G20 Summit: Ceasefire in the US-China trade-war, for now / News / News agency Inforos
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G20 Summit: Ceasefire in the US-China trade-war, for now

Trump’s neo-mercantilist dream will ultimately have to be based on gunboat-diplomacy

G20 Summit: Ceasefire in the US-China trade-war, for now

“Not through speeches and majority decisions will the great questions of the day be decided – that was the great mistake of 1848 and 1849 – but by iron and blood.”

– Otto Van Bismarck, 1862

Today, we might embellish this excerpt from Bismarck’s infamous “blood and iron” speech

– “not through speeches and majority decisions, and not through summits either….”

The Dow Jones Industrial Average surged over 250 points yesterday in response to Saturday’s news that US president Donald Trump and Chinese president Xi Jinping had managed to avert an immediate escalation of the ongoing US-China trade-war, for now. After his meeting with Xi, Trump stated that the US government would reverse its decision to ban US companies from selling products manufactured by Huawei in cases where it posed no risk to US national security. Furthermore, Trump stated that agreement had been reached on the Chinese telecommunications behemoth sourcing more components from US manufacturers. A deal was also struck concerning expansion of US agricultural exports to China. The two leaders agreed to resume bilateral trade-negotiations.

These developments had followed warnings from intergovernmental organizations that, were the US-China trade-war to escalate or remain in a stalemate position, the fallout for the world-economy might be extremely serious. The domino-effect of an escalation of the US-China trade-war would have repercussions in the supply-chains of practically every nation on Earth. OECD Secretary-General Jose Angel Gurria had said on Friday that if talks between Trump and Xi bore no fruit, then the global economic impact would be “very, very destructive.” Earlier this month, the IMF warned that the implemented and proposed tariffs between China and the United States could reduce global economic output by 0.5% in 2020.

Following Saturday’s news that an escalation of the trade-war had been averted (or at least postponed), IMF Managing Director Christine Lagarde stated:

“While the resumption of trade talks between the United States and China is welcome, tariffs already implemented are holding back the global economy, and unresolved issues carry a great deal of uncertainty about the future.”

Getting down to brass tax, one of those “unresolved issues” which Lagarde doubtlessly had in mind, but thought it inappropriate to be explicit about, was the impending US-Chinese naval standoff in the Pacific.

The reactions of global financial markets seemed to line up with these assessments. Chetan Ahya, global head of economics at Morgan Stanley, described the outcome of the Trump-Xi meeting as “an uncertain pause.” He said:

“There is no immediate escalation, but still no clear path towards a comprehensive deal. As things stand, we lack clarity on whether real progress was achieved on the sticking points that caused talks to break down in the first place. Hence, our overarching conclusion is that the developments over the weekend on their own don’t do enough to remove the uncertainty created by trade tensions.”

So yesterday’s Dow Jones surge should be interpreted as the market exhaling in relief rather than as a sign of euphoria. However, given the signals which had been sent by both markets and intergovernmental organizations prior to Saturday’s meeting, how should we interpret its outcome on the tactical or geo-political level? Was Trump doing a shrewd bit of business by getting a deal on agriculture and the supply of American components to Huawei? If so, had the entire Huawei-controversy been manufactured simply as a pre-summit stratagem to get that deal in Osaka?

Or, given the outcome, should we interpret the pre-summit noises made by intergovernmental organizations as the “Evil Overlords of Global Capital™” bullying Trump into submission, and ultimately neutering his “America First” policy? Conspirologists of the “One-World Government” variety will tend toward the latter interpretation.

Isn’t it peculiar just how much of this mirrors the geo-political concerns of the late 18th century, when mercantilism was the orthodoxy of political economy in many European countries? A careful look at the historical record reveals that Britain’s (and, later, the United States’) industrial prosperity was not built on “free trade,” but on mercantilism, which stipulated high tariffs and other protectionist measures, combined with the projection of military (in particular, naval) power to enforce one-sided terms of trade in the wider world. Remember the treaty-ports established in mid-19th century China. “Free trade” was one of those disingenuous ideologies which was first devised “for export only,” expressly for the purpose of economic colonization. The real strategy was “tariffs for them, free trade for us.” And ultimately, it was all made possible only by gunboat-diplomacy.

And that is why Chetan Ahya’s description of the Trump-Xi meeting as “an uncertain pause” is so apposite, if perhaps unwittingly. Gunboat diplomacy is still the elephant in the room. The US naval “pivot to Asia” is the Obama signature-policy which Trump has continued most enthusiastically. From Maine to Mississippi to Virginia to Alabama, the shipyards of US defence-contractors are busier than they’ve been in decades. This point ultimately suggests that we should be very cautious about any signals which we read from the outcomes of summits such as the G20. We know that, in the final analysis, the future trajectory of US-Chinese trade-relations will ultimately depend on how much naval power each of them can comparatively muster in the Pacific.

I’ve said it before – on so many different levels, the 19th century will never end.

In the final analysis, Bismarck’s “blood and iron” speech still rings true.

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