Trade War and The New World Order: Is it time to say farewell to Neo-liberalism ?

Ali Hacıaliefendioğlu

 

In 2018, the United States declared a new tariff policy against goods which were being traded the US between China, and the new era of emphasized his trade approaches have begun. When President Donald Trump elected in 2016, he addressed promise to protect American people, workers and domestic manufacturers from unfair trade practices.^[1] The main arguement in this approach is the stealing of the US intellectual property by China.^[2] Under the direction of these allegations, the US administration made a decision to improve new tariffs against China, and we call this emerging event as ‘Trade War’.

In this article, I will tray to explain ‘What is Trade War ?’, ‘What are expected as consequences’ and ‘Is it End of the Neo-Liberalism ?’ in the light of Karl Polanyi’s double movement theory.

The membership process of China was not an easy case for the US and World Trade Organization (WTO). When the calendars showed 2000, the US , at that time Bill Clinton who was in office, accepted the request for membership of China to WTO.  Given the facts, it was clear that China at that time was not clearly ready to become a member of WTO because of human right issues and state structure. Donald Trump refers to this situation all the time, and says that ‘that war was lost many years ago by the foolish, or incompetent people who represented the US’. With this argument, Trump tried to show the unsuccessfulness of the presidents who served before him; Barack Obama, George W. Bush and Bill Clinton.^[3]  Trump, with his discourses, implies that the former presidents’ administration was incompetent and that the 18 year process brought great economic damage to the US, and in this way, he tries to prove the legitimacy of his own policies.

In this section, it is necessary to understand the accusations of the USA against China and the validity of its claims.

The USA’s views on China

One of the main accusations of the USA is that China has stolen intellectual property of the companies which invested from the USA.^[4] These stolen intellectual properties also include secret military technologies, and sort of advanced technologies which can be use of by ordinary people.^[5] In fact, Mark Warner who is the US senator and the Vice Chair of the Senate Intelligence Committee, described Huawei a threat to national security.^[6] According to some accusations, Huawei is one of the companies which stole intellectual property of the USA and disobeyed the sanction decision against Iran. In 2017, the USA published a formal investigation about these topics and showed that, with cyber attacks and stealing of intellectual properties which belonging to the USA costs 225bn-600bn dollars to the USA in a year.^[7]

After this stage, we have to focus on Foreign Direct Investment (FDI) regime of China. The Chinese government requires a joint venture principle for foreign companies to invest. In this way, the Chinese FDI rules are forced on the investing companies to create an entity with Chinese partners.^[8] According to some experts, this leads to an unfair relationship in the context of the WTO rules. Because, it is claimed that the USA companies had to share their technologies by forcing them to enter the Chinese markets. It is said that this situation should be punished with sanctions under the roof of the WTO.^[9]

However, despite all these allegations made by the USA, Clinton’s former Secretary of Treasury and economist Larry Summers stated: ‘China’s technological progress is coming from terrific entrepreneurs who are getting the benefit of huge government investment in basic science. It’s coming from an educational system that’s privileging excellence, concentrating on science and technology. That’s where their leadership in some technologies is coming from, not from taking a stake in some US company.’^[10] It is understood from this statement that, in addition to the accusatory attitudes towards China, it is said that China does not need to steal any technologies from the USA, and has an education system, and infrastructure to produce these technologies.

China’s views on the USA

After mentioning the USA grievances the issue is to be discussed from the China perspective. China is very uncomfortable with Trump’s policies and describe him as a ‘bully’.^[11] Also, China describe the USA policies against neo-liberal system and  far from dialogue. So, it can be understood easily, China puts Trump’s policies in a revisionist approach, and China struggle with its self-confidence. It can be prove with some analysis; according to UN figures, the USA depends on China to buy only some 8% of all US exports, against it, China has to sell almost 25% of its goods to the US. ^[12] According to some other approaches, China’s economy is in a downturn and this situation is putting  pressure on President Xi’s policies. Under this political pressure, Mr. Xi is trying to deal with Mr. Trump.^[13]

Despite all of this, China prefers to use a moderate language in international relations. As remembered, Mr. Xi stated that China would maintain a dialogue path towards the US protectionist policies and act according to the free market requirements in bilateral relation with other countries. This is also supported with quotes of Wang Qishan, Chinese vice-president who said a week after the summit of Buenos Aires. Mr. Qishan stated that Beijing is ready to talk with Washington to resolve the trade dispute.^[14]

The approaches of the two countries can be briefly described in this way. As is known Trump’s administration placed  30% tariff on imported solar panels. (China is the most productive country in this sector.) On the same day, Trump’s administration also put 20% percent tariff on washing machines which were to be imported. China exported 425 million dollars worth of washers to the US.^[15] However, the taxes imposed on 1 March 2018 are considered as the beginning of the Trade War. As it is known, the Trump administration has set tariffs 10% on alluminium and 25% on the steel.^[16] These two important assets also used in both military technologies and civil technologies that is mentioned above. Also China put new tariffs on 34bn dollars valuable goods import from the USA.

It is not enough to see these news by chance or to evaluate the current political situation from narrow angles. Is this a sign that we have come to an end in the neoliberalism period, or is it that states only want to protect themselves ? Before continuing to search an answer to these questions, I think it would be necessary to state about Karl Polanyi’s Double Movement Theory in this section of my article.

Double Movement Theory

Polanyi describes liberalism as a mechanism that does not correspond to nature. Polanyi says that liberalism is misleading the ideals of economy. Liberalism, which has created a reality where the utopian expectations are achieved more or less at the same time, according to Polanyi the two different results of liberalism emerged as a dream of an imaginary freedom denying the reality of society or accepting this reality and denying idea of freedom. The first result is the liberal opinion and the second is the result of the fascist view.^[17] It is not necessary to go into detail in this article why Polanyi did not see liberalism as natural development, but it is helpful in understanding of the source of the Double Movement Theory, so I have to mentioned it in brief. The commodification of labor, land, and money s defined as the beginning of the free market and the collapse of liberalism.

As money is a key element of production in the market economy, its inclusion in the market mechanism will have institutional implication while labor and land will be integrated into the market economy and the essence of society will be dominated by market rules. Because labor and land are nothing more than the natural environment of the people who make up the societies.^[18] The most important of these three concepts which Polanyi defines as ‘imaginary commodities’ is labor. Reducing the fate of the market mechanism making people and their natural environment a concept to be bought and sold will result in the collapse of society.^[19]

Polanyi’s main arguments came from the 19th century world order. Polanyi found that the liberal market is subject to a bi-directional movement, based on its conclusions. This theory called as ‘Double Movement Theory’ can be said to be a movement against the perception of freedom created in the context of liberal policies and it creates an action that causes breakage in history. On the one hand, the markets spread all over the world, and the commodities they contain have high levels and integrate with the institutions where measures and policies are produced. The international exchange of commodities and the unification of markets brought with it richness and freedom, while also highlighting the importance of prevention policies and control mechanisms. The existence of free market and the increasing security concerns in the same direction will lead to crises when it reaches breakpoint. Therefore, according to Polanyi, ‘unnatural liberalism’ causes a paradoxical structure and crises. While the source of this paradox was defined by double movement, it focused on the fact that markets could not exist freely.^[20]

Polanyi actualized social sources of 1st and 2nd World War with the double movement theory. In fact, the free market economy has brought the gold standard and free trade to the point of obstruction over the years, and caused the economic crises with the outbreak of 1929 Great Depression, and in the direction of protectionist demands and policies the losers of 1st World War caused fascism to rise in Italy and Germany. The global expansion of the market encouraged society to protect itself, not only the rise of fascism but also to transform the USSR into Stalinism.^[21]

In liberalism society or social relations are adapted within the economic system, but on the other hand it had to be embedded in society. This situation leads to the emergence of the uncontrollable liberalism as an action that is detrimental to the social structure. In this context, Polanyi proposed the view of embedded liberalism. ( Embedded liberalism was first used by the US political scientist John Ruggie as a concept. Ruggies concept stands on the basis of Polanyi’s embedded and dis-embedded economic theories.)^[22] After the 2nd World War it has existed in the Bretton Woods System which envisions a controlled economic integration. The main objective of the integration process developed in line with international institutions is to try to realize the states and societies with the determined tariffs and money standards without causing any damage. Embedded liberalism emerged as a reaction to the free market economy which was experienced in the 19th century and resulted in disasters^[23]. Shocked by the Oil Crisis in 1973, the Bretton Woods system ended in 1981 and was replaced by dis-embedded neoliberal policies.^[24]

A look at the Current Situation

Undoubtedly, it is no coincidence that the USA sees China as the biggest enemy of its economy. Most of the locomotive sectors in the United States started to open their factories in this country for cheap production advantages with the China becoming a member of the WTO. This was a major problem for the middle and low income classes although technological superiority was still existing in the US. Considering the discourses and policies developed under the administration of Trump, it is quite possible to see parallels with Karl Polanyi’s theory. As known, Trump’s campaign motto was ‘Make America Great Again’ and ‘America first’ perception formed a discourse that frequently came to the fore during the election. As I mentioned above when Trump was elected as president, he said that he would protect American workers’ right and increase job opportunities as one of his first action under presidency.

It would not be difficult to say that it is not surprising that Trump was elected president with these discourses. The middle class’s income problems became more evident with the 2008 Economic Crisis, and deepened over time. The middle class which thought liberal policies of the US no longer had any triumph was consolidated under Trump’s rhetoric and decided on the US’s new political orientation. Considering Polanyi’s approach the situation is also striking. Although the uncontrollable Neo-liberalism has enriched the US middle class for a while, but it has also caused the fall of middle class. This situation led to the development of more conservative approaches by the middle and low income classes which make up the majority of the population. Focusing on this political and social conjuncture, it is easy to understand that Trump’s discourses are not coincidental.

The US’s changing domestic political manifestations are what the Trump administration imposes on the world. The US realized that it could not exist as a hegemonic power in the existing system in the world. The founding power of the system has now become an actor trying to change the system around its own interests. In this context, it can be easily analyzed that the US to has taken an isolating attitude in its own region, and then trying to impose on a global scale. The attitude towards Mexico and the revision of NAFTA ( It will be named as United States-Mexico-Canada Agreement UMSCA)^[25] could be an example of regional isolation policies. However anti-immigration and xenophobia are increasing in the US, and this social situation is supported by the irrational promises such as ‘the Wall’ project. The point is that the pioneer country of Neo-liberalism develops isolated policies and more conservative and fascist tendencies are observed in the society.

To examine the commercial tension between China and the US in this context would be more useful in terms of recognizing the socio-political infrastructure of the situation. The attitude of the Trump administration toward China was, as I mentioned above, that China stole the US’s intellectual properties. Although the claims on this issue are left open to debate, the US is undoubtedly trying to establish an economic pressure on China over its production advantages. It is confusing to see the unilateral policies pursued by the US cause concerns in the context of bilateral international law while the membership of China the WTO is in a controversial position during the period due to the human rights situation in China.

However although the differences between the US and China’s economic powers are still wide apart, the need for each other is at very high level. While the US has the highest amount of debt in the world, it has invested its power to finance this debt with China. Also China requires good economic relations with the US to protect its investment and realize its economical growth. At the current point the weight of the US economic power has been shown to China and the new economic agreement which is still being talked about is signaled that the interest of the US will be protected.

Unilateral policies developed by the US under Trump administration lead to new problems in the international system, and to deepen the existing problems. The isolated policy of the US also changes its perspective towards the EU. Trump administration wants equalization of capital sharing in NATO and this situation has forced Germany and France in their role in global politics. EU which is open to Russian and Chinese influence in the context of the Trump’s isolation policies, is focusing in developing alternative options for NATO. The Treaty of Aachen signed between Germany and France in the recent months has led to the introduction of the definition of the ‘European Army’, even though it envisions socio-political integrations.^[26]

This general framework I have drawn out shows that the policies which give importance to regionalism throughout the world have started to gain effectiveness. However, the current situation of the US has reached a level that would harm the multilateral international world system. Therefore, the US which was the founder of the world system after the World War II, became an actor that reveals a revisionist approach against this system. One thing to be foreseen after this stage is the US will pursue a unilateral international policy under Trump’s administration, and use the political and economic instruments as a ‘power device’ against other rival states.

In conclusion, can we say that the US will destroy the neo-liberal order ? Such a future does not seem very likely. It is possible to explain this situation under two titles. First of all, Trump’s internal policies do not give any sign of this. Second, the US’s production-consumption relations are not ready for a new alternative approach. Although Trump’s criticism of Mexico and China seems to be against liberalization in international markets, in essence, it does not have such an approach in these policies. Trump’s administration has reduced the taxes it receives from companies to open factories in the US. In this way, it aims to create new jobs to American workers by returning companies from abroad. Trump aimed to strengthen the basis of his populist discourse which was advocated in his early years of office, but new regulations do not weaken Neo-liberalism, but rather reinforce it. The recent tax policies show that the Washington administration has lowered tax obligations on the rich and loosened control mechanism.^[27] These regulations shows that, although Trump discursively constituted a revisionist and populist pattern in his speeches, but on the other hand, his actions in domestic politics show that the ‘wild face’ of the free market model is supported. Besides, the US is the country with the most debt today. In order to finance this debt, it needs the free market model more than ever. Also, Trumps’s administration has not prepared a new ideological basis or understanding for new economic approach to be established related with the alleged isolated policies. Thus, the US orientation in foreign policy is more conservative with the assumption that it will lose its power in the existing system, but these policies are nothing more than a realist economic approach. While I write these lines, meetings are organized between the US and China to finish Trade War, but it is not possible to predict that the desired result will be reached. On the other hand, it is not difficult to predict that, this process will end in the way of US’s interests.  Finally, the populist approaches of Trump administration are aimed at breaking China’s commercial power, but it will not be able to initiate a sustainable recovery process for the United States. However, these approaches have the potential to make societies more protective and xenophobic.

 

References

• Presidential Executive Order Regarding the Omnibus Report on Significant Trade Deficits, White House, 3/31/2016
• “These Are the 128 U.S. Products China Is Enacting Tariffs On”. Fortune.
• Smith, David (April 4, 2018). “Trump plays down US-China trade war concerns: ‘When you’re $500bn down you can’t lose'”. The Guardian.
• “Strategic Tariffs Against China Are Critical Part of Trade Reform to Create More Jobs and Better Pay”, AFL-CIO press release, March 22, 2018
• “Huawei faces bill for tens of millions for ‘theft of 4G technology'”. The Telegraph. 2018-10-23.
• Basically kidnapping’: China’s state media lashes out at Canada over arrest of Huawei executive”. Global News. 7 December 2018.
• Pham, Sherisse (March 23, 2018). “How much has the US lost from China’s intellectual property theft?”. CNNMoney.
• Command and control: China’s Communist Party extends reach into foreign companies”, Washington Post, January 28, 2018
• Why is the U.S. accusing China of stealing intellectual property?”, Marketwatch, April 6, 2018
• “Larry Summers praises China’s state investment in tech, saying it doesn’t need to steal from US”. CNBC
• Milton Ezrati Trade War From the Chinese Side. Forbes Oct. 3, 2018
• Keith Bradsher, Alan Rappeport and Glenn Thrush A Weakened China Tries a Different Approach With the US: Treading Lightly. New York Times,  12,2018
• Stefania Palma US criticisms China’s empire and aggression in Asia. Financial Times, Nov. 15,2018
• “President Trump Approves Relief for U.S. Washing Machine and Solar Cell Manufacturers”. Office of the United States Trade Representative. January 2018.
• Swanson, Ana (2018-03-01). “Trump to Impose Sweeping Steel and Aluminum Tariffs”. The New York Times. ISSN 0362-4331.
• The Great Transformation Polanyi Karl p.342 İletişim Yayınları çeviren Ayşe Buğra
• Ruggie, John Gerard 1982. International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order
• Johnathan Kirshner 1999, Keynes Capital Mobility and the Crisis of Embedded Liberalism. Review of International Political Economy 6:3 Autumn 313-337
• John Ruggie 1997. Globalization and the Embedded Liberalism Compromise: The End of an Era ? Max Planck Institute for the Study of Societies.
• S. and Canada Reach Deal to Salvage Nafta”. The New York Times. September 30, 2018.
• Niall McCarthy After Historic Franco-German Treaty, How High Is Support for an EU Army? Forbes jan.23 2019
• Emily Stewart Trump has a 100bn dollars tax cut for the rich he wants to enact without Congress, Vox. Jul 31 2018.

^[1] Presidential Executive Order Regarding the Omnibus Report on Significant Trade Deficits, White House, 3/31/2016

^[2] “These Are the 128 U.S. Products China Is Enacting Tariffs On”. Fortune.

^[3] Smith, David (April 4, 2018). “Trump plays down US-China trade war concerns: ‘When you’re $500bn down you can’t lose'”. The Guardian.

^[4] “Strategic Tariffs Against China Are Critical Part of Trade Reform to Create More Jobs and Better Pay”, AFL-CIO press release, March 22, 2018

^[5] “Huawei faces bill for tens of millions for ‘theft of 4G technology'”. The Telegraph. 2018-10-23.

^[6] Basically kidnapping’: China’s state media lashes out at Canada over arrest of Huawei executive”. Global News. 7 December 2018.

^[7] Pham, Sherisse (March 23, 2018). “How much has the US lost from China’s intellectual property theft?”. CNNMoney.

^[8] Command and control: China’s Communist Party extends reach into foreign companies”, Washington Post, January 28, 2018

^[9] Why is the U.S. accusing China of stealing intellectual property?”, Marketwatch, April 6, 2018

^[10] “Larry Summers praises China’s state investment in tech, saying it doesn’t need to steal from US”. CNBC

^[11] Milton Ezrati Trade War From the Chinese Side. Forbes Oct. 3, 2018

^[12] Ibid.

^[13] Keith Bradsher, Alan Rappeport and Glenn Thrush A Weakened China Tries a Different Approach With the US: Treading Lightly. New York Times,  Dec. 12,2018

^[14] Stefania Palma US criticisms China’s empire and aggression in Asia. Financial Times, Nov. 15,2018

^[15] “President Trump Approves Relief for U.S. Washing Machine and Solar Cell Manufacturers”. Office of the United States Trade Representative. January 2018.

^[16] Swanson, Ana (2018-03-01). “Trump to Impose Sweeping Steel and Aluminum Tariffs”. The New York Times. ISSN 0362-4331.

^[17] The Great Transformation Polanyi Karl p.342 İletişim Yayınları çeviren Ayşe Buğra

^[18] Ibid p.118

^[19] Ibid. p.120

^[20] Ibid p.123

^[21] Ibid. p.23

^[22] Ruggie, John Gerard 1982. International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order

^[23] Johnathan Kirshner 1999, Keynes Capital Mobility and the Crisis of Embedded Liberalism. Review of International Political Economy 6:3 Autumn 313-337

^[24] John Ruggie 1997. Globalization and the Embedded Liberalism Compromise: The End of an Era ? Max Planck Institute for the Study of Societies.

^[25] U.S. and Canada Reach Deal to Salvage Nafta”. The New York Times. September 30, 2018.

^[26] Niall McCarthy After Historic Franco-German Treaty, How High Is Support for an EU Army? Forbes jan.23 2019

^[27] Emily Stewart Trump has a 100bn dollars tax cut for the rich he wants to enact without Congress, Vox. Jul 31 2018.