Economic crisis begins at home

Trade and tariffs are not the key drivers of growth and prosperity.

Bill Durodié

Topics USA World

On 28 and 29 June, the G20 summit will convene for the 14th time in Osaka, Japan. This gathering of leaders from the world’s leading economies, including the EU, plus invited guests and international organisations, ought to offer an important moment for mature reflection and collective coordination regarding the future needs of the world economy at a difficult time.

Instead, however, it is likely to descend either into directly confrontational rhetoric or empty promises and vague platitudes that avoid its mission to be the ‘premier forum for international economic cooperation’. The focus could end up on more peripheral matters, such as climate change, counterterrorism, health and migration, which are perceived as being less contentious.

The G20 is no stranger to crisis. It emerged from the 1997-99 Asian Financial Crisis that led G7 finance ministers (representing almost half of world GDP) to establish a wider group in order to engage with the major emerging economies. Then, in the wake of the 2008 global financial crisis, the group was further elevated to become a forum for heads of state.

In 2019, it is the continuing dispute between the US and China over trade that appears to loom largest. But this ought not to be the main focus of the G20, either. As is well understood, trade wars are symptoms of underlying economic problems rather than their cause. Trade and tariffs are not the fundamental drivers of growth and prosperity. Rather, these derive from domestic productivity levels in the making of goods and services that are driven by investment. To trade effectively, the key is to have something worth selling in the first place.

Tariffs, regulation, barriers
Unfortunately, the protectionist measures that had hastened the advent of the Second World War, and that were dismantled subsequently through the establishment of the GATT/WTO, led to a growing proliferation of non-tariff or technical barriers to trade. Rather than invest in new industries, older ones were sustained artificially behind a chaff of regulatory standards, intellectual-property laws, state subsidies and public-procurement policies.

Accordingly, assertions that we have been living through a time marked by a so-called ‘rules-based international trading system’ fall very wide of the mark. All the evidence points to systematic attempts by the key players – and the US in particular – to subvert any supposed ‘liberal world order’, both economically and militarily.

Now, it may be, of course, that US President Donald Trump – who is certainly not the first US or other world leader to engage in such embargoes against China – understands full well that to compete internationally as a successful exporter, it is the ability to produce efficiently at home that matters more than trade deals. Some of his pronouncements have reflected as much, looking to put pressure on manufacturers, such as Harley-Davidson and Nike, to bring their production back to its origins.

But, irrespective of this, the adverse effects of Trump’s approach are evident for all to see. Many American firms have warned the US Department of Commerce that such measures hurt both businesses and consumers alike. The latter invariably bear the brunt of any related price increases.

The IMF has cut its world economic growth forecast in accordance. And anyway, many enterprises will simply relocate elsewhere, such as to Vietnam, which is not currently on the receiving end of additional duties.

A risky game

The deeper consequences, though, will take more time to become manifest. These include growing differences among the Western powers over how to handle the economic rise of the East.

This was seen recently, through the US stance towards its partners not using the Chinese firm Huawei to develop critical 5G infrastructure, despite it being the leading global player in the field. Such actions could come to damage relations with key allies, including the UK and Germany.

In this regard, the US is playing a very risky game. With its relations veering towards a potential conflict with Iran, as well as its ongoing disputes with Russia and China, the US may yet come to rue antagonising its friends as well.

Or, at the very least, it may regret making them have to choose between their relations with the US and with China. Only this week, the UK chancellor Philip Hammond launched the new Shanghai-London Stock Connect that looks set to deepen financial relations by facilitating investment between them.

This, and China’s recent decision not to pursue WTO market economy status, may also point to a growing maturity on its part in relation to such matters. Certainly, its most successful strategy in the past was always to keep a low profile on the international stage and avoid confrontation in foreign affairs, while focusing more on its domestic concerns.

Historically, it has often been extraneous circumstances that have accelerated change in world affairs more than any conscious push. The two powers that dominated each of the past two centuries – the US and UK – did so as much through the decline and imperial overreach of their predecessors as through their own efforts. That, and its underlying crisis of innovation and investment, are what the US leadership would do well to reflect upon most in Osaka.

Bill Durodié is chair of risk and security in the department of politics, languages and international studies at the University of Bath. Visit his website here.

To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.

Topics USA World


Gilbert Grape

27th June 2019 at 5:59 pm

Once again, the academics prove how little they know. High prices caused by tariffs merely reflect the real cost of these goods. In the past, transport costs kept economies separate, so a wide disparity in cost base did not cause destabilising trade flows. With the rise of containerization, transport costs tend to zero. Effectively, Shenzhen is just off Liverpool Docks. Consistent application of tariffs will rebalance the economy to manufacturing, as it once again becomes viable to build locally again

Hana Jinks

26th June 2019 at 11:48 pm

…’critical 5g infrastructure ‘.

Critical for what exactly? For authoritarian snooping? The leftist snoops are gonna love it…the rest of us? Not so much.

Huawei is a company responsible for “Trojan Horse” spyware technology currently being rolled out in any country that is wilfully and treacherously oblivious to this.

And with friends like Germany, who needs enemies l guess.

Mr Durodie. In case you didn’t realise, the Chinese are communists. And being the “chair of risk and security” that you are, you of all people should understand that to be promoting these kinds of things is treasonous.


26th June 2019 at 10:16 am

Some of his (Trump) pronouncements have reflected as much, looking to put pressure on manufacturers, such as Harley-Davidson and Nike, to bring their production back to its origins.
His impetus there is a political one, appealing to his core voters, not an economic one. The likes of Harley-Davidson and Nike know that it’s not in their economic interests to onshore things that are cheaper to offshore.

Winston Stanley

26th June 2019 at 5:30 am

I was surprised to read that China post-Mao has a similar understanding of Marxism to myself. I had thought that I was pretty “out there” with an “orthodox” reading of Marx and Engels, as opposed to the utopian vanguardism of British Leninism and Trotskyism. But it turns out that the major surviving Marxist state is actually much closer to me, and no socialist state is interested in the opinions of British “Marxists”.

The socialist state is supposed to come at the end of capitalist development, only once capitalism has developed the productive forces to the utmost of its capacity to do so. The productive forces thus developed provide the material basis of socialism, while the inability of capitalism to further develop the productive forces provides the occassion of the transition.

History has to progress gradually and in an orderly fashion through successive stages of economic history (ancient slavery, feudalism, capitalism, socialism), each eventually providing the basis and the occasion of the next. The socialist property relations and a socialist political superstructure develop only once the material base is ripe. The problem for the socialist states was that they tried to jump from feudalism straight to socialism, which is totally conntrary to dialectical materialism.

Lenin introduced capitalism into the USSR in 1922 with the New Economic Policy, after the failure of revolution to spread to the industrialised West. He had justified socialist revolution in Russia in so far as it might spread to the more developed countries. I disagree with British “Marxists” that the USSR was wrong to go “state capitalist” in so far as it went for capitalist economic development rather than socialist. Russia eventually abandoned the socialist state entirely for capitalist development, which was, ironically, probably the correct thing to do from a Marxist perspective, although the leaders had apparently simply ceased to believe in Marxism.

China is taking a “two systems” approach, a “socialist free market” economy, which is basically capitalist development under the guidance of the Communist Party until such time as the economy is developed enough to support socialism. The focus is on the development of the productive forces rather than class struggle. Marx emphasied the former in his theoretical works and the latter in his practical engagement. China and the West have a somewhat parallel development now in that both have mixed state/ private economies.

China has adapted Marxism to present conditions of material development, which is the sensible thing to do and it is quite in line with dialectical materialism. China seems to be doing OK with productive development, it has expanded massively. It has a Marxist political superstructure, even while capitalist development continues, and I do not see the theoretical problem with that. The superstructure is sufficiently “bourgeois” in so far as allows the productive forces to develop with private ownership.

Capitalism has proved far more progressive than Marx and Engels could have foreseen. The GDP of the global economy is massively bigger than it was in their day. The Second Industrial Revolution had barely begun when Marx died, and capitalism has continued to develop technologies. It remains to be seen whether capitalism will hit limits as Marx theorised it would.

British capital is stagnant however, with zero productivity growth over the last ten years. There seems to be little chance of us doing a Russia and jumping the gun with revolution however, as there is frankly no appetite for it. The “inevitable” material immiseraton of the proletariat that Marx theorised has simply not… materialised.

Winston Stanley

26th June 2019 at 2:48 am

China pursues a multi-polar approach to global trade and relations unlike the USA hegemonic approach. Success begins at home and domestic progress is complimented through peaceful relations.

The West looks like a complete mess under USA hegemony, especially with the constant wars and upheavals in MENA that USA keeps starting, and now trade wars.

In the longer term, it is only a matter of time before the USA empire falls, the same as all before it. The sooner that USA becomes a serious hindrance to the progress of its allies, the sooner they will look elsewhere.

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