By Kumar David –

Prof. Kumar David

Why is Trump taking a wrecking-ball to global supply-chains? – Trade-wars presage systemic hara-kiri

American liberals, its establishment and all the powers of Europe fondly believe that Trump is a passing delirium; come November’s Congressional elections or failure to secure a second term in 2020, the world will reawaken, the nightmare will pass. I do not share this sanguine hope, the world has changed; Humpty Dumpty cannot be put together again. All things reach the equivalent of their allotted three-score and ten, young men grey and suffer cupid’s embarrassing droop, the greatest empires Decline and Fall.  Trump may come and he may go (more likely he will go), but time’s arrow will not reverse. Trump or no-Trump neo-populism, Alt-Right (mostly) and Alt-Left, are steering civilisation across a Rubicon. There is no going back – as Caesar learnt at the cost of his life when he crossed into Italy at the head of his legions. The liberals will awaken to an unfamiliar world. That back-to-front goat who proclaimed the End of History is now the butt end of everybody’s joke!

The World Economic Forum has a series of articles by Robert Muggah, Taylor Owen, Yves Tiberghien, the aforesaid goat Francis Fukuyama, Anne-Marie Slaughter and Misha Glenny, which were summarised as follows.

“After a 70-year run, the global liberal order is under threat. The future of liberal democracy, open markets and common security pacts hang in the balance. There are red flags everywhere – from outbreaks of populism to the spread of protectionism and trade wars. The question everyone is asking is – can these trends be reversed? And if they can, will the global liberal order be updated and made fit-for purpose in the 21st Century? If the global liberal order collapses, will it be replaced by something fundamentally different? This series of articles, curated by the Lind Initiative, explores the crisis facing the global liberal order from without and within and the implications of a post-western international order”.

The articles are no big deal, but the summary points in the direction I want to take this essay. Let us first jettison a myth. Many say that Trump is ignorant of global supply chains, does not grasp that all are losers in trade-wars, is clueless about economics etc. Hogwash! The US has access to good bourgeois economists breast fed this Economics-101 stuff in year-1. Nor do they live in a deluded past; they know that everything is not made in America or Europe any more to be sold to benighted foreign sods. They know that components and products move to and fro, from here to there and packaged and marketed bearing many brand names. They know how furiously America and its IMF handmaiden fought to force open doors in the name of globalisation, overthrow barriers and invade investment spaces. They recall scavengers like JR who crawled. This is all on the table in the Oval Office under Trump’s nose.

But hard economists also know that globalisation is no longer in America’s interest. Trump began in January with tariffs on 18 products; it has now swelled to 10,000 causing dislocation at home and abroad. Free market competition no longer serves ailing America. Liberals and the elite may live in an ideological has-been land, but the Trump Base experiences hardship. Hence the disconnect. Steve Bannon, John Bolton, Larry Kudlow, Peter Navarro, Wilbur Ross and other insiders know there is a chasm between ‘Trumponomics’ and theory, both classical Ricardo and neo-liberal Ludwig von Mises and Friedrich Hayek. The President knows that his trade war is inane in bourgeois economic speak.

So why does he persist!  Two reasons: (a) old economics, classical or neo-liberal, does not work anymore, late-capitalism is structurally stymied and doesn’t work anymore and (b) his Base demands it. (Base is synonymous with “Strong Republican” but only 20% of the US electorate according to a recent study – see graphic).

The case against Trumponomics is valid; it will increase prices of imported and locally produced goods in the domestic market (inflation), lead to loss of employment (jobs lost will far exceed gains in a few industries), it will not narrow the trade deficit only redistribute it among trading partners, and it will undermine the trust of allies (Canada, Europe and Mexico). However none of this will stop Trump from playing to his Base – “dirty foreigners rape America in the name of trade”, immigrants eat our wealth, Muslims are terrorists etc. We are familiar with the parallel: ‘Tamils plunder our jobs, Muslims loot our businesses, Kochchis salivate for our women (or the converse?) and Imperialists rob us. His imperatives are no different, he too has to pander to electoral rabble; in all the world the game’s the same.

Though I have focussed on Trump neo-populism has come to stay across the world. I have said this so often that I suspect you are fed-up. The demon cannot be banished unless inequality, slow growth and extremism subside. For reasons to do with capitalism’s life-cycle, too complex to theorise here, that is not possible; the resurrection of capitalism is not doable. Hence breakdown of supply chains, trade-wars and Trump-like eruptions will increasingly be the norm. The Base is right; it knows it is drowning in the Swamp. In time it will learn that Trump cannot not drain the Swamp. Then what – fascism?

China’s game plan

The Chinese Communist Party (CCP) and Xi Jinping start off with huge advantages. They can do pretty much as they please for two reasons. There is little or no popular, expert or media opposition and secondly the economy is amenable to party/state direction. The public believes that Trump is near mad and that China is being victimised; opinion is firmly and near universally behind the leaders unlike in the US. Not only the large state sector, banks, the not so independent central bank (Peoples’ Bank), but private enterprise too toes the line. That China is attempting to turn from an export-led economy to more emphasis on the domestic market will also help.

Still a protracted trade war with the US is cause for concern for Xi and the CCP since a downturn in standards of living, or a slump even if temporary, will cost the leadership some of its legitimacy. The economy was slowing down by a percentage point or two prior to the trade war and the financial system is groaning under the weight of a debt splurge thanks to a mountain of nonperforming loans extended to provincial governments (infrastructure) and provincial government owned enterprises. Americans and the Europeans now rightly accuse China of stealing intellectual property and wish to shut out technology transfer and tighten Chinese investments in their markets. This threatens China-2025, the plan to make China a technology leader in the middle of the next decade.

China’s long-term strategic goal is to roll back American supremacy and become an equal power. The Belt & Road initiative, bringing small countries under its financial influence and befriending Europe as the US withdraws fits in with this objective. Though not a walkover, China is emerging as the winner as the US surrenders its advantages. The US starts with military and technological advantages and an incomparably better alliance system. Trump is dismantling the third and time will even out the second. Even if Trump goes immanent trends cannot be reversed.

Rest of the world

A scholarly essay would round this off a discussion of more than the US and China; Sino-European trade prospects, US-European-Canadian hiccups, WTO entanglement and Russia, Trump’s spoiler, would get fair treatment. But this is a newspaper column, not a prize winning scholarship essay. I expect you to read up and fill out your education. Yes, all professors are a pain in the butt! You’re stuck with me so you might as well read just three more paragraphs. I will end this piece with a few staccato comments on some crucial points bearing on the trade-war.

Turkey is balking at US trade sanctions and signalling its interest in joining BRICS. Erdogan has introduced counter sanctions in response to US sanctions on two Turkish Ministers who ordered the arrest of America pastor Andrew Brunson. A worst case scenario would see Turkey pull out NATO; that would be devastating for the alliance. US sanctions on Iran are imminent; Russia, China, Turkey and India are expected to defy America and continue to buy Iranian oil. The EU will also enforce the ‘Blocking Statue’ under which European firms are shielded from the consequences of US sanctions.

The upset with the most profound long term consequences would be a challenge to the mighty petrodollar. The sale of nearly all crude oil and petroleum is denominated in dollars; oil prices are quoted in dollars and everybody buys and sells in that currency. The dollar is king. US banks have a stranglehold when sanctions are imposed since countries like Iran are wholly dependent on the dollar banking system. The EU has tried to buy oil and gas in Euros and China tried to popularise the concept of a petro-yuan; both not very successful so far. In the face of ubiquitous US sanctions suffocating trade in general and especially the oil trade, the need to break this stranglehold has become urgent. If it flips, Trumponomics will have done the world an unintended service. Christians say “God moves in mysterious ways his wonders to perform”!

The United States is a country with immense reserves of strength. It would be a great mistake to underestimate it. To give you an example, it is relaxing pollution controls, encouraging cheap dirty energy and throwing out automotive fuel economy standards to make US companies competitive. Prior to its death rattle these are the games the dying superpower will play. And, with Democrat Rashida Talib (will be first Muslim woman) and another Dem woman Alexandria Ocasio-Cortez (will be youngest ever) almost certain to be in the next House of Representatives, the contest of populisms will be fascinating to watch post November 2018.