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From Punitive Tariffs and Trade Conflicts to Economic War
by Joachim Bischoff and Erhard Crome
Email: marc1seed (nospam) yahoo.com
09 Sep 2019
Trump's punitive attacks on several trading partners, above all China, are changing suddenly into a destruction of the multilateral structures of the world market. With the policy of "America first," the president wants to restore or develop the past hegemony in science, technology and the military. The wrecking ball is not the only model. Compromise, concessions, and countermeasures are necessities, not weaknesses.
FROM PUNITIVE TARIFFS AND TRADE CONFLICTS TO ECONOMIC WAR
The US damages energy security
By Joachim Bischoff
[This article published May 26, 2019 is translated abridged from the German on the Internet, www.linksnet.de.]
Donald Trump’s punitive attacks on several trading partners, above all China, are changing suddenly into a destruction of the multilateral structures of the world market. With the rigorous policy of “America first,” the US president wants to restore or develop the past hegemony in science, technology and the military.
Europe falls increasingly between the fronts. The US administration takes aim at Japan. Trump wants to reduce Japan’s considerable surplus in trade with the US. Japan has a substantial advantage. “I would say Japan has enjoyed a substantial advantage. We will make it a little fairer.” Washington ponders whether to expand the punitive tariffs to cars. Japan was one of the main customers of Iranian oil before the US sanctions. Different than the US, Japan has friendly relations with the Gulf country.
The US administration champions anti-dumping and counter-veiling duties to protect American firms and branches from “unfair” trade. 500 tariffs are in effect against many countries with different amounts. The protection of local jobs and locations is central, not free exchange across all the borders and importing cheap products from all over the world. Strategic trade- and industrial policy should ensure social peace and secure positions of power regarding next year’s presidential election (see the article “Trump wreaks havoc on the world market,” 5/20/2019).
The intensifying trade conflict between the US and China involves far more than tariffs and the American balance of trade deficit. The conflict is an expression of a fundamental tectonic shift. China is an up-and-coming superpower with its catch-up modernization. The US sees its global political, economic and technological superiority endangered and seeks to keep its ranking in a hard confrontation with Peking. This involves dangers, not only for world trade.
Most recently, the US blocks businesses and dissolves global value-creation chains. The US government is trying to stop the worldwide ascent of the mobile phone market manufacturer and network provider Huawei. It set that corporation and 68 Huawei subsidiaries in 26 countries (including Germany and Switzerland) on a black list. Washington prohibits American firms from supplying that Chinese corporation…
The UN suppliers of Huawei like the chip maker Intel, Quatcomm, Xilinx and Broadcom have already started reducing their business contacts. The corporate mother of Google, Alphabet, has limited the use of Android software for the Chinese corporation. The anathema or thunderbolt affects global circles. The German chip maker can no longer supply components made in the US to Huawei…
In the last years, the US imposed a boycott to enforce economic sanctions against businesses doing business with particular countries (for example, Iran). Now the blacklist of firms are expanded with which business is prohibited if firms want to be economically active in the US. Up to now, mostly Russian firms were on this list. This is now changing; the People’s Republic of China is now in the center. America is now working on separating its economy from China as in the time of the Cold War against the Eastern bloc.
These sanctions on businesses are destructive. The complexity of supplier- and value-creation chains has increased enormously. The involvement of individual countries and their specific contribution in production and distribution change constantly. Besides the traditional bilateral foreign trade of manufactured products or raw materials, today’s border-crossing value-creation chains are marked by the worldwide exchange of intermediate- or partial products, data and financial streams within global corporations…
National competition- and industrial policies are unable to counter the problem of “unfair” structures quickly and effectively. The existing legal instruments for curbing unfair trade practices require a further development of the world trade order.
In the future, the US administration will impose tariffs on imports from countries reproached by the US for currency manipulation. It will compensate American firms for damages arising when foreign states offer their products cheaply by intentionally making their currency weak….
Besides the economic strength of the country, Washington trusts the global ranking of the American currency as the most effective instrument for enforcing sanctions. The dollar is used worldwide for payments, financings and capital investments, functions that reinforce each other. Other states can hardly resist this pressure. Many businesses also cannot afford losing access to the American market.
With the help of sanctions, the US since the 1990s has aimed increasingly at forcing other countries to change their behavior. Under President Trump, economic structures and tariffs are used very often to exert pressure on foreign governments. Allies enjoy less respect than in the past.
Keeping a tighter rein on disloyal states through increased use of sanctions and tariffs is controversial. Short-term market fluctuations are one reality. Pursuing long-term goals – like a regime change or behavioral change of a government – is different. A counter-measure often follows every measure.
For a long while, there have been plans to weaken the position of the dollar in countries like Russia, China and the EU. Alternative currency systems are envisioned again and again. A replacement of the dollar as a reserve currency by the Yuan or the Euro will take a long time. Some countries may use digital currencies to escape the influence of American sanctions.
In a short-term calculation, the US can continue flexing its muscles without respecting allies. Ultimately, securing market control on individual markets is crucial for the US in this sanction policy. This is clear in the example of energy policy.
Thanks to fracking, the US became an oil and gas exporter country instead of an energy importer. A gold rush developed. Hundreds of billions of dollars are invested. Within a few years, the US made itself independent of imports and now conquers the world market with liquefied natural gas (LNG). “We have carried out the change from an era of energy need to an era of energy surplus,” argues Barry Worthington, director of the US energy association USEA. “We are becoming the largest LNG exporter of the world.”
The US rose to the greatest oil producer of the world thanks to the fracking boom according to the International Energy Agency (IEA). The current or planned investments in oil and gas and in the processing industry in Texas and Louisiana alone amount to $300 billion. Up to six million jobs will arise in the whole value-creation chain of the branch according to the estimate of the US LNG association. The annual tax revenue could be $120 billion. Import terminals in the receiving countries will be necessary. There are now eight in Europe, none in Germany. Brunsbuttel and Wilhelmshaven are mentioned as possible future locations.
Shale fracking has catapulted US oil and gas production to the top of energy suppliers ahead of Russia and Saudi Arabia. With its output, the US completely changes the worldwide oil market. The US has upended OPEC efforts at stabilizing the market. Iran, Venezuela and Russia are under close observation on account of their respective energy exports.
Since the beginning of 2019, the price of oil has climbed drastically and is now over $70. The reason for the sudden rise is that less oil is produced and exported. Production stagnates in more and more producer countries – whether in Venezuela mired in a difficult political crisis while its oil business suffers under US sanctions or Libya where a power struggle rages between the government and rebels.
US sanctions on Iranian oil have been in effect since November 2018. According to the International Energy Agency, Iran now exports 1.7 million barrels less oil per day than in May 2018. US President Donald Trump intensifies the sanctions. Iran should not be able to export a single barrel of oil. The Islamic Republic has already announced a counter-threat. If this happens, it will block the Strait of Hormus in the Persian Gulf – one of the most important routes for oil exports. That would drive up oil prices again.
In the past, there were exemptions from the US sanctions for the largest importers of Iranian oil: China, India, South Korea and Turkey. However, Trump now wants to suspend this protection. If countries draw oil from Iran, the US threatens with punitive measures. But the prices may be forced up again if Iran is cancelled as an oil supplier.
Countries dependant on Iranian oil come under pressure – like Turkey, where oil imports from Iran amount to 12%. India could face havoc if deliveries from Iran stopped. The country is the third-largest oil importer of the world. China immediately protested when Trump announced his decision. The People’s Republic is the largest buyer of Iranian crude oil amounting to 6% of its imports.
Alternative suppliers are rare. The organization of oil-exporting countries (OPEC) is composed of Middle East oil exporting countries and allied producer states like Russia. In December 2018, OPEC resolved a production cut as a reaction to an oversaturated market. The members agreed on 1.2 million barrels less per day.
The alliance opposes the US president. The paradox is that Trump cuts oil production by his sanctions on Iranian oil and plays into the hands of OPEC members. The price increase of raw materials fits in well with Saudi Arabia, the spokesperson of OPEC. With its enormous oil production, the country now celebrates increasing revenue and increasing market power. Listing the Saudi state oil company Arameo on the stock market is a long-term plan.
Whether oil production will be curbed in the long-term will be decided in June when the OPEC alliance meets again in Vienna under Russia’s leadership. If the lack of oil becomes dramatic, the production quotas could be raised again. That would end the upswing of the oil price.
The political aggravation in some global conflict zones must be understood in this context of raw material- and energy supplies and value-creation chains. China relies on Iranian oil and signals resistance to US sanctions against Iran – even if an unwieldy trade war occurs.
The present situation cannot be described as “protectionism”… It is also not a return of economic nationalism since this has never ended. The economic super-powers pursue free world trade as a means for their national prosperity and never out of unselfishness. It seems they can only secure and increase this prosperity today against the resistance of foreign countries. The governments can concentrate their powers on breaking this resistance. This is a war-mongering mentality.
Today, the super-powers do not fight anymore for market shares and competitiveness or their position in the competition. They fight over the organization of the competition itself, over the rules of global commerce and their power position. They are ready to sacrifice value-creation or profit. To secure their dominance, the governments of the US and other powers delay short-term profit interests and use their economic power as a weapon. So the world market winners practice a globalization criticism, not the world market losers – from the right, in the name of the nation, not in the name of the class.
By Erhard Crome
[This article published on June 24, 2019 is translated abridged from the German on the Internet, https://das-blaettchen.de.]
Political adversaries are called unpredictable to intimidate. This is regarded as the foreign policy “strategy of the mad.” Already in 2002, the French historian and population expert Emmanuel Todd referred to the war policy practiced by US president George W. Bush. This is a classical strategic model that is "unsuitable for a country the size of a continent.” At that time, he meant the US. Donald Trump emphasizes this as a means of politics.
The political scientist Devin T. Stewart of the Carnegie Council – a supporter of the Democratic Party – recently proposed that Trump submit to a reassessment. His presidency marks “a return to real politics and superpower politics.” In the 1990s, US President Bill Clinton spoke about a “Bridge to the 21st century.” The US should practice “world leadership for peace and freedom.” This was regarded as the “salvation message of liberal internationalism.” The US promotes globalization, technological development and free trade worldwide and not only for itself. This “led to China’s acceptance in the World Trade Organization, invasion and wars in Iraq and Afghanistan under Bush and the 2008 financial crisis.” All this could be put in question in view of Trump’s actions.
The Trump doctrine turns earlier political assumptions upside down. Trump’s “America First” is a reversal of real politics and competition between superpowers. It better suits a time when the US has lost its dominance. Trump described his view before the UN General Assembly on September 25, 2018: “The American policy of realism guided by principle means we will not be the hostage of old dogmas, discredited ideologies and so-called experts whose theses were refuted over years time after time. This is true for prosperity questions and for peace affairs.”
That is the strategic perspective. Regarding the tactical, Stewart says, “Trump’s diplomacy can be reduced to four corner points: insult, haggle, scatter burdens and boast. He begins a dialogue by insulting his counterpart mostly on Twitter. Then he seizes the opportunity to haggle and reach a fair distribution of burdens from his view. At the end he boasts of the results. Trump treats all relations as business relations and uses the tactic “eye for an eye, tooth for a tooth” to attain his goal of “mutuality.”
Trump’s method is a “reversal of the former leadership style and turns traditional approaches upside down. Personal relations, trust and loyalty on the highest plane replace technocracy, meritocracy and bureaucracy. Understanding trade as a means of enrichment replaces free trade ideology. Instead of building or developing institutions, the usefulness of every institution is put in question. Instead of pursuing morally-supported diplomacy, he speaks with everyone ready to haggle. Everything is said that could lead to the goal instead of giving carefully formulated speeches. Sacred cows are not spared but are slaughtered or at least the threat is vented. Instead of propagating open markets, US markets, the military and migration are used as levers. Every relation is tested as to how much pressure can be applied.”
So Trump’s foreign policy can be reduced to bargaining chips. If this view is right, the last word is not spoken with a new arms race, the trade war against China, tariffs on German exports and against Mexico and others. We are in the phase of insulting and haggling. But Benjamin Netanyahu may enjoy unrestricted support. Saudi Arabia may do whatever it wants domestically in its war against Yemen and in the worsened situation in the Gulf region. An irrational malevolence prevails against Iran that extends from the 1979 occupation of the US embassy in Teheran to the present. “The evil kingdom” always stands between the US and Iran,” former German foreign minister Gabriel remarked.
After the US cancelled the nuclear agreement with Iran, the signs of the times seem set on war although both Trump and the Supreme Leader have said they do not want war. The question is whether they only want to blame the other side. According to Russian sources, the head of the Iranian general staff General major Mohammed Bagheri declared: “If we resolve to block the Strait, we are strong enough to do this.”
Iran was blamed for attacking the two tankers in the Gulf of Oman. The “proofs” for this variant seem very dubious. We recall the “incident in the Gulf of Tonkin” that led to the escalation of the Vietnam War. The falsified evidence for Saddam Hussein’s possession of nuclear weapons to justify the US war on Iraq turned out to be “Fake News.”
Seen very technically, Teheran can actually block the Strait of Hormuz: by mines, by shifting rockets and artillery near this important waterway, or by sinking large freighters in these waters. The US would certainly not hesitate to remove the blockade of this important strait for the worldwide oil trade as quickly as possible. The US Navy could reopen the Strait of Hormuz for shipping within a few days…
Instead of diplomatic solutions, Donald Trump relies on economic extortion. He always follows the same pattern that uses the structural power of the US in the world financial system and the power of the US domestic market for extortion policy. He is simultaneously in a trade war against China, in an extortion war against Mexico in the matter of refugees from the South, against Russia, and in the smoldering trade war against Germany and the European Union. The danger of over-extension is hidden. Trump uses the role of the US dollar as world currency to execute his extortion policy in the US national interest. In its trade war with the US, China has not yet played the card involving Iran’s oil export to China and the Yuan. But that is possible. An increasing share of the worldwide oil trade is no longer transacted in US dollars which undermines its role as world currency.