© AP Photo/Natacha Pisarenko
China retaliated against the first round of tariffs by implementing its own on $60 billion worth of American goods, among them soybeans. As a result, the US government plans to spend up to $12 billion in aid to relieve its domestic soybean industry from the tariffs' effects. However, it's not China's retaliation that will have the most damaging effects.
The latest list of Chinese exports to be taxed includes many everyday items from food to electronics. Consumer electronics were exempted but many of the components used in electronics were not, so those will become more expensive as well. If Trump does follow through with his threat, it will encompass nearly all of China's exports to the US. This means almost everything that you buy will see some sort of price increase since China is integral to many companies' supply chain and production. Don't expect the corporations to foot the bill - it's America's lower and middle classes that get caught in the crossfire and will see higher prices everywhere.
Earlier in the year, Trump cut corporate taxes down to 21% from 35%, with the intent of enticing companies to bring their production home - 'reshoring', as they call it. Although some did bring (or intend to bring) their operations back, many other large corporations instead laid off employees while the savings from the tax cuts went to their bottom line. Others have managed to avoid taxes altogether through special taxation schemes devised by their armies of lawyers.
In the meantime, economists paint a rosy picture of 'growth' during this period to demonstrate that the tax cuts and tariffs are working, although the reality is that the numbers are manipulated to present a strong economy, whereas in reality we're slowly moving towards financial collapse. Now is not, therefore, the best time to start a global trade war, least of all with China. What was that again about Trump not having started any wars?
Thus the idea that making Chinese goods more expensive will spur a growth in US manufacturing is rather naïve and is really a "misguided solution to a wrong problem," according to Dan Steinbrock. "The real question is why US companies' lucrative profits yield so few benefits to ordinary Americans but such great benefits to few and wealthy corporate insiders."
When it comes to jobs in the US, the corporations themselves are mostly to blame, not China. The opening up of foreign borders combined with access to cheap foreign labor made things very attractive for US companies looking to expand their market share and increase profits. According to The American Conservative, half of profits for US firms are earned overseas.
For example, Ford plans to begin production for their new Focus in China, in spite of the tariffs. According to Joe Hinrichs, VP at Ford, "Finding a more cost-effective way to deliver the next Focus program in North America is a better plan, allowing us to redeploy the money we save into areas of growth for the company." Ford cites a $500 million savings by moving production to China. So much for tariffs moving production back to US soil. Then again, Ford isn't exactly happy about losing $1 billion because of the tariffs either.
However, an increasing number of companies are moving away from China in order to keep costs lower. Among them are Nike and Adidas, which now mainly manufacture their products in Vietnam. This is in part due to rising wages in China as well as their growing investment in automation and AI. According to The Diplomat, "Foxconn announced in 2016 that it was introducing 40,000 robots into a mainland Chinese factory to replace 60,000 workers. A recent study of 640 Chinese manufacturing firms found that the most common response to rising wages was to invest in technological upgrading."
What this means is that should Trump manage to move more manufacturing operations back home, companies are going to look for cheaper ways to produce, and be further incentivised to automate rather than pay higher wages. For those jobs that can't be automated, you can be sure that the pay will be minimum wage at best. Does an influx of low-value low wage employment really do all that much to boost the (real) economy and provide people with a decent living wage?
In any case, it's unlikely you will see a large influx of companies moving back to the US. In addition to the lower costs, China has the supply chain infrastructure, logistic capability as well as its massive market to offer. For companies that do move production out of China, they are opting for moving to other areas of Southeast Asia, where costs are even cheaper, while others are doing so precisely because of Trump's tariffs.
Qui Bono?
So if Trump's tariffs on not just China but several other countries aren't really benefiting the American people, who is benefiting? No one, it seems. Trump's tariffs appear to be motivated by the increasing desperation of the US 'establishment' to hold on to its waning global hegemony and influence. Despite these efforts, the results seem to be precisely the opposite of what is desired. Instead of capitulating to US pressure, much of the rest of the world is beginning to search for alternatives and increasing cooperation with each other.
Despite media hysteria and fear-mongering about US-Russia relations, China poses a much greater and more direct threat to US hegemony. The rising strength of the yuan, its status as a reserve currency and more and more countries switching payment for oil away from the dollar to the yuan all impede US dominance in the sector. Also, many other nations already have alternative payment systems to circumvent SWIFT, and thus sanctions. As a result of these moves, the US 'Deep State' has been making efforts to contain China and its growing impact on the world stage.
The US can't win a military confrontation unless they go nuclear, and an economic war is easier to wage, and theoretically win. So while Trump might think that things like tariffs and taxes are to help Americans, perhaps the only reason he's allowed to pursue these goals is because they coincide with the 'Deep State's' plans to keep China at bay and hold on to the petro-dollar as the world's reserve currency: no petro-dollar, no more leverage. No leverage, no more hegemony.
The recent rounds of sanctions on Russia, which were intended to 'hurt' Russia economically, have instead helped Russia to become more self-sufficient and independent of US control. In the process, the EU suffered significant damage due to lost trade with Russia. Then, to add insult to injury, Trump decided to slap trade tariffs on EU member states. Being a vassal of the US is not as advantageous as it used to be.
Trump's re-imposition of full sanctions against Iran after he pulled the US out of the JCPOA are yet to be fully implemented, but so far, the supposed disastrous effects he hoped for have not appeared. The other signatories to the JCPOA are continuing to work with Iran, diplomatically and economically. A heavily sanctioned Iran is bad for the EU economy and there have been signs that many EU countries and companies are turning their backs on the US and seeking to build stronger ties with Russia, China and Iran. India had already taken steps to distance itself from the petrodollar back in 2016, and now Turkey seems to be distancing itself from the US also.
Despite US threats of further sanctions; Nord Stream 2 appears to be forging ahead, India and Turkey have bought Russia's S-400, Iran continues to export crude and the ICC proceeds with its investigation of US war crimes in Afghanistan. No one cares anymore about sanctions. America's tactics of bullying and coercion may have worked in the past when its military and economic might was at its height, but those days are drawing to a close. The US is increasingly appearing as a paper tiger, its roar and faltering reputation much worse than its bite. As it reaches the pinnacle of its hubris and hypocrisy, the rest of the world is beginning to move towards reclaiming their sovereignty through mutual cooperation and partnerships that reflect a new multi-polar world. By moving away from the economic ticking time-bomb that the US represents, those that understand the reality of a multipolar world will be in a much better position to weather any coming economic storm.
Unfortunately (or perhaps fortunately), the establishment is unable to see that their vision of total domination is not working and in their pursuit of it have achieved the opposite - creating the conditions where the President of the 'greatest country in the world' is simply laughed at on an international stage, and what the US really thinks of everyone else is now clear to everyone in the room.
Reader Comments