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 		 [ Every day, the news brings more stories of U.S.-China tensions.
What led to the U.S.-China trade conflict? And what would a U.S.
pro-worker policy toward China look like?] [https://portside.org/] 

 ROOTS OF THE U.S.-CHINA TRADE CONFLICT  
[https://portside.org/2019-09-05/roots-us-china-trade-conflict] 

 

 David Kotz 
 September 1, 2019
Democratic Left (Democratic Socialists of America)
[https://www.dsausa.org/democratic-left/roots-of-the-u-s-china-trade-conflict/]


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 _ Every day, the news brings more stories of U.S.-China tensions.
What led to the U.S.-China trade conflict? And what would a U.S.
pro-worker policy toward China look like? _ 

 The US and China are facing off with tit-for-tat tariffs. , Photo:
Shutterstock // South China Morning Post 

 

The most anti-worker president in recent memory slaps big tariffs on
products made in China — in the name of protecting the jobs of
American workers. Corporate lobbyists criticize the tariffs — but
say we must get tough on China’s trade policies. Some Democratic
senators warn Trump not to back down in trade negotiations with China.

What can socialists make of all this? To answer this question, let’s
examine the background of the trade conflict and the reasons why it
broke out recently.

CHINA RISES

Beginning in 1978, the ruling Communist Party in China made a radical
turn, called the “reform and opening.” Central planning was
gradually replaced by a market economy. The previously closed economy
was opened to trade with the capitalist countries. Privately owned
companies came to predominate. However, a core of large state-owned
enterprises remains, and the government actively regulates the
economy. China’s economic system today bears some resemblance to the
heavily state-regulated capitalist economies of Western Europe in the
post-Second World War decades, although paired with a different
political and social system ruled by the Communist Party.

When China started down this road, the U.S. government was
enthusiastic and supportive. U.S. big business saw big profit
opportunities in a growing China market. The reform and opening led to
remarkably rapid economic growth, at about 10% per year for decades.
U.S. business lobbied for China’s admission to the World Trade
Organization in 2001. Many U.S. companies set up shop in China, which
has abundant low-wage (yet relatively healthy and well-educated) labor
coming from a huge rural sector. China also has a business-friendly
government, docile official trade unions, and a government that makes
huge infrastructure investments in transportation and power that
underpin the profitability of operating in the China market. 

As “Made in China” labels proliferated in U.S. stores, many U.S.
workers lost their jobs. Cheap imports from China, along with those
from other low-wage countries, have played a role in driving down the
real wages of U.S. workers since 1980. That did not concern the U.S.
corporations that were boosting profits by moving production to China,
nor did it bother the many sectors of U.S. business that purchased
cheap inputs from China. 

ABOUT FACE

Approximately 10 years ago, the U.S. business and political elite’s
view of China began to shift. Although U.S. businesses always had some
complaints about constraints on their access to the China market, the
complaints now grew louder. U.S. economic relations with China became
more strained.

In 2018, President Donald Trump launched the current tariff offensive
against China, placing high tariffs on $250 billion of imports from
China and enacting severe penalties on leading Chinese high-tech
companies. This led to retaliatory tariffs by China, and a trade war
began. Recently, Trump threatened to extend tariffs to all Chinese
imports, including consumer goods for which China has been a leading
supplier such as clothing, computers, and cell phones. The U.S.
government is demanding that China do the following:

	* Stop efforts to obtain technologies from U.S. companies;
 	* End the industrial policy of providing cheap credit to Chinese
companies in key industries of the future;
 	* Stop providing support to its state-owned enterprises;
 	* Buy more U.S. products.

The current intense trade conflict has three roots. One is Trump’s
right wing nationalist ideology. Trump views trade between countries
as a zero-sum relation. That is, one country can benefit from trade
only at the expense of other countries. His aim is to use the threat
of tariffs and penalties to put pressure on other countries to agree
to measures that would benefit the United States at their expense. His
main focus is on China, whose economy has become closely
interconnected with the U.S. economy through trade in consumer and
producer goods, investments, and credit, although he has threatened
other countries as well.

The second root of the trade conflict is lodged in the perceived
interests of U.S. big business. When China was mainly producing and
exporting cheap, low-tech products, such as toys and clothing, U.S.
business was pleased. Even though China had entered the global market,
the most profitable parts of the global production chains were
dominated by American companies. 

However, China’s economy has developed rapidly — that was the
motive for the reform-and-opening policy. China has moved from being a
poor country reliant on low-tech exports to a middle-income country
entering the production of technologically sophisticated goods. In
recent years it has became clear that China could reach economic —
and technological — parity with the United States within about 20
years. 

No one event marked this passage, but a key development took place in
December 2004 when IBM announced the sale of its personal computer
business to Lenovo, a Chinese company. At the time U.S. business
analysts doubted that China could successfully manage a world-scale
high-tech company, but today Lenovo is the leading producer of laptop
computers. Other Chinese companies, such as Huawei, are now at the
world technological frontier in key products.

For more than 50 years, the United States has been the dominant power
in the global capitalist system. That position is based on the leading
role of U.S. corporations, as well as U.S. military strength. The rise
of another country toward a position of economic and technological
equality is seen as a threat by U.S. business and the American policy
elite that guards its interests. China’s rapid rise, which initially
just contributed to the profits of U.S. business, now is seen as a
threat to U.S. economic domination of the global system. Although big
business does not like the tariff weapon, which undermines the
stability of the global production chains it has constructed, it now
favors other approaches to pressure China into giving up the methods
it has used to develop rapidly. The aim seems to be to freeze China
into a subordinate position in the global economy. This situation
resembles the pre-First World War period, when Britain, long the
dominant world power, faced late developers such as Germany that were
challenging Britain’s economic dominance. That led to the disaster
of the First World War.

However, there is a third factor underlying the U.S.-China conflict.
The late developers of the early 20th century shared a capitalist
economic system with Britain. The conflicts were over colonies and
commercial advantage. Although China’s economy has a large
capitalist sector, it has some non-capitalist features, centered
around its Communist Party-ruled state, which regulates the economy
much more intensively than does the U.S. government (or those of
Europe). This system-conflict between the neoliberal capitalism of the
United States and the state-directed mixed economy of China adds to
cries of unfair advantage from U.S. officials and further fuels the
trade conflict.

A PRO-WORKER RESPONSE TO CHINA’S RISE

China’s rise has had contradictory effects on working people in the
United States and China. Jobs have moved from the United States to
China, resulting in downward pressure on U.S. wages. Workers in China
haven’t always fared well, either. The booming private sector
imposes very long hours and harsh working conditions on workers. In
the remaining public enterprises, the long-term job security of the
old regime has given way to growing use of short-term and temporary
contracts. Previously a relatively egalitarian country, today
China’s Gini coefficient, which measures income inequality, is
almost as high as that of the United States: 38.6 for China compared
to 41.5 for the United States.

However, workers in both countries have derived some material benefits
from China’s rise. Because of it, U.S. workers have a new source of
high-quality and affordable products, from clothing to cell phones and
computers. Despite the absence of real trade unions demanding higher
wages, average wages adjusted for inflation in China have risen
substantially as the economy has advanced, increasing at the rate of
7.9% per year from 2010 to 2016. By contrast, U.S. wages adjusted for
inflation barely rose over that period, at a rate of only 0.6% per
year. The hundreds of millions of migrant workers in China no longer
need passes to travel outside their place of origin, and only 12.9% of
migrants lived in dormitories run by their employers in 2018.

This is how capitalism divides working people. There are never enough
good jobs for all under capitalism. Not only are workers in the same
country in competition with one another, but workers in different
countries are also in competition with each other.  

U.S. socialists have to chart a policy course that resists this
feature of capitalism by finding policies that will benefit U.S.
workers without harming workers in other countries. A rise in the
living standard of working people in previously poor countries should
not be a threat to working people in the United States. It may look
like a zero-sum game, but some win-win solutions are possible.

U.S. workers do not share the U.S. big-business interest in trying to
stop China’s rise. The complaint about China gaining access to U.S.
technologies ignores history. A country can develop its economy only
by getting access to more advanced technologies. That is how the
United States began its industrial development after the American
Revolution — with textile-machine technology stolen from Britain to
utilize in Rhode Island in 1792! 

Socialists have traditionally favored free access to technologies,
while taking account of the need to provide reasonable compensation to
the developers. The main method China has used to gain access to
better technologies is to make a Western company’s entry into China
dependent on agreeing to take on a Chinese partner company that will
be taught to use the better technologies. Many leading U.S. companies
have agreed to such deals, due to the attraction of producing in
China.

However, in recent years that method has become less crucial, as
China’s own research and development capability has advanced
rapidly. In 2017, China’s R&D investment ranked #2 in the world, and
its number of patent applications ranked #1. China’s official policy
is now to support strong protection of so-called “intellectual
property rights,” a concept that socialists have traditionally
looked on with disfavor based on the view that knowledge should be
made freely available. The recent Trump administration actions to ban
sales from the leading Chinese high-tech company Huawei suggests that
it understands that the big challenge faced by U.S. business is not
technology theft but effective competition from technologies developed
in China.

There are no good grounds for demanding that China give up its
industrial policy aimed at promoting key sectors of the economy or its
support of state-owned enterprises. Such policies have played a key
role in China’s industrialization. Indeed, history shows that such
policies typically lead to faster economic advance than the currently
fashionable “free-market“ approach followed by the U.S.
government. The most rapid national economic advances since the
mid-19th century followed some variant of state-guided development,
including Germany, Japan, and South Korea. 

How can a previously poor country benefit from economic advance while
avoiding the costs both to its own workers and those in countries that
are trading partners? A pro-worker program around trade for the United
States must include not just measures affecting trade but also
policies aimed at the U.S. economy:

	* TRADE STABILIZATION POLICY: Current U.S. trade policy allows
temporary protection against an import that increases rapidly if it is
found to cause “serious injury or threat of serious injury to a
domestic industry.” This law could be revised to target serious
injury to workers, rather than the companies, and it could be
streamlined and enforced more rigorously. This would facilitate
adjustment to disruptive changes.
 	* TRUE COST COMPETITION: This would impose counteracting tariffs on
imports whose production process is based on standards of wages,
working conditions, and/or environment regulations that are
significantly below those in the United States. Designing, and
implementing, such a measure would not be simple, but such a measure
would shift the impact of international trade flows from their current
“race to the bottom” character toward imports based on a genuine
efficiency advantage in the source location.
 	* GENEROUS JOB TRANSITION BENEFITS: The government should provide
generous and long-lasting benefits to workers who are displaced by
imports, including income maintenance, retraining, and moving
allowances. If consumers benefit from imports, the cost to workers
should be minimized.
 	* GOVERNMENT AS EMPLOYER OF LAST RESORT: This policy, which almost
passed into law after the Second World War, would guarantee a job in
the public sector to any worker who needs a job. If paired with a
Green New Deal, there would be plenty of important public sector work
to be done for many years. Such public-sector jobs should pay a living
wage. This would go long way toward insulating working people from the
cost of a competitive capitalist economy, in which workers always face
the danger of being discarded. 

International trade in the capitalist era, which is based on
competition among production sites in different countries, inevitably
tends to generate problems for working people – just as competition
among different production sites within a country creates problems.
However, such policies as those above would respond to China’s rise
in a way that offers significant protection for the interests of U.S.
working people, without harming workers in China. 

By contrast, the Trump administration policy of using tariffs to stop
China’s rise is harmful for U.S. workers, who will suffer from a
trade war. The softer approach to stopping China’s rise favored by
U.S. big business also requires the revving up of nationalism, which
creates political conditions unfavorable for working people to advance
their interests. Both approaches to slowing economic advance in China
are bound to lead to growing tensions that could again result in armed
conflict, in which working people bear the brunt of the costs. In the
long run, working people here and elsewhere will continue to face
powerful downward pressure on their wages, working conditions, and
economic security until the global economic system is transformed to
one based on cooperation rather than competition, and production to
meet human needs and wants rather than for the profit of small wealthy
class.

_[David Kotz is Professor Emeritus at the University of Massachusetts
Amherst, and the author of The Rise and Fall of Neoliberal Capitalism
[https://www.hup.harvard.edu/catalog.php?isbn=9780674980013], Harvard
University Press, 2015. The author wishes to thank Zhongjin Li,
co-editor (with Eli Friedman) of China on Strike, for providing
information about the conditions of workers in China.]_

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