Readers may recall Mr. Leslie from our discussion of the long and excellent monograph he wrote while he was still a member of Socialist Action, entitled China: A New Imperial Power (pdf). In those days he was known as "Comrade Keith," and while I credited him with considerable erudition, I faulted him for putting too much weight on the word imperialism--a mostly meaningless term.
Unfortunately, the same error leads him astray in the International Report. He is so convinced that the US is an "imperialist" power, and that China aspires to be an "imperialist" power that he completely misses the historical dynamic. So let's just ignore the word imperialism and try to make sense of things as they really are.
Here's a key graf:
The election of Joe Biden heralds a new effort by U.S. imperialism to halt or reverse the phenomenon of its declining global power. The Trump administration sought to reinvigorate U.S. standing through brash unilateralism, disruption of existing agreements, and trade wars waged on every front, including against both traditional allies and opponents in Europe and Asia. Meanwhile, it suffered a series of embarrassing reversals such as the failure of a U.S.-backed coup effort in Venezuela, a partial withdrawal of military forces from Syria, which provoked wide backlash in bourgeois circles, and a negotiated truce in the trade war with China.
The first sentence is partly true. Following WWII the US contributed about 50% of gdp; today the value is a bit over 25%. But this is only relative decline--in absolute terms the US economy has grown like gangbusters. It's just that the global economy has grown faster because it started from a much lower base. In particular, China went from zero to hero once it got over the whole Revolution-Mao-Tse-Tung-mass-murder thing.
The Trump administration, far from trying to "reinvigorate U.S. standing" intended precisely the opposite. His goal was isolationism--and for good reason. To wit:
- The US depends less on foreign trade than any country on earth (for which data exists) besides Afghanistan and Sudan. Our total trade (imports plus exports) amount to only 26% of gdp. Even Cuba (at 27%) relies more on foreign trade than we do. By comparison, China is at 36%, Canada at 65%, and Germany at 88%. (The leader is Luxembourg at 382%, but for obvious reasons small countries have a greater dependence on foreign trade than big ones.)
- Yet, despite our relative self-sufficiency, we have been financing global foreign trade through the Eurodollar system. This is known colloquially as "the dollar is the reserve currency."
- Owning the reserve currency has some big advantages (we can unilaterally sanction anybody we want), but it comes with a huge disadvantage--we have to run permanent and large trade deficits. That's because everybody else needs dollars in order to finance their trade, and the only way they can get dollars is to sell into the US market. Thus our imports are nearly unlimited, while our exports are capped because our trading partners are hoarding dollars to use as a global currency.
When the US contributed 50% of global gdp, financing the reserve currency was a tolerable expense, and the advantages outweighed the cost. But now the shoe is on the other foot--especially since the US is nearly self-sufficient, and including Canada and Mexico almost entirely self-sufficient. Trump decided (rightly in my opinion) to stop financing global trade, and as a corollary to repatriate manufacturing back to the United States (so we don't have to import the products). Hence all the tariffs on everybody.
If we're gonna withdraw from foreign trade, then there's no reason for us to be the world's policeman. Thanks to fracking, we no longer have much interest in the Persian Gulf--the US Navy has largely withdrawn from that venue. Likewise neither the Indian Ocean nor the Mediterranean are of much concern for us. There's no reason for us to have troops in either Afghanistan or Syria--or for that matter in Germany or the Korean peninsula. Trump--left to his own devices--would have withdrawn US troops from all those locales. Beyond North America and the Caribbean, only the North Atlantic, the North Pacific, and the South China Sea remain important trading routes for us.
Put bluntly, the United States has not been acting like an "imperialist" nation. Quite the opposite. Mr. Leslie is pounding square pegs into round holes.
Now let's look at it from China's perspective. (My view is heavily influenced by Peter Zeihan, whose books I reviewed here, here, and here.)
This is what Mr. Leslie has to say:
For its part, China is facing a new series of obstacles to its investments abroad. A number of stops along the Belt and Road Initiative have run into serious issues, with infrastructure falling behind schedule, large debt loads piling up, economic returns underachieving expectations, and a few messy defaults in progress. These experiences reflect the relatively poor investment locations that China has had access to as a newly emerging power. As Chinese capital licks its wounds from this first round of setbacks, it seems likely that the BRI will not succeed, at least in the immediate future, at shaping global economic and trade flows as hoped. China will be forced to increasingly compete with other powers to access more stable investment locations, or intensify its international political and military presence to better secure its existing ones.
Everything he says is very true--I don't disagree with a word of it. But he misses the elephant in the room, and that is--unlike the USA--China is NOT self-sufficient.
- China can't feed itself. According to Mr. Zeihan, their productivity per acre is declining because of a move toward mechanized farming. Recently they've had some bad luck--a major swine flu epidemic, and serious flooding in the Yangtze river basin. China has to buy food on the open market--and for this they need dollars. Mr. Zeihan suggests they're on the verge of famine. China has begun an anti food-waste campaign.
- China depends on foreign energy--especially from the Persian Gulf. While China possesses huge reserves of shale gas, the American fracking method won't work in their geology. So for the moment they have to import most of their energy--and for that they need dollars.
The bottom line is that China urgently needs dollars--and just at a time when the US is no longer providing them. They're trying to turn the RMB into a reserve currency, but this has failed--less than 2% of global trade is settled in RMB. More--China does not run huge trade deficits and has no intention of doing so--so there aren't enough RMB in global circulation to work as a reserve. No major food exporter--the US, Canada, Argentina, Brazil, Europe--is willing to accept RMB as payment.
So Mr. Leslie completely misreads the situation. Far from seeking to be an "imperialist" power (whatever that means), the country is desperately trying to keep the wolf from the door. Mr. Zeihan thinks they won't succeed--and I'm increasingly inclined to agree with him.
Conventional Wisdom has it that tariffs are a tax on consumers--prices will go up to reflect the cost of the tariff. But in the case of China this has proven false. They are so desperate for dollars that they're not willing to raise prices and so lose market share. They're simply eating the losses so that they can procure enough dollars to feed themselves.
The situation is that serious.
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