Krugman, Trump and Geopolitics

In an article published in the New York Times on 5 September (“Trumpism Is Bad for Business”), Paul Krugman sharply criticized the economic sanctions imposed on China. Not only do they cost the consumers of his country dear because it is they who pay the added tariffs, but American agricultural suffers too because China does no longer by its products. The international “supply chain” cannot be damaged without all those involved suffering severely. The result is already obvious: Instead of making America “great”, Trump is producing the opposite result.

From the perspective of Trump and his voters

things looked quite different at the beginning. America’s industrial landscape was – and still is – marked by rust belts: the ruins of abandoned industries that disappeared in the US because they were relocated to China. Hundreds of thousands of relatively high-wage jobs were either completely destroyed or replaced by lower paid ones. Moreover, polls revealed that a majority of Americans considered China to be the greatest threat to their country. The American population had been seized by a diffuse uneasiness about the policies of the two major parties. Trump brought about a turnaround in that he was clearly aware of this protest. He dared to change direction embarking on the path of protectionism with his own undiplomatic recklessness.

The cause for the dismantling of the United States

as a major industrial power could, of course, already be felt in the late seventies. During the first three post-war decades, the US had still been the world’s undisputed military and economic superpower. The war had bled Europe and Japan to death, and other states had not yet emerged as threatening competitors. But already at the beginning of the eighties the tide began to turn: Germany and Japan became more and more important as serious industrial contestants. In this situation, an epochal turnaround began in the US, which was to fundamentally change both its economy and society and ultimately even threaten its rank as the leading world power.

American companies recognized,

that technologically simple processes could be outsourced to developing countries – even to those with hostile ideologies such as China – thus significantly reducing manufacturing costs. This decision must be called an epochal one because it forced America’s main competitors, Germany and Japan, to follow the US if they wanted to assert themselves on the world market against US products that were soon becoming much more competitive. In other words, since the beginning of the nineties at the latest, all industrialized Western countries had been forced to outsource ever larger parts of their own production – especially to China. This process was further facilitated by the fact that it received its official blessing from renowned economists. At that time Robert Reich wrote his famous book “The Work of Nations”, where this “international division of labor” was openly recommended.

For the economic development of non-Western world,

especially for China, outsourcing was, of course, a tremendous opportunity. Development aid (which was not granted to communist countries anyway) could never have changed a country, still completely underdeveloped under Mao. But capitalist investors did so within a few years setting up their factories in Shenzhen and along the entire coast of China. China’s rise is even more impressive than that of Germany at the end of the 19th century when it had not only successfully imitated the industrial revolution initiated by England, but had already surpassed its former teacher. Unlike Germany and Japan, the Far East did not need a century for this exploit, but not more than three decades. China managed to copy and digest Western knowledge and skills so to speak overnight. As of now, it can already boast of having overtaken its original teachers in a number of areas or of being on the verge of doing so.

The terrible poverty in China was thereby substantially reduced

– a very desirable development. At the same time, however, the ecological footprint has increased dramatically and will continue to do so in the future – a very dangerous process indeed. China prefers to put on a green coat, pointing out that it has built the world’s largest wind farms on its territory. But this has to do with the fact that everything in China is big – including the addition of new nuclear power plants and more and more coal-fired power stations.

As Friedrich von Weizsäcker and Kurt Biedenkopf once said, the Western industrial model cannot be generalized leading the planet to ecological destruction. This is, of course, what mankind is busy doing at present. Ever larger parts of the world – including now the African continent as well – are being industrialized, and most of the energy needed in this process is being generated from fossil sources.

As far as the USA is concerned,

it was smart businessmen like Donald Trump, who in the eighties eagerly seized the opportunity to outsource production in order to save costs and thereby significantly increase international competitiveness. This fact is mostly forgotten when Trump and his followers blame China for the industrial decline of their country. Yes, it is true that until recently the USA was still the world leader in the fields of information technology and artificial intelligence, both having been mostly invented by Americans in the first place. Today, however, Chinese competitors like Huawei are not only sitting close behind them, they are on the verge of surpassing them. Even Boeing’s supremacy (like that of Airbus) is unlikely to last for much longer.

The trade war launched by Trump is nothing more than an expression of a feeling of panic. Everything indicates that the USA – unlike the Soviet Union under Gorbachev – will not let itself be pushed voluntarily and peacefully from the pedestal of the leading superpower.

We are used by now,

to see players purchased from other countries in most national football teams. Championships tend to be decided by money, i.e. by the financial clout of domestic clubs when buying top athletes from abroad. The outcome of world contests would certainly look quite different if such practices were not possible and common. Likewise, the global economy would look completely different if the global trade chains existing due to outsourcing were to be torn apart. Can Donald Trump’s America really benefit from such a measure?

Certainly not at in the short run

Entire industries can easily be transformed into rust belts within a couple of months, but rebuilding them requires years or decades and the necessary skills must be furthered by a functioning educational system spread over the whole population. But America, though possessing some of the World’s top universities, has criminally neglected lowlevel general education.

Trump wants to get the lost jobs back to his country – a project for which he certainly deserves praise and for which we find no recipe in Krugman’s aforementioned article. Unfortunately, we can be certain that he will not be able to do this in the one or two terms of his presidency.

In the long term too, this project is bound to encounter great difficulties. If jobs were really to return to America, if, for example, Apple were to produce its iPhones only in the American homeland, the company would have to raise prices to such a degree that it would stand no chance against Samsung and other competitors. In other words, those American companies that today still dominate the world would quickly lose their position as globally dominant corporations even if remaining dominant on their home market (since the latter would be protected by customs duties). Even the transition to automated production with a minimum of manpower would not defuse the situation, because jobs would then be performed by machines.

China, on the other hand, would be only marginally

hit by this problem. As it continues to produce cheaper than most other countries, its products remain the most competitive everywhere. But, of course, if other countries follow the American example to protect their industries, China too would have to be more and more content with its home market.

For globally successful corporations

protectionism naturally amounts to a radical shrinkage, which some of them would hardly survive – free trade between the three major economic areas USA, Europe and China is already suffering heavy losses. This trend could intensify over time. Just as free trade in toxic waste from industrial to developing countries is no longer tolerated by the latter, it seems quite possible that more and more nations will no longer accept the dominance of cheap suppliers like China – world trade could then be substantially reduced.

The dominant paradigm,

that is, the accelerated industrialization of the entire globe at a pace that threatens to ruin it ecologically – will then undoubtedly be slowed down. That is the good news; the bad news is that free trade restrictions would particularly affect states like Germany. While American economic output is only twelve percent dependent on exports, the figure in Germany is a staggering forty-eight.

But the paradigm is being shaken in several ways. It is not just outsourcing that has given the top one percent of Americans fantastic riches, while at the same time making most of the rest of the population poorer by losing well-paid jobs of the past. In addition, this process meant that the wealth of Western industrial nations flowed in large streams to Asia because profits there were so much higher.

This is, of course, an old story, the supremacy of the once great English Empire was undermined in just the same way: English capital was looking for investments on the continent because it was attracted by larger profits. In other words, the richest Englishmen were busy eroding the supremacy of their country by financing future competitors. Since the eighties, the top one percent Americans, to whom Trump undoubtedly belongs, followed the same practice but instead of now blaming themselves for their country’s industrial decline they prefer to look for offshore scapegoats. On this point, they could have learned much a lot more from their Communist foe. Lenin once remarked that capitalists would still sell him the rope with which he could hang them.

In the face of the often unconsidered,

not to say stupid anti-Americanism, which is so widespread among European intellectuals, some may perhaps think that an abdication of the US as the world’s leading power is long overdue and even desirable. Shouldn’t everyone looking at American presidents like George W. Bush or Donald Trump necessarily conclude that a future hegemon China could hardly be more frightening even when led by an autocrat like Xi Jinping?

I take the liberty of quite firmly contradicting this objection. Without the military presence of the US, Putin would already have pushed through his cherished project to resurrect the Soviet Union not only in Crimea, but in other countries with strong Russian minorities – in Ukraine, war has been fermenting for years. Moreover, we should not forget that the “Slavic brother peoples” enjoy Putin’s special attention.

Of course, one can endlessly argue about expansionist desires

In my view, it remains perfectly clear, however, that the departure from the bipolar world of the former superpowers US and Russia holds existential risks for the planet– much greater risks, I think, than during the 1960s when the nuclear confrontation between the two powers was at its height. For the new polycentrism of a growing number of industrialized states amounts de facto to the multiplication of nuclear-filled powder barrels. In the coming decades there will be even more North Koreas – states perfectly able to contaminate entire nations with nuclear radiation or even wipe them out completely. If Iran succeeds in equipping its existing missiles with nuclear heads, Saudi Arabia will, of course, want to follow suit. The situation resembles outsourcing or the purchase of top athletes. As soon as a single state starts the process, others follow it in order not to be left behind. Polycentrism is the worst thing that can happen to our children and grandchildren, perhaps even to ourselves. Not only do we need a United Europe, we even need a United World if we want our species to survive the 21st century. *1*

1 See Peace, War and Climate Change – a Call for New Strategies (Amazon)