Speculation about BREXIT keeps many narcissistic journalists ungainfully employed. There is an inexhaustible amount of conjecture, while the truth remains that what-ever side we take, the U.K. will always be tied to Europe. The 21 – 150 miles (34 – 240 kilometres) of water that separates Britain from France along the length of the English Channel has rarely been an impediment to doing business with Europe. There have been vocal pro and anti-European voices in the UK since the late Middle Ages, heating up as the conflict over souls escalated during the Reformation.
To this cacophony of economic soothsaying I am adding my own humble contribution - but about US economic policy: the necessity for trade tariffs and the threat of an open, all-out Trade War under Donald Trump.
American philosopher George Santayana said, “those who do not remember the past are doomed to repeat it.” So, what has this to do with Trumpian economics?
Does anyone remember the Opium Wars? Probably not. They took place between China and Britain. The First Opium War was fought in 1839 - 1842 and the Second Opium War was between 1856 - 1860.
Opium had been traded in China since at least the 7th Century CE. Its recreational use became a huge drain on the Chinese economy once the British owned East India Company took control of that trade. It did so as a means of countering the huge balance of trade deficit Britain suffered through its own addiction to Chinese tea. The Chinese emperor banned the import of opium in 1799 but by 1804 Britain’s trade deficit with China had become a trade surplus (the US was a late and only a minor entrant to the trade). In addition to draining the Chinese treasury there were estimated to be between four million and twelve million opium addicts (at 1-3% of the population) in China by 1838.
As an aside, frighteningly, the US percentage of drug addicts in its population today may be as high as twice that maximum estimated Chinese figure, or 6% of the population.
The emperor sent his envoy to destroy stocks, the British demanded damages, this was refused, the result was war. In 1842 the Treaty of Nanking opened China to British imports. Compensation for destroyed opium stocks was paid, tariffs were set at an abnormally low rate that advantaged Britain over China. Isolationist China was opened to the world with the granting of diplomatic representation to Britain. Despite all this, Chinese exports to Britain continued to rapidly increase. Britain created a pretext for the Second Opium War. As a result, the opium trade was effectively legalised. All of China (including the interior of the country and not just the port cities, as had been the case till then) was opened to Britain but also to the US and France. Later, extra-territorial treaties were signed, providing foreign citizens resident or just visiting China with diplomatic immunity – this further humiliated China. The damage to the Chinese nation was enormous. It would take almost a century before the Opium Trade was domestically eliminated.
That inability to exercise control over its own economy set the direction for Communist China’s economic policy when, in 1978 and through to the early 1980’s, it opened up the country to foreign investment and partnership. It was only ever under the strictest of controls that the external trade was granted. Infiltration of foreign entities into the domestic market was and still is, strictly limited. If a product or service is a domestic strategic interest, it is subject to take-over by China. Control of foreign assets remain the means though which nations act to control other nations. It is economic imperialism in the case of much of Africa and Pakistan and physical imperialism on the Sino- Russian frontier in Russia’s Far-East.
China may be the worlds’ oldest empire. It has absorbed traditions and cultural influences from many civilisations. Its cultural eclecticism is tempered by its reticence to open-up its borders; this conditional flexibility has kept China in control of its own destiny. China’s “Century of Humiliation” lasted from the 1830’s until Communism took control of Mainland China in 1949 and it taught its people that its weakness invited foreign aggression. Toshi Yoshihara of the US Naval War College stated that “the historical lesson the Chinese have learned is ‘never again.’ Never will China be weak because this is what invited foreign aggression.” So ‘never again’ is not just a recurring theme governing Israeli policy, it is also a spectre, permanently haunting all Chinese strategic discussions about how to interact with the outside world.
In contemporary politics, targeted protectionism is fair practice even while Europe selectively dismisses such ideas. Nevertheless, it remains the global preference. We do not live in a post-nationalism age. It is only with the practice of sovereignty that nations remain in control of their identity; their borders and their economic direction.
The admission of China in 2001 as a full member of the World Trade Organisation (WTO) was a grave mistake. China had no intention of abiding by WTO rules on free and unimpeded access between all member states. Membership gave China unidirectional access to the world’s markets with the result being that total merchandise trade volume between China and the US reached $636 bn in 2017. That made China the US’s top trade partner. But the goods trade deficit that the US ran with China was a record $375 bn. The European Union does not fare much better than the US in this silent but dangerous, trade conflict.
A trade war is in no one’s interest. But neither is a trade deficit of that magnitude. Trade imbalances create unemployment. Unemployment inevitably creates negative social pressures that marginalise people rather than uniting them and damage, rather than helping to build society. The more a nation spends on servicing its debt and haemorrhaging the nation’s wealth in an asymmetric trade relationship, the less is it capable of providing services to its own people – whether they be food for the poor, quality education (a necessity in any modern society if it is to maintain a healthy competitive relationship with its trade partners) and medical services or even, safe housing and protection against crime and violence.
It is perhaps a bit early to talk about the end of the American Century but a nation that does not effectively take care of its own, cannot police the rest of the world. Eventually the people will question whether they can do better outside of the Union.
An equal trade relationship begins with equalising taxation policies. Predatory pricing policies (under WTO rules ‘dumping’ is legal) are destructive to the societies that in the short term see their purchasing power rise. There is an argument that the Western World’s patent and copyright rules selectively motivate creativity by making it only profitable for the creators. The argument continues that resource privileged societies are negatively acquisitive; they selfishly monopolise the economic benefit of creativity and they ensure inequality of opportunity through controlling the bi-products of resource management. We are told that human creativity is essentially derivative. It means inventions create opportunities for others to build on, for the benefit of everyone. But the argument is little more than the prejudice of greed designed around a Wild-West environment where the ‘cowboys’ (or ‘cowgirls’) are unwilling to play by the rules, rules that are created to share the cost of creating benefit.
Michael Green of the Centre for Strategic and International Studies has pointed out that countries may be more likely to go to war as economic interdependence rises, particularly when the goods they most need to import are vital to their national security.
Unfortunately for the capitalist model, cheap imports are a seductive means of keeping local prices low; self-gratification is measured by how fast we can acquire the objects of our hearts desire. We live in a visual pleasure dome and cheap imports are a necessary component of the paradigm.
So, President Trump is a populist president who says he will bring jobs back to America and put America back to work. This is a bi-partisan dream of both Left and Right. Except in time of war, trade deficits are risky because they are an artificial creation brought about by nations that are living beyond their means, with the active collusion of the government. It represents a failure to manage the peoples’ expectations in a fantasist’s world of unlimited opportunity.
John-Paul Pagano, in one article (Anti-Racism Erases Anti-Semitism), describes some of our contemporary leaders as: “disruptive radicals … suspicious of government power, urgent but philosophically vapid.” President Trump is not a visionary and addressing the solipsism of contemporary society is beyond what he cares to deliver. It is the radical individualism of any society, fed by the Communication eras provision of unrestricted access to visual stimuli that feeds our avarice – our instantly desired and in too many cases, our insatiable greed (call it rampant commercialism). It needs to be addressed because we are not creating realisable dreams but resentment, frustration; a world where the immediacy of gratification removes any need for patience and restraint.
And as an aside for Israel, the trial of former Israeli minister Gonen Segev who stands accused of spying for Iran, should come as no surprise to anyone. A nation that adopts unfettered commercialism as a national goal will also suffer from a poverty of ideological commitment to family or nation. There must be more to life than a nihilistic pursuit of pleasure (at any cost). When the ‘haves’ have no respect for the ‘have nots’ and the class society becomes structurally rigid there is little else to motivate one to have emotional ties to society unless the populist clown at the top can create a society based on ‘us and them’. Deficit spending becomes part of that ‘opiate of the people’ and in a spiritual desert it can easily replace religion and politics as the favoured drug, in this case of the middle classes (while they still exist). And yet, eventually violence must become the norm once people lose hope for the future.
If we do not seriously discuss which policies are responsible for the drivers behind “deficit spending” then we cannot make the structural changes that will fix the problem. The threat of a trade war provides momentum for addressing this issue.