Trump’s trade war is not the alternative to free trade we need

Trump’s trade war is not the alternative to free trade we need

By: Dorothy Guerrero
Date: 14 June 2018
Campaigns: Trade

merkel_trump-fullAmerican protectionism, under Donald Trump’s “America First”, is creating and accelerating deep global shifts that are threatening the global trade, investment and financial regime that the US built and has benefited from over the last four decades.

In Trump’s mind, the supposed partners and allies that are beating the United States on trade by amassing trade surpluses are not friends, but are rather “big threats” and cheaters that are taking advantage of “his” country. Processes and platforms like the North American Free Trade Area (NAFTA) and the Trans-Pacific Partnership (TPP) must be abandoned. The shifts reflects major structural changes underway, as it shows that European and Asian countries are actually challenging the US economically.

Is his refusal to endorse the 2018 G7 Communique and threats of trade wars against other major capitalist economies the beginning of the end of capitalism as we know it? How should progressive movements and trade justice campaigners make more sense of his antics, up the ante in economic justice debates and avoid strategic miscalculations?

Are we getting what we wished for?

It seems that with the G7 fiasco, a trade war has begun – a war that major capitalist economies have not engaged in since the economic depression of the 1930s. With Trump’s actions, events have come full circle as that depression led to the creation of a series of multilateral international agreements starting with the General Agreement on Tariffs and Trade (GATT) in 1947, and culminating in the World Trade Organisation (WTO) and the North American Free Trade Agreement (NAFTA) in the 1990s – the very processes that he wants to destroy now.

Trump seems to be single-handedly doing what social and economic justice groups have long fought for through huge street protests met by pepper sprays and Robocop-looking baton-wielding police forces, as well as inside interventions whenever possible in multilateral trade summits. In his own terms, he made the US leave TPP and has derailed the impending economic formation. As president of the most powerful trading country in the world, he is providing the most authoritative voice denouncing the WTO as the worst possible trade deal and NAFTA the worst deal for the US. The G7 unity of the richest countries is broken. Trade protectionism is coming back after decades of ‘free trade’ and globalisation.

At the G7 meeting, Trump castigated the other leaders for their governments’ imposition of ‘unfair’ trading rules on US products and the need to reduce their surpluses on trade with the US.  In retaliation to Trump’s threats, the other leaders responded with counter-threats of reciprocal tariffs on key US exports. The real irony here, of course, is that the G7 was designed largely by the US, after the collapse of the Bretton Woods currency system, to reinforce rich country alliances and political relationships and resolve economic issues to benefit the US.

Free trade failed to create the dream capitalist success

Critics of free trade have long argued that although it could drive capital accumulation globally and create economic growth, its downside and the vital part of its dual nature is that it also produces inequality in both rich and poor countries. Another result is the creation of unemployment, underemployment and increased exploitation of labour in the weaker economies. Inequality of incomes and wealth between countries and within them has worsened over the last three decades.

Rising industrial capitalist and developing nations in the 1960s recognised that they could only succeed in global trade through protecting their industries with tariffs and controls and even state support. This can be seen in Asia, as exemplified by Japan, South Korea and to an extreme case China. It must be remembered too that the US itself protected its domestic industry in the 1870s onwards to give it a good start. And, while it worked for the US, free trade was also a form of protectionism for the US, as it was a so-called “level playing field” in which the US was the major economic power.

Yet continuing global poverty, extreme inequality and climate change show that free trade has failed in bringing the great capitalist success that neoliberals triumphantly proclaimed almost two decades ago. Now globalisation seems to be in a paused phase or even stopped. Free markets could only probably work as long as they are really free and fair. But, as we know now, they are not. Governments therefore must intervene to reduce monopoly and other distortions and to control and regulate financial speculations.

Many lessons still to be learned

Will Trump succeed in his protectionism and is it the kind of protectionism that the world needs now?

The US is not the only economically advanced country that is experiencing huge losses of manufacturing jobs. Job losses are happening in other advanced capitalist economies over the last 30 years. For the UK, one of the culprits is the change of character of British capitalism to rentier/finance capitalism – or making money from money – and the steep reduction in manufacturing. Other similar countries, like Germany, did not lose their manufacturing industries as much and as fast as the UK.

Crucially, the US decline is not due to other trade partners taking advantage of it through unfair trade deals. Trump’s friends and himself, American big business bosses, have repeatedly reduced labour costs in the US through mechanisation or through finding new cheap labour areas overseas to produce cheap good for the US and other markets.

The global rise of income inequality, and the spread of the gig economy, including here in the UK, are a product of capitalists’ addiction to profit accumulation and globalisation. It is the result of “neo-liberal’ policies designed to hold down wages and boost profits for shareholders. The protectionism being promoted by Donald Trump cannot and will not reverse that. The issue is also beyond trade, what matters more is long-term capital flows to productive sectors of the economy instead of investment for speculative activities.

It is not to the world’s advantage that Trump thinks that rules and institutions no longer matter. For economic justice to win, those rules and institutions must change or be brought down and be replaced by new and more democratic and just processes.

Photo: German government/Jesco Denzel