America and its friends.’ Its ambitions are ‘about remaking the world’s semiconductor industry, not integrating with it … leaders in Beijing … saw interdependence as a threat’ (p.252). Since a large part of Miller’s story consists of the efforts companies, and countries, had to make to stay relevant and profitable in an extremely fast-moving and competitive industry, it seems natural China should want to find a way of occupying a position of strength within that ‘ecosystem’. The vitriol unleashed against Japan in the 1980s would surely have been a warning the Chinese ruling class would be bearing in mind, when contemplating the benefits or otherwise of ‘integrating’ into the American-led system.

Financial hegemony and Russia

The context and history of the hierarchical world economic system with the US at its apex is almost always left out of the picture in mainstream Western discussions of foreign-policy crises. It is somewhat surprising, therefore that Maximilian Hess in Economic War: Ukraine and the Global Conflict between Russia and the West, taking a firmly pro-West view of the situation, should nevertheless explain in his introduction the dominant position the US has in the international financial system. He outlines the dollar’s role as the leading global reserve currency and ‘the primary means of global exchange and financing’ (p.7). This enables the US to ‘insist on the enforcement of sanctions abroad, to shape allies’ and adversaries’ futures by determining their access to dollars, and to pursue activist foreign policies other countries can only dream of. And because even its rivals need dollars, it can do all of this with relative impunity, including with regard to acts of economic warfare’ (p.6).

Hess also admits that a total Russian victory in Ukraine ‘would not in and of itself affect the United States’ power in any significant way’, because ‘the Kremlin and other powers have no match’ for the US’ ‘geo-economic’ power. Yet this itself was the reason ‘why it was so willing to engage in the fight with Russia.’ This apparent paradox is explained thusly: ‘Although it is far smaller in GDP terms, Russia’s control over crucial commodities makes it a genuine threat to the West’s economic stability – left unchecked, this could pose a real threat to the United States’ leading position in the international economic order’ (p.7). There is, at least, no pretence here that the conflict is about such noble issues as self-determination or ‘Western values’.

However the contradiction between Russia as a threat, as against the country’s ultimate weakness, remains a tension throughout the book’s argument. Russia’s efforts at constructing ‘an alternative order together with countries such as China and India’ (p.8) are shown to be largely risible. Russia’s threat lies entirely with its oil and gas resources posing ‘the risk of Europe becoming subservient to the Kremlin’ due to its energy needs. Doubtless, Hess does not expect his audience to read the book this way, but it’s hard not to conclude from it that, for the US, the war in Ukraine is a proxy war about energy resources.

The leverage held by any fossil-fuel producer is certainly real, but little hard evidence is presented here that Russia had any intention, let alone a plan, to engineer an alternative world financial order before it was hit with major sanctions. In 2007, Putin did call the existing ‘unipolar’ system ‘pernicious’, as it leaves only the US truly sovereign, and said that it was necessarily ‘unstable and bound to change’. He also raised issues about Ukraine and agreements on the transhipments of gas to Europe, ‘making an explicit link between building a “fairer system of global economic relations” and international security’ (p.51). Hess clearly thinks this is sufficient evidence of premeditated villainy, but it’s not realistic to expect any power not to use its resources as a bargaining chip internationally. It’s not as if Western powers don’t do so themselves.

The economic war

Only after 2014, and the imposition of sanctions for the occupation of Crimea, is there much sign of any action towards changing how the international finance system works. Before that date, Russia certainly did use economic threats, such as blocks on commodity trades, against countries like Georgia, Moldova, and, indeed, Ukraine. Yet, ‘Western politicians’, even after the invasion of Georgia, ‘did not believe the Kremlin would turn these weapons against them – nor did the markets’. The failure of European politicians to react more aggressively, or at least suspiciously, to Russia’s actions in 2008 and before, led, Hess believes, to Russia seeing that it ‘could use European politicians to advance its economic and political interests’ (p.53). This interpretation of events only works through a teleological lens dug up from the worst of Cold War paranoia. It views Russian aggression as predetermined and inevitable, not related to explicable (which is not the same as condonable) regional interests, but rather to global ambitions.

The ‘economic war’ is more the story of the sanctions imposed by the US on Russia, than anything the latter is able to do to the former. Much of the blame for the traction that Russia has been able to muster, lies, it seems, with America’s unreliable allies. Germany is heavily criticised for its wish to build trade links with Russia, particularly for gas supplies. It foolishly believed that ‘economic interdependence was a path to peace on the continent’, but ‘Putin exploited that belief’ (p.51). Neoliberals, of course, have been selling the general principle of economic interdependence for peace since the 1980s, but sadly, it seems, Germany misapplied it.

Hess illustrates Germany’s problems with the example of the chemicals company, BASF, and its main hub south of Frankfurt, which ‘consumes as much energy annually as Denmark and as much gas as all of Switzerland’ (p.174). The German economy badly needs cheap energy to be competitive, and the economic war meant that German industry faced a major crisis, although it has now perhaps managed to mitigate it. This, however, was only through importing expensive American LNG to replace cheap Russian gas, something the US has long wanted, but which never made economic sense for Germany. The US, of course, always opposed the Nordsteam 2 pipeline, but its destruction has certainly ended cheap energy for German industry. Hess, naturally, points to Russia as the culprit for the explosion in 2022, but the argument is not convincing (p.166).

European countries in general are castigated for failing to enforce sanctions fully, and even for such decisions as the Dutch shutting down the Groningen gas field from 2014, as it had been causing subsidence and earthquakes. This is presented as playing into Russian designs ‘to retain a foothold in European gas markets’ (pp.175-9). If Europe is to be blamed for its dependence on energy from Russia, this begs the question from where it was going to find alternative supplies.

Hess indirectly answers this in a couple of comments. Firstly, France is noted as having a ‘healthier energy mix’ than Germany because ‘it retained a core of nuclear power infrastructure that provided the lion’s share of its production’ (p.173). In his conclusion, Hess advises that ‘Germany’s failure to embrace nuclear power and shutter its remaining power plants in 2023 [in the wake of the Fukushima disaster] was a crucial mistake’ (p.206). Considering that safer versions of nuclear plants can take several decades to complete, it would have taken a considerable feat of prognostication for Germany to have had such an infrastructure ready in time for the Ukraine conflict in 2022, let alone 2014.

America’s disobedient allies

It seems that Hess may be following something of a US line here. Chris Miller reports that the Trump administration saw Germany ‘as a free-riding ally on a range of issues’, in this case its unwillingness to ban Huawei (Miller, p.312). That is to say, Germany has not always slavishly followed America’s political-economic agenda. Concluding, Hess notes that Chancellor Merkel in a 2022 interview ‘claimed that her government’s diplomacy had saved Ukraine from an earlier crushing Russian attack, ignoring the fact that Russia gained eight years to build up its military for attacks against Ukraine.’ So, apparently, it would have been better if a war had broken out eight years earlier. However, Hess has more to say: ‘She did not acknowledge that her energy policy also fuelled Russia’s financial firepower, nor that her support for building up economic interdependencies with Putin’s Kremlin had weakened Germany’s strategic position’ (p.206).

The money Russia made from gas exports to Europe did enable it to build up a financial cushion so that, when it was hit with massive sanctions, it wasn’t immediately crippled. Since the first set of sanctions imposed on Russia since the fall of the Soviet Union came as early as the Magnitsky Act in 2012, it may well have seemed wise to Russia’s leaders to prepare for hostile financial action from the US.

There are other countries also found guilty of enabling Russia’s agenda. Hess frets about whether Turkey will continue ‘to play both sides off one another or shifts to being a more genuine ally’ (p.208); this partly has to do with Turkey helping Russia to offload its dollar holdings in 2022 (pp.171-2). Japan is another unreliable ally, whose imposition of sanctions after the annexation of Crimea ‘fell short even of the measures imposed by Europe’. Japan’s willingness to engage in negotiations with Russia over economic and territorial issues is a nothing but a poor ‘reading of Putin’s power politics’ (p.112).

Japan, like Germany, is a geographically small but economically major power with very significant energy needs, especially after Fukushima dictated the closing of its nuclear industry. This meant a willingness to continue relations with Russia after 2014. Ties with Japanese companies helped Russia ‘to replace some of the engineering, financial support, and investment from Western energy firms’ and so ‘to mitigate the pain of the post-Crimea sanctions’ (p.114). South Korea was also weak on sanctions, not imposing any until 2022 (p.113).

Shifting sands of global finance

The Russian agenda to ‘break away from the international financial structure it saw as biased towards the West’ (p.100) is traced in its dealings throughout the world from Africa to Latin America. Some deals it forged were obvious moves, such as giving financial assistance to Venezuela while the latter was under a US financial siege. This was only moderated in 2022, due to the West’s then pressing need for Venezuelan oil (p.209). Relations with China are, of course, far more important, and insofar as there is any possibility of a challenge to American financial hegemony, China is the basis for one. Naturally, as conflict with the West grew, Russia had no choice but to turn to China, whether or not Putin ‘failed to read how Moscow’s divergence from the West was making Russia more dependent on China in an increasingly lopsided relationship’ (p.114).

While Hess claims that Russia is trying to ‘undermine’ the dollar and its international hegemony, Russia’s only leverage is its production and sale of essential commodities like gas. It has tried to avoid using the dollar in international trade after 2014, but with limited success; the oil company Rosneft still ‘sold its output in dollars’ in November 2019. In bilateral trade with China, the two countries have been in part denominating their exchange in euros, but only up to 30% of the total (p.119). It has helped Russia that the sanctions imposed after the 2022 invasion of Ukraine backfired somewhat, as the result was a great increase in the price of gas in particular, which Russia was still exporting to Europe at a reduced volume. It was also able massively to increase its trade with China (pp.120-1).

However, it is only China whose economy and world trade is substantial enough to pose a real challenge to the US dollar. China has developed an alternative to SWIFT, the dollar-based system for international payments, but in 2020, this settled only 0.3% of the transactions done by SWIFT (p.41). Use of the yuan in international trade has increased since then, but in total in 2023, its share was still only 2.77% of global trade. As a global trading currency, it ranked fifth after the euro, the UK pound and the Japanese yen. Only in the second quarter of 2023 has the yuan overtaken the dollar in China’s own bilateral trade for the first time. On this basis, however, the threat to dollar hegemony seems a long way off. However, China’s huge exports has enabled it also to become a major creditor nation, which does increase its global influence.

It is true that ‘US capital’s ability to expand the productive resources and to sustain profitability has been declining. This explains its intensified effort to strangle and contain China’s rising economic strength and so maintain its hegemony in the world economic order,’ as Michael Roberts explains. Related to this situation is the BRICS organisation (Brazil, Russia, India, China and South Africa), which from 2024 will expand to include Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the United Arab Emirates. BRICS now represents 36% of global GDP and the potential for major developing states to trade with each other using their own currencies, possibly undermining the dollar system and the ability of the US, through sanctions, to lay siege to other economies. BRICS’ expansion emphasises new limits to America’s ability to control developing countries, but there are many severe difficulties in this disparate group of economies being able to develop a stable alternative to the dollar system any time soon.

Hess is dismissive of BRICS’ potential, calling Russia’s policy towards it ‘misguided’, so even on his own account Russia’s economic menace to the West is not a great one. It seems that the real aim of Economic War is not so much to paint Russia as a threat to the world of Cold War proportions, as to be a warning that the West, Europe particularly, must be united against it in any case: ‘Russia cannot win the economic war with the tools at its disposal. The West, however, could still lose it.’ This would be due to ‘European disunity and tensions’ with the US opening up space for Russia. Hess worries that the US might tire of sanctions before Putin’s war is exhausted: ‘Such an outcome would lead to more attempts by Russia to disrupt the international economic order, not fewer’ (p.201).

The implication of this is a demand that European economies, as well as the rest of the world, submit themselves to American geo-political priorities. Hess further believes it is important that ‘global faith in the dollar is retained’. So the system must be protected from Russia’s apparently feeble threat to it, but ‘addressing some of the criticisms that the dollar system acts to perpetuate inequality and injustices’, and Russia being ‘pulled back in to the international economic order’ can only happen when the West can negotiate with ‘whatever kind of Russia succeeds Putin’s’ (pp.211-12). This is a recipe for terrifying escalation in a war to the finish with Russia, and seems to preclude any negotiated settlement in the near future.

Imperialist dead ends

The concluding arguments thus makes clear is how little any of this really has to do with Ukraine, except as a proxy for bringing about an end to Putin’s rule. The sense of urgency for Europe to be better united against Russia is important precisely because the European economy is being hit hard, compared to that of the US. Indeed, Hess notes that one ‘impact of the economic war will be to further drive investment to the United States’, where energy costs are lower (p.201); BASF, for example is shifting production to the US (p.181). The greater imperialism is reasserting its dominance over the lesser flaky imperialisms of Western Europe. The economic damage to the rest of the world in terms of high energy and food costs is terrible, and is one clear reason why many countries outside the Western bloc are unwilling to go along with US demands about the war.

The answer to the economic wars currently being waged, between Russia and the US, and between the US and China, is not going to come from the replacement of the dollar with the yuan. That would simply replace one exploitative hegemon with another. For the same reason, the BRICS initiatives are unlikely to be an answer either, as all of the nations involved are exploitative economies with distinct and divergent economic interests.

Replacing one hierarchy with another will not produce a harmonious world, since even if the United States was to be replaced with another country at the top of the trade hierarchy, that new hegemon would be driven to be as equally ruthless in maintaining its position as the US currently is. While it’s unlikely that US financial hegemony will fall any time soon, it is not as unquestionably dominant as it has been in the past, and that does open up potential political space. It also seems to have meant that China’s Huawei has been able to produce an advanced chip for its 5G phone, which the imposition of sanctions was meant to prevent.

The wave of ‘globalisation’ of the 1990s and 2000s is very much over, and so is the much vaunted notion that expanding trade between nations makes war between them unlikely, on the grounds that it would be detrimental to the economic interests of both nations. That had a superficial plausibility, so long as you accepted the premise of the free-trade believers that trade between nations is of equal benefit to each side. However, once the reality of the hierarchy in international economic relations is factored into the equation, then the picture is very different. The structures of international trade perpetuate inequalities between nations, and exacerbate them, to the point that they generate conflict rather than suppress it. The imperialist forces that drive international trade are predisposed to create aggressive and desperate leaders like Putin.

The only exit from the cycle of economic competition lies through international anti-war and solidarity movements challenging the aggressive agendas of their own ruling class, and opposing militaristic answers to conflicts of interest. It cannot be beyond our wit as a species to come up with equitable mechanisms for international trade, but they won’t be created by the vicious rulers of the existing system.