US PRESIDENT TRUMP has launched an escalating international trade war. He started with some minimal tariffs on steel imports (with exemptions for some allied countries). But now the real battle has started; namely to stop China from gaining market share in America’s key industries: technology, pharma and other knowledge-based sectors.
The steel import restrictions will do nothing for American workers. US steel does not employ fewer workers because of Chinese steel imports (which are no more than 3% of all US steel imports). It is because the steel industry has been increasingly automated.
The loss of US manufacturing jobs has been replicated in other advanced capitalist economies over the last 30 years. This decline is not due to nasty foreigners fixing trade deals. It is due to the inexorable attempt of American capital to reduce its labour costs through mechanisation or through finding new cheap labour areas overseas to produce.
The biggest reason Trump - or anyone else - can’t bring back home these manufacturing jobs is because they have been lost in large part due to the success of productivity increases. Manufacturing output in the US was at an all-time high in 2015. Over the past three-and-a-half decades, manufacturers have shed more than seven million jobs while producing
more stuff than ever. What these studies reveal is what Marxist economics could have told them many times before. Under capitalism, increased productivity of labour comes through mechanisation and labour shedding, ie. reducing labour costs. Marx explained in Capital that this is one of the key features in capitalist accumulation - the capital-bias of technology - something continually ignored by mainstream economics, until now it seems.
But now the trade war has moved on to high-tech and knowledge-based sectors, as Trump attempts to block China from gaining market share in these key sectors for the American economy. The US position as a global technological leader remains strong. The US’s economy-wide productivity remains high compared to other advanced economies, and its shares of global research and development, patents and intellectual property royalties remain impressive.
China has been catching up though, if mainly in medium value-added goods sectors (hardly at all in knowledge-based tech). So, while overall, the US share of global high-tech goods exports has declined as China’s share has grown, the US trade sector deficits have been concentrated in medium/high-tech goods rather than in the most advanced categories. Indeed, the US share of global knowledge-intensive
service exports has held up, contributing to a rising trade surplus and higher
employment in these sectors.
The modern 21st century US economy relies increasingly on advanced knowledge and technology sectors for its growth. The share of US GDP for these sectors is now 38%, the highest of any major economy. But China is not far behind with 35% of its GDP in these sectors, amazingly high for a ‘developing’ economy.
Trump is now concentrating his ire on China on the share of high-tech goods sales in world markets. While the US is the largest producer of high-tech goods, its share of world exports has shrunk considerably while China’s share has grown. This rising Chinese competition has caused US manufacturing firms to reduce their production of patents, which has been accompanied by reduced global sales, profits, and employment. On the services side, the US is still the largest global producer of commercial knowledge-intensive services and second only to the EU in exports of them, while China’s share remains quite small. But if China gains market share in this area, it will really hurt US capital.
What this shows is that, contrary to the mainstream economic idea that international ‘free trade’ will benefit all, international trade is transacted by companies not countries. Value (profit) gets transferred to those with technological advantage, and they gain at the expense of others.
Free trade works for national capitalist states when the profitability of capital is rising (as it was from the 1980s to 2000) and everybody can gain from a larger cake, if in differing proportions. Then globalisation appears very attractive. But if profitability starts to fall consistently, then free trade loses its glamour, especially for the weaker capitalist economies as the profit cake stops getting larger. Populism and nationalism rears its head and politicians opposed to free trade become more prominent.
Over the last 30 years or so, the world capitalist economies had moved closer to free trade with sharp reductions in tariffs, quotas and other restrictions - and many international trade deals. But, after the Great Recession and in the current Long Depression, globalisation paused or even stopped. World trade openness (the share of world trade in global GDP) has been declining since the end of the Great Recession.
It is this decline in globalisation as world economic growth stays low and the profitability of capital remains squeezed that lies behind this new trade war. Trump’s blundering blows on trade have an objective reason: to preserve US profits and capital in the key growing tech sectors of the world economy from the rising force of Chinese industry.
Is free trade or protectionism better for labour? It depends. Perhaps the answer is best summed up by Robert Tressell in his famous book, The Ragged Trousered Philanthropists, written in 1910: “We’ve had free trade for the last 50 years and today most people are living in a condition of more or less abject poverty, and thousands are literally starving. When we had protection things were worse still. Other countries have protection and yet many of their people are glad to come here and work for starvation wages. The only difference between free trade and protection is that under certain circumstances one might be a little worse than the other, but as remedies for poverty, neither of them are of any real use whatever, for the simple reason that they do not deal with the real causes of poverty”.
Labour Briefing May 2018
works in the City of London as an economist.