Trump’s trade war is another phase of capitalist crisis that could lead to a harsher world, argues Vladimir Unkovski-Korica

Since March this year, US President Donald Trump has started a creeping trade war with allies and rivals alike that threatens to deepen the global economic and political crisis.

Trump has ordered the imposition of tariffs – effectively a tax on imports – on a variety of goods ranging from agricultural products to automobiles from China, the EU, Canada and other countries.

This started with steel and aluminium in March, but extended to 1,333 Chinese product categories in April in response to Chinese retaliation. 

Action against China continued in June on over eight hundred product lines largely in agriculture, with the threat of more if China retaliated, which it did. 

So, in September, Trump announced 10 percent tariffs on $200 billion worth of Chinese goods, which will increase to 25 percent in 2019 if there is no deal before then.

Moreover, Trump has warned an even bigger set of tariffs is ready if China refuses to back down over what Trump has repeatedly called unfair practices that make China more competitive.

Why is Trump initiating a trade war?

China has seen immense economic growth over several decades, which has seen it rise to number 2 in the world, gaining fast on the United States. 

While other leading economies suffered significantly from the 2008 crash and the subsequent long stagnation, China has done reasonably well because of higher levels of state-led investment.

Moreover, compared with the US, China gives its industries a boost through a series of policies, like a weak currency, higher tariffs on imports than the US, and demands on the intellectual property of companies that invest in China or that China acquires abroad.

Trump fears that, in the long-term, America will lose its status as the world’s leading economy and is therefore flexing muscle. The US is already using its vastly superior military fire power to encircle potential competitors like Russia and China.

But Trump sees that he cannot rely on military means alone. He can see that the corporate private sector is under-investing so he is trying to entice and bully it into greater domestic investment by invoking foreign competition.

Trump also knows that many economies that have historical ties to the US economy cannot afford a major trade war, so he wants them to take America’s side in the struggle with China.

He also hopes that China, which exports a lot to the large US market, will find reason to accommodate its rival, as it might otherwise find it cannot sell products, which would lead to lower production, lay-offs and therefore domestic unrest.

What are the risks in such a large trade war?

Trump’s strategy is risky, since he is basically trying to force China to accept a subordinate position in world affairs. China may not be willing to accept this.

Its rulers have several options that may make it reasonable for them to gamble on winning a trade war in the long-run.

China has a large domestic market. It has also been buying up companies in Europe and lending in much of the Global South in the hope of providing an alternative trade pattern, a new ‘Silk Road’, against the dominant Atlantic alliance.

Moreover, China still has a major bureaucratic state-capitalist sector, which allows it to use state resources to marshal significant amounts of investment where the government wants it. 

For instance, China has created a major new high speed rail across the country since the start of the global economic crisis.

So Trump may not get what he wants. And, should a full blown trade war arise, the likely result would be a move towards more protectionist blocs across the globe. 

That would signal the end of an American-dominated world economy as existed since the Second World War.

The new world would look more like the 1930s world of protectionist blocs, with higher costs of goods and services for ordinary consumers, more anti-labour measures and a greater likelihood of trade competition developing a military edge. 

While a direct clash between big powers seems some way off, we have already seen intensified proxy wars, like in the Middle East, where US clients and Russian clients have fought a variety of local power proxies for control of territory and resources.

Is a more humane globalisation the answer?

That does not mean that the solution lies in arguing for a more regulated form of global capitalism.

Sure, internationally coordinated government action after the collapse of Lehman Brothers in 2008 prevented the kind of catastrophic slump of the interwar period of the twentieth century.

Global leaders at the time bailed out the banking sector and maintained a commitment to ongoing global trade.

But this has not provided a humane or sustained solution to the crisis, but merely delayed the reckoning to a later date. 

It was the case of doomed if you do and doomed if you don’t for policy makers: they could make investment profitable in the longer term if they let failing banks and businesses fail, but that would provoke mass unrest and risk the competitiveness of their states abroad.

Or they could try to patch things up from day to day and hope, over a very long term, to bleed their populations until they paid off the debts of the banking sector and until there was enough money again to start investing anew, as they have tried for the last decade.

But this is a difficult choice for countries like the US and blocs like the EU, when their global position is being challenged by upstarts with cheaper labour forces and modernising economies like China. By all accounts they are failing. The levels of corporate debt, for instance, are at record highs. 

So there is no real possibility of going back to business as usual. That explains the rise of actors like Trump across the western world, and the rise of authoritarian politics across the world. We need to resist this trend and replace a system based on competition and profit, with one based on cooperation and human need.