The last month has seen the unfolding of Trump’s promise to use tariffs as a weapon to make the U.S. “great again.” What will be the consequence of these policies? More importantly, will they help turn around the U.S. economy for working people? If not, what policies are needed?
Trump started with tariffs on imports of vacuum cleaners and solar panels. Tariffs are a tax on overseas goods entering the country. Then came a devastating 25% tariff on steel and aluminum. Trump then imposed tariffs on goods from the European Union and Canada. At the same time he implemented a 10% tariff on $34 billion of imports from China, a down-payment on a total $50 billion of tariffs. Since then Trump has announced tariffs on a further $200 billion from China, with the threat of a tariffs on the entire $500 billion of goods imported from China.
An article on the Business Insider website states: “Since the Commerce Department’s recommendation to impose steel tariffs came on February 16, the price of steel has soared. According to CME Group, the cost of U.S. Midwest Domestic Hot-Rolled Coil Steel – a proxy for domestic steel prices – jumped from $694 just before the recommendation to $907 on Thursday, a 30% increase. The National Association of Home Builders, the largest U.S. industry group, warned in April that these tariffs were putting a cost squeeze on builders and making new homes pricier.”
Contrary to Trump’s simplistic view that threats can improve the economic situation in the U.S., tariffs on incoming raw material and intermediary products have a knock-on effect on all products that use those materials. Businesses could raise prices – as is already happening with cars – which could both harm sales and contribute to rising inflation. The Federal Reserve is already promising to raise interest rates. All of this could possibly be a trigger for a new recession.
Another serious problem is the uncertainty which Trump’s on again, off again tariffs are causing which affects investment decisions. As Thomas Derry, CEO of the Institute for Supply Management, stated “The backlash from serious economic spokesperson from around the world has been sharp and swift. Investment decisions are being postponed because there is no certainty around the trade relationships. And that has a real immediate negative impact on the U.S. economy, because rather than making capital investment decision we’re just postponing them. That capital expenditure is not being made, we’re not adding to production capacity.”
Putting a 25% tariffs on steel and aluminum entering the U.S. is not a magic formula that will result in U.S. steel producers expanding production based on current prices. With foreign competitors’ steel prices now up 25%, most U.S. producers will see they can make a quick buck by also increasing their prices. This is exactly what happened with U.S. producers of vacuum cleaners, the first product targeted by Trump.
Impact of Tariffs
In a surprise to no one, except Trump’s closest advisers, there has been reciprocal retaliation from all injured parties with similar tariffs on U.S. goods. The outlines of a major trade war are there for all to see.
There are a number of contradictions in Trump’s actions. On the one hand, Trump is using tariffs as a big club to force his economic competitors to give concessions. This is particularly the case with China. On the other hand he deeply believes that putting punitive tariffs on foreign goods entering the country will lead to a revival of domestic manufacturing.
It is not clear how this contradiction will play out. This is one reason international markets and Wall Street have not reacted as sharply as they would otherwise. Only time will resolve this. But the decision of Europe, Canada, and China to target Trump’s base by putting their tariffs on American agricultural exports is already starting to have a dramatic effect on farmers. Experts explain that once overseas buyers find alternative sources for crops like soybeans, these markets will be lost forever for U.S. farmers.
The Failure of Neo-Liberal “Free Trade” Policies
A key reason for Trump’s election was his sharp political attacks on establishment policies of the last thirty years. In particular, he posed as a defender of workers’ interests and opposed free-trade agreements like North American Free Trade Agreement, signed by Bill Clinton in 1994, which contributed to the loss of millions of manufacturing jobs in the U.S. He also opposed the Trans Pacific Partnership which Barack Obama had crafted. Trump’s “Make America Great Again” demand tapped into the widespread anger of working-class people, particularly white middle-aged and retired workers, who had worked all their lives and who had nothing to show for it, and feel left behind. Decades of coded, racist messaging by Republicans had prepared the ground for his nationalist and racist campaign to tap into anger at the state of the economy, jobs, and society.
The issues Trump speaks to are real. As is the widespread increase in inequality and poverty in the U.S. But Trump was not the only candidate who rallied around these issues. Bernie Sanders also opposed corporate trade deals like NAFTA and TPP, winning support from millions of working-class people, out polling Trump repeatedly in the primaries. While Trump projected virulent nationalism and blame on immigrants, Sanders correctly pointed to billionaires as responsible for the crisis.
The billionaires insist that the politicians whom they finance push through a pro-corporate agenda. Over 30 years of relentless neoliberal attacks drastically weakened the unions and shattered the social gains working people won through massive struggles in the 1930s and 1940s.
Job protections have been slashed, public spending on affordable housing savaged, education cut to the bone, and states and corporate watchdog agencies were starved of funds. Huge tax cuts for the super-rich and corporations and deregulation of industries have led to a massive transfer of wealth from the working class and middle class to millionaires and billionaires. Free trade agreements opened up the world economy to even deeper exploitation by the huge corporations. This allowed them to plunder new markets, and drive small businesses from the field of battle.
The increased corruption of politics in Washington by a billionaire clique left the political establishment vulnerable to a populist political challenge. The decision of Obama and the Democratic Party to bailout their Wall Street funders rather than working families, whose lives had been devastated by the orgy of profit-taking by big banks in the aftermath of the 2008 financial crash, had a decisive impact. This prepared the ground for Tea Party and other right populist Republican to rail against “special interests” in the Democratic Party.
Trump’s right-wing populist message offers nothing for working-class people. The promise of a $1 trillion program to rebuild infrastructure to create jobs has evaporated in an flood of policies aimed at boosting corporate profits. While calling for tariffs to protect U.S. jobs might sound like a pro-worker policy, at best it rewards some corporations and hinders others. But for working people there are no gains, only losses, since it reduces the level of world trade and slows down the world economy. An orgy of tariffs imposed by Congress contributed to prolonging the Great Depression of the 1930s.
In contrast to Trump, Bernie Sanders called for a “Political revolution against the billionaire class.” He offered alternatives that would benefit working class people like a massive investment in green technology to create jobs. As a self-described democratic-socialist his demands broke open a national discussion about a socialist alternative to the destructive policies of neo-liberalism.
Capitalist System is to Blame
For socialists, the decline of the U.S. economy is rooted in the very logic of capitalism. The very policies of neoliberalism pushed by the capitalists have weakened the real economy and blown bubbles of debt and investment not based on tangible commodities or services. Unless we put forward policies that address that root cause they will fail to turn around the massive social and economic crisis we face.
During its period of growth, capitalism was a dynamic global system that ruthlessly rewarded capitalist owners who employed the most dynamic techniques to exploit labor and natural resources. However, since the beginning of the 20th century, with the world market divided between the major imperialist powers, capitalism has staggered from crisis to crisis. This was interrupted by only one period of truly extensive growth and development in the ‘50s and ‘60s due to very particular circumstances created by the outcome of World War II.
In 1945, U.S. capitalism was at the height of its power in the global economy. The U.S. not only had the most advanced techniques and organization of production, but also the most powerful military machine on the globe. This allowed the U.S. to re-write many of the rules for the subsequent period of economic growth on a global scale.
During the postwar boom, there was a massive expansion of production. The capitalists made huge profits but because of the strength of the labor movement in Western countries, including the U.S., workers received a far bigger share of the wealth they created than they do today. Government policies were also geared in many countries to developing the “welfare state” providing benefits like universal health care. In the U.S., because of the absence of a mass workers party, the capitalists successfully resisted many such policies but were forced to provide decent health insurance and pensions to their workers.
This phase of capitalism reached an end with the profound crisis of the mid-‘70s. As profit rates fell, the capitalists began to search for a new way to stabilize their system. In their drive for increased profits and dividends to fatten their bank accounts, they demanded that the government implement free trade policies to lubricate the export of capital to open production facilities overseas to exploit cheaper wages in other countries.
As a direct result, neglected U.S. industries have declined, and many have vanished. Some, like fossil fuels, are only competitive on a global scale due to massive government subsidies. Having created these new offshore companies resulting in a tightened global market, U.S. management demanded U.S. workers make concessions under threat of closing the U.S.-based plants.
This is all the direct result of a capitalist system that always ultimately rewards those who can produce the cheapest. This is the cause of the global “race to the bottom.” Yet it is the labor of workers that created all this wealth. It is the exploitation of this labor that creates profits. Under the warped logic of capitalism this results in workers being laid off, when it is the owners and company management who are to blame.
Enriching corporate owners is the whole purpose of capitalism. It’s in the DNA of capitalism. Unless forced to do otherwise, capitalist owners will always put their money where they make the highest rate of return for their owners, irrespective of the social consequences.
At a time of saturated world markets and huge international competition, why would CEOs decide to put billions of dollars into expanding production, hoping that the resulting products would be more competitive than their rivals? This is especially today true when it’s much easier for the capitalists to put their money into the stock market or into other areas of speculation like investing in foreign currencies which guarantee a decent rate of return with seemingly no risk. In reality, the system is increasingly parasitic. It creates vast inequality but shows no way forward to solve the burning problems facing society.
Even before Trump, protectionist measures were rising sharply after the Great Recession. The U.S. ruling elite is especially worried about the rise of China on the global stage and how quickly it is catching up in the development of technology. Big business doesn’t agree that a trade war is the best means to go about challenging China but they agree with Trump that China should be pushed back. These increasingly sharp geopolitical rivalries are also a sign of the decay of this system and the severe dangers we face if it isn’t replaced.
This is the brutal logic of capitalism. Throwing more money at U.S. steel producers will not result in them increasing production when the steel market is glutted. Look at the Trump tax cuts. While the Republicans claimed that companies would use it to reinvest in production in the U.S., almost all of it was used by CEOs to buy back shares in their own companies, thus boosting the wealth of rich shareholders. This is why socialists say that as long as the key industries in the U.S. are run for profit and controlled by billionaire shareholders, then workers will see no real improvement.
The socialist alternative is that the economy needs to be run in the interests of the working people and the poor (the vast majority of the population). Time and again it has been shown that offering financial incentives (tax cuts) or passing friendly legislation won’t cause corporations to do something that is not in their economic interests.
Socialists say that the only way to change the situation is for the ownership of the big banks and corporations that dominate the economy to be transferred into the hands of the majority of the population. Only then can the economy be run for the needs of the majority. A democratic plan of production and distribution should be established to run the economy. This can be the foundation around which smaller producers can participate without the threat of being eaten up by big corporations.
Decisions in the planned economy should be made by elected representatives of the working class and the general population. Workers who actually produce goods know that they can make better production decisions than management. In this way our society would not be dominated by the chaos of the market place – i.e. the drive for profit.
To achieve this, the working class needs to unite around clear demands that represent our interests and build support for the socialist alternative. This can shift the debate from the present mind-deadening Republican/conservative and Democratic/liberal debate as to who can run capitalism better.
This will involve organizing the latent political power of working people to challenge the two corporate parties. A political party based on working class interests can then challenge the corporate narrative and popularize a working class alternative to capitalism.
- No to tariffs; no to corporate free trade agreements. Tariffs help one section of capitalists at expense of others while hurting working people.
- For a massive investment in rebuilding the nation’s infrastructure based on renewable energy which will provide millions of green jobs and address climate change. For retraining of workers in displaced industries so they can find jobs at a comparable wages and benefits.
- For failing industries, fossil fuel-based industries and banking to be taken into public ownership to redirect the economy in the interest of the majority.
- For the economy to be run based on a democratically agreed plan instead of in the interest of profit of a tiny minority of billionaires.