We live, and have been living, in an epoch of capitalist decadence. Notwithstanding longer life expectancy, technological advance, and the claims of its defenders, the capitalist system is incapable of addressing existential questions such as the destruction of the environment via man-made climate change. After all, to do so would get in the way of making profits. Short-term expediency portends long term disaster.
Capitalism though threatens the very existence of humanity in more direct ways. Currently there are 60 conflicts taking place around the world. Many have been going on unchecked for decades. Millions have died, whilst millions of others try to flee to the very advanced countries who provide the arms for these wars. Even if they survive the journey their existence is increasingly precarious, as racist movements agitate to “defend” a way of life that has become increasingly difficult even for the working class in the advanced capitalist world. US and UK real wages have been stagnant or declined since 1979. And the last decade of austerity has only added to the pain. What we are actually living through is the long slow decay of a social system in crisis. “Chaos” and even “decomposition” may be words that leap to the mind to describe current events. But they remain descriptions. What is required is a materialist analysis of the specific circumstances of current reality in order to lay bare, and understand, the forces behind it. Once we do that we can have a better understanding of where history is taking us.
In the current situation trying to make sense of all the contradictions and confusions would seem to be something of a mugs’ game. After all, the current convulsions in the political arena of the most powerful state on earth make any discussion of its direction from day to day almost impossible. In this article we try to focus on both the short term immediate issues facing the new line in US policy but also to set this in the context of a longer perspective which sees that, whatever the accidents of history, the ultimate final solution for capitalism is a major imperialist war.
Imperialist Rivalry in the Syrian War – Israel Gets a Blank Cheque from the US
Consistency, or even informed deliberation, has hardly been characteristic of Donald Trump’s foreign policy pronouncements since he became President of the United States, to put it mildly. In April, he announced the US would pull its troops out of Syria but exactly a week later he ordered missile attacks on Syrian air bases. This U-turn was provoked by the Assad regime’s alleged dropping of chemical weapons on civilians in the besieged town of Douma. British and French air forces also joined the attack for which they were praised by the US President. British participation in these attacks prompted the Daily Telegraph to headline its report “Could Britain be drawn into World War Three”. The Telegraph was not alone in raising that spectre. Russia warned of “consequences” after the attacks, with President Putin labelling the strikes an “act of aggression” that could “have a destructive effect on the entire system of international relations.”1
At first sight this alarm appears premature. The strikes of 14 April 2018 were, after all, only a repeat of a similar attack by US forces exactly one year earlier. They seem typical of the one-off actions of a US President who likes grand gestures (like the dropping of the largest conventional bomb in history on an Afghan mountain, supposedly to attack the Taliban last year). Furthermore, in the April attacks both Russian and Iranian military facilities were avoided and the Russians may even have been secretly warned of what was coming (and, according to one Al Jazeera report, they then tipped off the Syrians who also evacuated the threatened bases). This was thus more of a warning than a devastating military blow.2
And then there is the, by now, usual confusion in the Trump White House. On the night of the attacks, Trump said the US was “prepared to sustain this response until the Syrian regime stops its use of prohibited chemical agents.” But soon after, James Mattis, the Secretary for Defense contradicted him. “Right now, this is a one-time shot, designed to set back the Syrian war machine’s ability to produce chemical weapons.”
There was further incoherence the day after the attack on Syria. At that time Nikki Haley, the US Ambassador, announced in the UN that further economic sanctions would be taken against Russia for its support for the Syrian chemical weapons programme. She then found out that Trump had changed his mind, presumably in order not to antagonise Putin (who he was due to meet in Helsinki in July – a meeting which subsequently revealed yet more confusion about the real direction of US imperialist policy).
Despite all the confusion, and sudden shifts of policy, the Syrian conflict, far from winding down, does seem to be moving into an infinitely wider and more dangerous context engulfing the wider Middle East and beyond. Today Turkey, Iran, Russia, the USA, Britain, France, Saudi Arabia, and Qatar, are all involved to various degrees, with Israel watching and intervening when, and where, it feels a need to counter the Iranian and Hezbollah build-up. The Saudis and Qataris still support jihadist groups but the remaining, more significant, powers in Syria either have boots on the ground there, and/or are supplying air cover for their chosen surrogate. The one consistent and dangerous thread in US policy here is its absolute opposition to growing Iranian influence in the region.
The consequences of this are already clear. The US’ unilateral withdrawal from the Joint Comprehensive Plan of Action (or Iran nuclear deal), and the formal transfer of the US Embassy to Jerusalem means that any US pretence of “restraining” Israel has been abandoned. The USA’s subsequent defence of Israel’s shooting of thousands of demonstrators (and the killing of over 130 of them) on the Gaza border in the UN Security Council only underlines this new policy departure.3
And the danger signs for the Middle East continue to grow. On April 9, a few days before the US missile attack on Syria, Israel struck at air force base T4 near Tiyas. This is used by the Iranian Revolutionary Guards. 7 Iranians were killed including the commander of the Iranian drone operations from Syria. It was from here that a drone had entered Israel the previous February. A senior Israeli official confirmed to the New York Times that Israel had struck the base and underlined its significance by adding “It was the first time we attacked live Iranian targets – both facilities and people.”4
Matters have not ended there. There have been two more drone incursions from Syria into Israel since (shot down by Patriot missiles) and Israel has carried out a series of attacks on Hezbollah, Syrian Army and Iranian positions inside Syria. This also included a further attack on the T4 airbase, which is also used by the Russians, on July 8. The same Israeli minister quoted above made the situation clear. He told the New York Times that “A new phase has begun and the next war will be between Israel and Iran”. Defence Minister Avigdor Lieberman added that “we must do what we must, in order to prevent Iranian consolidation in Syria”. On 2 May 2018 the Knesset (Israel’s Parliament) passed a law allowing war to be declared by the Prime Minister (Netanyahu) and the Defence Minister in “extreme circumstances” without having to consult anyone else. This is part of preparation for war with Iran, but not just Iran. As Il Partito Comunista Internazionalista (Battaglia Comunista), our sister group in Italy, commented:
"This is also a warning for Russia, since Tel Aviv will not allow Moscow to hinder its plans to counteract the Iranian presence in Syria in any way. Moreover, the Minister himself has openly accused the Tehran government of financing the “terrorists” of Hamas and Hezbollah, which without their help in money and arms, would not be able to present such a serious threat to “peace” in the Middle East. On several occasions, before and after the raids in Syria, Israeli authorities have declared that they want to prevent the presence of Iranian soldiers on “its” northern borders (The Golan Heights). Yaakov Amidor former head of the Security Council in Tel Aviv has cynically announced that “We can not allow such a thing. And if there is no withdrawal, this will lead to war “. We did not have to wait long for the expected response of Iranian Prime Minister Bahram Qassemi, who in the name of President Rohani threateningly declared: “Israel will pay sooner or later”. In other words if the raids on Iranian troops in Syria were to continue, the “right” response would be made and the state of Tel Aviv would not remain unpunished. He concluded that these attacks “have their roots in Israel’s hostile policies towards the Muslim peoples of the region.
Skirmishes and ethnic-religious issues aside, Israel strongly fears the Shia encirclement, which from Tehran can now reach Hezbollah in Lebanon, passing through Damascus and Baghdad, under the political control of the ayatollahs. This puts the strategic position and rich sources of the Golan Heights at risk. On the other hand, Iran raises the banner of the Shiite Islamic struggle against Israel as part of its attempt to pose as champion of the defence of all Islam to the detriment of its enemy, Saudi Arabia."5
Saudi Arabia – From Global Supporter of Salafism to Regional Powerbroker
If Israel is now clearly one pillar of US imperialism in the Middle East, the other is Saudi Arabia. The US relationship with Saudi Arabia has been a key, if sometimes dubious, component of their Middle Eastern strategy since 1945.6 In his almost obsessive determination to bring down Iran, Trump has now opted to support both Saudi Arabia and Israel more openly against their regional rival. Once again though, his ignorance of wider US security interests have at times embarrassed his own officials, and worked against the very goals he claims to be aiming for. An example was his visit to Riyadh last year when (after concluding a deal to supply more weapons for Saudi Arabia) he gave his enthusiastic support for Saudi Arabia’s attempt to destroy Qatar’s political independence. He supported the sanctions Saudi Arabia, the UAE, Bahrain and Egypt imposed on Qatar as a “supporter of terrorism”. He did not seem to know that Qatar is home to the forward headquarters of the US military’s Central Command, and hosts around 10,000 American soldiers at Al Udeid.
In fact Trump had been dragged into the schemes of the Crown Prince of Saudi Arabia, Mohammed bin Salman. The Crown Prince has abandoned the cautious and stealthy policy of his predecessors who surreptitiously financed the Taliban, the Chechens, the Bosnians and all kinds of Muslim resistance groups. He now seeks to assert Saudi dominance as a regional power in the Middle East, particularly against Iran. This is one reason why the Saudis are waging a bloody and destructive war in Yemen. It is also why they have supported militant fundamentalists in Syria; have tried to force the Prime Minister of Lebanon to resign; and financed and supported the Egyptian officer corps’ coup, to bring down Morsi’s elected Muslim Brotherhood government in Egypt. All of these moves were opposed by Qatar. The composition of the Saudi alliance is no surprise. Bahrain, Saudi Arabia and the UAE are monarchies whilst Al Sisi’s authoritarian regime in Egypt is bankrolled by Saudi Arabia. They oppose Qatar’s support, not just for jihadist groups since Saudi Arabia does the same with Salafists (conservative Sunni Islamists) around the world, but also for popular movements like the Muslim Brotherhood.
It took the combined efforts of Mattis, and the then Secretary of State, Rex Tillerson (who as an ex-oil mogul has ties to the Qatari regime) to not only mend fences with Qatar but persuade Trump of his blunder. Nearly a year later, on April 10 2018 Trump, in a public exchange with the Emir of Qatar, Tamim Bin Hamad al Thani, unblushingly reversed tack and even highlighted Saudi and UAE complicity in supporting jihadism
"…Tamim and I have been working for a number of years now — actually, even before the fact — on terrorism. And we’re making sure that terrorism funding is stopped in the countries that we are really related to — because I feel related. But those countries are stopping the funding of terrorism, and that includes UAE; it includes Saudi Arabia; it includes Qatar and others."7
The Saudi coalition’s attempt to isolate Qatar has backfired and not just for the Saudis. Qatar has turned to Turkey (which also supports the Muslim Brotherhood and some groups in Syria) for military assistance against any invasion by Saudi Arabia and Ankara has obliged by stationing troops there. More significantly for US imperialism the attempted isolation of Qatar has broken up the Gulf Cooperation Council (formed in 1981 as an alliance against the 1979 Iranian revolution). Oman has continued to have normal relations with Qatar, but when the latter was shut out of Gulf air space by Bahrain (acting under Saudi orders), it had to use Iran’s air traffic control facilities. Qatar Air now reroutes its flights over Iranian air space and trading relations between Qatar and Iran have increased.
Iran – Nation v Class
The “unintended consequences” of Trump’s support for Saudi hegemony in the Gulf is not unlike his decision to pull out of the Joint Comprehensive Plan of Action, in which Iran abandoned attempts to develop nuclear weapons in return for an end to some sanctions. It is ironic that, just as Obama’s Iran policy was showing signs of working, Trump decided to pull the plug on it. Not only were the fissures in the Iranian ruling class becoming more distinct but, as we demonstrated in our article, “Iranian Workers Mock “Anti-imperialist Slogans” [leftcom.org] workers in Iran were not just striking and demonstrating against the Islamic Republic, but even mocking the regime’s own adventures in Iraq and Syria. They contrasted the resources wasted on this with the failure of Iranian capitalists to pay their wages. This mockery of the state was significant – an authoritarian regime satirised by its own workers is on dangerous ground. The lack of fear of the consequences, born of desperation, is often the beginning of a real class movement. The mullahs and the Revolutionary Guards of course attacked them both physically (around 2 dozen were killed), and ideologically, claiming that they were “traitors” (which all workers in struggle are to the capitalist class). This, though, carried little conviction at the time. The stage was set for yet more class confrontations. Trump’s decision to pull out of the nuclear accord has however already re-united the ruling class, and now striking workers will face a more determined attack. Like everywhere else in the world the nationalist card will be played over and over again against any workers who continue to protest. The only factor which remains the same is the appalling state of the Iranian economy which could yet determine the next stage in the course of the class war there.8
Much of the Iranian economic crisis is down to the corruption and mismanagement of the ruling class (like the leaders of the Revolutionary Guards) but previous sanctions by Europe and the US were adding to their woes. The supposedly progressive faction, around President Rohani, was running out of excuses for worsening economic conditions. Trump’s calculation is that ending the nuclear accord and imposing new sanctions (which are also against any European firm that plans to do deals with Iran), will finish the regime off. Given the parlous condition of the Iranian economy he must feel this will work. However, since he announced pulling out of the nuclear deal the ruling class in Iran has become more united against the perennial external foe and “Death to America” is once again a rallying cry for the regime and its supporters.
Furthermore, trouble at home for the Iranian regime is just as likely to be a catalyst for more adventurism abroad (not to mention restarting the nuclear programme). Obviously Iran is no match militarily for the USA. However the regime is threatening to block the 21 mile Straits of Hormuz if they find they cannot sell their own oil. This is potentially a flashpoint since a third of the world’s oil (including Saudi exports) and all Qatar’s liquid natural gas must pass through that busy stretch of water. As the US Fifth Fleet is stationed in Bahrain the US is in position to translate Trump’s angry Twitter comments into practical action. Of course inside Iran this confrontation will allow the regime to play on nationalist sentiment against the class demands of the workers.
For those, like the UN negotiators in Geneva, who still optimistically think there is a possible negotiated way out of the impasse in Syria the big hope seems to be that Putin will persuade Assad to abandon Iran and get its forces to leave Syria. There is indeed serious concern about this in Tehran. The optimists can also point to recent deals between Russia and Saudi Arabia to limit oil production or the supposed good relations which exist between Putin and Netanyahu (who have met several times since 2015 when Russia entered the Syrian War to save Assad). They claim that the continuing skirmishes between Syria and Israel are just warning shots or are designed to give some leverage to each other’s negotiating position. They have certainly tested out each other’s defence capabilities on at least 25 occasions in the last three years (with the Israelis doing most of the winning).
However, such optimism misses the fact that Moscow is in Syria as part of a wider imperialist strategy to reverse the tidal wave of losses it has suffered since the USSR collapsed. Russian actions in Georgia, Ukraine and Crimea are all part of the same push back as the war in Syria. Russia is in Syria to maintain its last toehold in the Middle East with the bases it has in Latakia and Tartus. In the course of the war in Syria the Assad regime has become completely dependent on Russia and cannot make a move without Russian consent. Russia may, one day, negotiate the Iranian withdrawal from Syria if it suited its overall strategic interests, but currently there Is no reason to do so at a juncture when that policy is being successful. The Iranian (and Hezbollah) military presence in Syria is now at the heart of the fight there, and enables Russia to be the arbiter of what happens next. In its negotiations with Iran and Turkey in Sochi and Astana, the issue is not about peace in Syria, but about how the various interests of these powers will be satisfied. With Assad gradually taking back much of Syria thanks to Russia, and IS now dispersed, the USA is left supporting a Syrian Kurdish enclave in Rojava and some points west of it. The YPG/PYD, and the other Arab forces linked to it, were the one solid fighting force on the ground that the US could support with air cover as they retook much of IS territory in Northern Syria and Iraq. The problem with this is that it has driven a supposed NATO ally towards the cagey embrace of Russia.
Turkey and Russia
Indeed despite the early hostility between them (when Erdogan earlier called for the overthrow of Assad and the Turks shot down a Russian jet over Syria) Russia and Turkey now have some shared interests. Erdogan has accepted that Assad cannot be overthrown and is not only concerned to keep Syria from falling apart, he also does not want a YPG Kurdish enclave on Turkey’s borders as it is a surrogate of the separatist PKK in Turkey. Turkey is more than irked that the YPG have been backed by US air power in their role as the backbone of the US campaign on the ground against IS in NE Syria. This in itself is a threat to the “integrity” of the Turkish state. Meanwhile, the continued refusal of the US to extradite Fethullah Gulen, who is blamed for organising the 2016 coup, remains a bitter bone of contention between the two “NATO allies”.
In an attempt to placate the Turks the US did not give air cover for the YPG/PYD in Afrin so it was forced to withdraw (thus allowing the ethnic cleansing of the area by pro-Turkish militia) but at the same time Putin has been working to, at least, neutralise Turkey as a NATO member. Here he has some cards to play. Another gripe of the Turks was that NATO stationed Patriot missiles on Turkish soil at Turkey’s request, but these remained under the control of the US or other NATO powers. Turkey often complained that they were too slow to react to threats. Along came Putin to sell dozens of S-400 missiles which the Turks have command and control over. At the same time the two have signed an oil pact (over the Turkish Stream pipeline) and Russia is now building a nuclear power station in Anatolia.9 It is a far cry from the Cold War days when US nuclear missiles were based in a strongly pro-NATO Turkey pointing directly at the heart of the old USSR.
During the Cold War the world got used to largely proxy wars between clients of the then two super-powers or between one superpower and a proxy of the other but what is happening more recently in the Middle East demonstrates a more direct confrontation of the great powers, especially Russia and the United States. US air strikes have already killed Russian personnel (acting as military advisors to the Syrian Army). Though this was accidental it is a direct confrontation that did not happen in the Cold War. And in the Middle East, despite all the confused kaleidoscope of interests which have swirled around the Syrian conflict, the battle lines are now more clearly drawn. The Trump administration has picked up the baton of George W Bush in seeking to impose US military power on a recalcitrant Middle Eastern state. This time it is aimed at Iran, which is why the US is giving both Saudi Arabia and Israel substantial backing for their atrocities in Gaza and Yemen. The pattern for the near future has been set. Their alliance against Iran brings with it an enhanced risk of a wider conflagration. Even those European states who wish to continue the Iran nuclear accord, like France and Britain, are piling into Saudi Arabia with arms sales.10 And, of course, in the last 7 years the main sufferers are those millions of dead, maimed and displaced, living on the margins of existence across the Middle East and beyond.
An Age of Uncertainty
Dangerous though the new reality in a Middle East which has already seen the loss of millions of lives is, we need to put the whole question of imperialist rivalry into a wider context.
In 1945 the USA emerged as the greatest imperialist power in the history of the world, with a much less powerful USSR as its only rival. This rivalry was based less on ideology than on the fact that the USSR could exclude US trade and the almighty dollar from Eastern Europe. When China, North Korea etc fell into the USSR orbit this only intensified the rivalry, and the two began an arms race which culminated in the near disaster of the Cuban missile crisis of 1962. The fact that World War Three did not break out during the Cold War has often been put down to the MAD theory. It may have played a part in it but this should not be exaggerated. More fundamentally, neither the USSR nor the USA had a vested interest in all-out war. After all they were both “winners” in 1945. What they feared most was any further extension of the other’s empire and the major wars of this period (Korea, Vietnam, Afghanistan) were all about that. At the same time the massive devaluation and destruction of capital in the Second World War launched a new cycle of accumulation which produced a post-war boom unprecedented in the history of capitalism. This too removed some of the economic imperatives that accompany any drive to war.
The US, in particular, could be satisfied. Unlike Europe and the USSR it had not suffered the devastation of war on its territory and it had emerged as by far the richest and most powerful economy on the planet. It had the financial and military resources to defend its half of Europe (especially in France, Italy and Greece via the Marshall Plan) from further encroachment by the USSR. It also dominated all the international institutions set up to provide the rules for the new international order. International bodies like the UN (based in New York), and its agencies, like the IMF, the World Bank and GATT (today the WTO) ensured that this new world order was essentially (outside the Soviet empire and its allies) an American order.
Perhaps most significantly of all, the US compelled the “free world” at Bretton Woods in 1944 to make the dollar the new gold standard in world commerce. One of the material bases of the continued rivalry with the USSR was that its empire, by not having currencies convertible into the dollar, was outside US control. Indeed, had the so-called “communist” countries used convertible currencies, American economic power would soon have prevailed.
Throughout the post-war boom US imperialist policy can be characterised as either schizophrenic or hypocritical since it championed democracy, the rule of law and the “human rights” only found in the “free world”. At the same time the populations of places like Guatemala (1954), Vietnam (1962-75), Chile (1973) often found that these values were not for them when the US either invaded, or supported the overthrow of democratically elected leaders regarded as harmful to US interests. The US also supported a series of “anti-communist” dictators in Latin America, Africa and Asia on the grounds that each one “may be a son of a bitch but he is our son of a bitch”.11 Once the Cold war was over there was a retreat from support for dictators (especially as a lot of them were now to be found in the old Soviet Empire) since the US now wanted to ideologically ram home the virtues of its system based on “the rule of law” which had triumphed over “communist dictatorship”. This ideological superiority complex did not stop its agents from using all kinds of undercover operations to ensure that the regime changes that did take effect did so in ways beneficial to US interests. But it did provide a kind of perverted justification for its invasions of Iraq and Afghanistan.
Despite the triumphalism over the “collapse of communism” (sic) however, the West itself had also been plagued with a gnawing and developing economic crisis. The end of the post war boom (which came in the late 60s or early 70s, depending on which country you were in) created a new problem for US imperialism. It had agreed at Bretton Woods to fix the dollar at $35 to an ounce of gold. However, as we wrote in our last issue,
"A gold-backed dollar worked very well for the US during the long post war boom years. But when the laws of capital accumulation inexorably reasserted themselves in the form of the decline of the rate of profit, the cycle of accumulation entered its phase of decline. The clearest sign of this was that the US was forced to take the dollar off the gold standard in 1971 leaving only US Treasury debt as the basis for global reserves. The balance of payments deficit stemming from the US’ declining competitiveness and lower profit rates – by the 1970’s the US was a net importer of goods – pumped dollars abroad and was exacerbated by foreign military spending. Some of these never returned to the US but became petrodollars or Eurodollars whilst others ended up in the hands of central banks that recycled them to the US by buying Treasury securities, which in turn financed the US domestic budget deficit. This gives the US economy a unique financial free ride, enabling it to finance its deficits seemingly ad-infinitum without creating an inflationary crisis that would have been the case for any other state. The balance of payments deficit has thus financed the US domestic budget deficit for decades. The post-gold international finance system, boosted by such things as the petrodollar, obliges foreign countries (the Chinese government alone holds around $3.5 trillion) to finance US military spending whether they like it or not. And the US uses its “free” military and naval apparatus to police oil routes and ensure that oil producing countries continue to trade in dollars." (“China – Long-held US Views Becoming Reality” in Revolutionary Perspectives 11 or on our site)
As so often in capitalist history, economic crisis remains the midwife of dramatic changes. Until the 1980s it was assumed that in the imperialist epoch, economic interests and national security were indelibly linked together. The dominant capitalist states not only promoted the global interests of their bourgeoisie as a whole, but would also, through a variety of means, from outright nationalisation and subsidies, to the awarding of government contracts, guarantee the existence of what were called “the commanding heights” of the economy. This included strategic industries such as energy, shipbuilding and steel etc. However, in a crisis of profitability heavy manufacturing industry was an increasing drain on state finances which covered their losses. If we add that these sectors were also the most “troublesome” where massive concentrations of workers could successfully strike to try to maintain their standards of living in the face of inflation, the significance for the class war cannot be underestimated. These factors eventually brought about a massive restructuring with a lot of capital being simply written off. Mass unemployment, which also had the advantage of undermining class resistance, now hit the West as capital began to shift to low wage economies during the 1980s.
The collapse of the USSR, and its satellites, further undermined the notion that every state had to ensure that it controlled all the economic levers of production to maintain “national security”. The main aim now was to try to create conditions to maximise inward investment whilst at the same time seek more profitable financial returns in the new financialised economy. Speculating on the Chicago stock exchange in futures was now much more rewarding than actually investing in any company that might want to produce anything. That kind of investment now went to the capitalist periphery where wages were low as in China, S.E. Asia and Latin America. The mostly authoritarian regimes in these places set up “special economic zones” or maquiladoras to facilitate this.
“Globalisation” was thus not some natural organic development from the glorious liberal free market economy as the neoliberal ideologists thought. It was a state policy actively pursued by the leading capitalist states. In this regard,
“the US government ensured preferential market access to the giant US market for the north-east Asian economies, as part of the US strategy to build a capitalist regional economy to counter communist (sic) expansion. And export promotion went hand in hand with strategic import protection to build a diversified industrial economy."12
In short globalisation was used by both US and Chinese capital for their own ends. US finance poured into Asia (and elsewhere) as “offshore” production, using the cheaper labour of places like China, became the place to invest. It was (and is) in both US and Chinese interests in other ways too. Cheap Chinese imports have helped disguise the stagnation, if not decline, in wages in the traditional capitalist centres since 1979.
At the same time, from the late 1980s and into the 1990s financialisation really took off. The various regulations that had been brought in after the Wall St Crash, like the Glass-Steagall Act (1933-99) to prevent speculation and avoid crashes, were either annulled or modified. Such financial deregulation gave the appearance that the system had weathered the storm of the 1970s crisis without it creating a pre-war situation as in the 1930s. However continuing financial deregulation only encouraged new forms of speculation, as financial bodies found even more creative ways (such as credit derivatives and collateralised debt obligations) of creating revenue without, in fact, creating anything. This gave the illusion of wealth without its substance. We predicted for years that the creation of such fictitious capital would one day lead to financial collapse – our only surprise was that it took so long. Even so the 2007-8 collapse was more significant than may appear at the moment, because the solution of baling out the banks to save the entire capitalist system is only a palliative. It does not solve the basic problem of the global capitalist economy which is the low rate of profitability. Capital can only redress this by starting a new cycle of accumulation, and this can only be done if a mass of existing capital is devalued.
This happened twice in the twentieth century when both the First and Second World Wars led to the massive destruction and devaluation of capital which allowed the system to once again accumulate from a new value base. With no other economic solution in sight this is where the world is drifting, albeit slowly, today. The reason it is slow is because capitalists know what the consequences of global war are. There are strong forces operating to prevent another descent into the barbarism of global conflict. However whilst a general devaluation by war might be bad for business the devaluation of a rival’s capital might allow a capitalist state to emerge as the new focus of a newly centralised capital as the US did in 1945. All-out war is thus not something that capitalist states enter into lightly, but in an age of imperialism where competition is cutthroat, they are impelled down that road by the need to defend their economic and strategic interests against all rivals. However, before the shooting war comes the trade war. The world saw this in the 1930s when tariffs were raised and trading blocs formed everywhere, bringing an end to free trade and further increasing the tensions between powers.
Today there is no question that “economic nationalism” is back on the agenda. In announcing tariffs on steel and aluminium (against China, South Korea and European producers in particular) the US government cited “national security” as the reason. Trump scraped into power on a revulsion against the decades of stagnation experienced by the victims of globalisation. In places where workers in the old industries were once paid higher wages, little has been done to help the communities which have been so devastated. Trump’s “America First” slogan might have been borrowed from Warren T Harding back in the 1920s, but it had fresh meaning in these states.
And with the announcement of a trade war against the world at the G7 meeting in Canada in June, we at least now know what “America First” means. It means everyone else last, no matter whether they are supposed allies, or sworn enemies. Some think the trade war is a bluff, that globalisation has created such complicated supply chains that it cannot work. Others think Trump is just behaving like the real estate bully boy he is. He is raising the stakes in order to negotiate from strength and get a better deal further down the road. There is no doubt that he is glorying in using all the cards that American power in both the economy and military have given him. Some argue that there is nothing new here. It is just part of the usual tussle in US imperialist policy between those (mostly on the Republican Right) who want the US to use its economic and, where necessary, military preponderance, to assert its interests no matter what, and those who (like the previous President) looked to lead a cooperative world in the values America nominally espouses and which have served the US so well since 1945.
Tearing Up the Old World Order?
The trade war, and the way in which the US is operating, now goes deeper than this. After all it was the USA which drew up the rules and the institutions which expressed US domination at the end of the Second World War. They have been the bedrock of Pax Americana ever since. The United Nations Organisation with its seat in New York, the World Bank and the International Monetary Fund based in Washington, the World Trade Organisation (successor to the General Agreement on Tariffs and Trade established in 1947), various military alliances, of which NATO has been the most significant, and the G7 economic meetings have all been tools of US domination of the “free world” since.
Trump poured scorn on most of these institutions during his campaign and his tone has only become more strident since. The World Trade Organisation, which has been so instrumental in preventing “emerging nations” from introducing protective tariffs in the last two decades, is now labelled a “catastrophe” by Trump. More recently in Montana, he returned to a favoured theme: how Europe—and Germany, in particular—takes advantage of the U.S. in commerce and defence. Headlining his remarks with “We’re the schmucks for paying for the whole thing”, he went on to say,
"We’re paying anywhere between 70 and 90 percent to protect Europe and that’s fine. Of course, they kill us on trade,” he said. “They kill us on trade. They kill us on other things. They make it impossible to do business in Europe. Yet they come in and they sell their Mercedes and their BMWs to us."13
Trump does not seem to know that BMW’s largest car factory is not in Germany but in Spartanburg, South Carolina and employs 8,800 workers, but it fits with his general blindness to any fact that does not fit his narrative. The US has always had an ambiguous relationship to the EU, and its project of integration, which in the minds of some Europeans is to create an alternative pole to US imperial power. On the one hand, a united Europe (and a Eurozone) make it easier for US companies to trade right across the richest market in the world (the US sells Europe twice as many goods by value as it sells to China). On the other, the fact that the Euro could one day become a rival to the dollar in world trade hits at one of the central assets of US imperialism. Trump though has already nailed his colours to the mast by labelling Europe “a foe”. His pulling out of the Iran nuclear deal has come with threats of secondary sanctions on any European firms who deal with Iran. Many of them, like Total, have already threatened to pull out of Iran unless the EU can get a promise from the US that such sanctions will not be applied. They have little hope of success.
Trump is more accurate in his attack on Europe when he says the U.S. accounts for about 70% of NATO’s budget. His other claim that the US spends 4% of its GDP (currently actually 3.2%) on defence and demands that NATO partners spend at least 2% is more disingenuous. NATO is only a regional alliance for defending Europe, whilst the US has military bases in nearly every state on the planet. What Trump is really arguing here is that the faux frais of US imperialism is now too costly and the US is no longer prepared to pay so much for the defence of Europe. Old allies in Europe are now parasites hiding behind US military power and so they should be made to pay more for NATO defence costs. And the whole purpose of NATO is drawn into question with his constant assertions that “Putin is no problem” (then contradicted by his criticisms of Nordstream the gas pipeline which will go directly from Vyborg to Germany as putting Germany at Putin’s mercy!).
Unsurprisingly, the UN is also under attack. Trump has long criticised the massive US contributions to it, but in appointing John Bolton as his National Security Adviser he is indicating the new unashamed unilateralism of US imperialist policy. Bolton has always seen the UN as a thorn in the US’ side, since it does not bow to US domination. In 2000 he even suggested that
“if I were redoing the Security Council today, I’d have one permanent member because that’s the real reflection of the distribution of power in the world.”14
This is not America First but America alone. US funds to the humanitarian agencies of the UN are thus about to be slashed, and the US will pull out of the UN Human Rights Commission (on the grounds that it is biased against Israel as it monitors Israel’s continued settlement building on the West Bank).
All this badmouthing of all the old institutions and allies of the US by Trump and his closest collaborators is significant. If the state that largely created the current world order wants to tear it up because it no longer conforms to its interests, then we really are entering a new and more dangerous era. And Trump is only the symptom of the problem not its underlying cause.
To explain this we have to go back to the beginning of the crisis we mentioned above. As we showed earlier, the floating of the dollar opened the way for financial deregulation and, in a series of developments, led to globalisation which also produced the speculative bubble which burst in 2007-8. The world has not really recovered from that crisis and, despite the odd optimist amongst economists who insist that the crisis is over, the problem remains.
Debt has not gone away. On the contrary it has increased. In the USA alone the sub-prime crisis cost the US Treasury $10 trillion in bail outs and a further $12 trillion in so-called “Quantitative Easing” to save the entire credit (and thus capitalist) system from collapse. $22 trillion is just the federal government debt which has to be serviced at a cost of at least $500 billion a year in interest payments. You can add to that $3.5 trillion of debt issued by US states where so many of them are on the verge of bankruptcy. If you add all this to student loan debt, car loans, credit card debt and company debt the total comes to well over 350% of GDP.
Trump’s tax cuts and increased spending on defence and other federal programmes will add to the deficit and thus to the borrowing. Shawn Tully in Fortune argues that this will increase the government current account deficit to $1 trillion by the end of 2019 and will lead within a decade to the US borrowing $1 for every $3 it spends. Trump thinks this can be paid for by 3% growth a year but all the major economic agencies expect no more than 2%. And those calculations were made without taking into account the impact of a trade war and closing US borders to young migrants who help produce growth in an aging population. In fact reality is the exact opposite of the Trump fantasy. It is not the US which is “being ripped off” but the rest of the world who are carrying much of the US debt burden. Tully concludes
"There is one scenario in which the U.S. could stay on its current course, and that’s to keep blithely borrowing from the rest of the world. America has been able to play the spendthrift because foreign lenders have shown a huge appetite for both our government and corporate debt—they now own $6 trillion of our $15.5 trillion in publicly owned Treasuries.
For most nations, such colossal borrowings would push interest rates higher as the government competes with business for a limited pool of lendable assets. But for decades, that hasn’t been the case for the U.S.: A worldwide glut of savings from Chinese, Japanese, and other overseas investors holds our rates in check. The U.S. is, for now, the world’s most powerful, well-diversified, and entrepreneurial economy, and in times of global stress, money pours into the safest of all safe havens, the United States. The Great Recession only proved the thesis. “We exported a financial crisis to the rest of the world, and they sent us their money,” says UC–Berkeley economist Alan Auerbach."15
How long the rest of the world is prepared to keep on doing this is now the question. Trump’s economic nationalism is like a preventative strike to attack China now before it gets too powerful to be attacked. As we demonstrated in our previous issue16 China has long been identified as a potential rival to US hegemony and in the US Strategic Plan (December 2017) both China and Russia were targeted as the two states which were “antithetical to US values and interests”. In starting a trade war with China now, whilst US military domination of the world is really unchallenged and its economic strength is still powerful Trump may hope to redress the balance. He hopes to screw concessions out of the Chinese regime before China’s economic advance (particularly in AI and other high tech sectors) becomes uncontainable. It is a dangerous gamble since a trade war could create the economic conditions for the next financial collapse which the US has so far managed to avoid since 2008. And it would need more than quantitative easing to avoid disaster this time.
As for China itself, as we argued in the previous issue, it has been playing a long game, establishing networks of commercial ties across Africa and Asia, and foreseeing the economic domination of all Eurasia in its Belt and Road strategy (see Revolutionary Perspectives 11). It has had a few setbacks en route (Myanmar and Malaysia, for example) but it can weather the storms of a trade war already thanks to its $3 trillion “war chest of foreign exchange reserves”. In the event of a trade war it is already confident that it can turn its export-led economy into one which serves the growing domestic market more.
It does have one central weakness in that it has to rely on imports for 95% of its semi-conductors, and has only a small productive capacity in China. It lacks even the equipment to produce microchips. China spends more on importing silicon than it does on oil.17 Its attempts to buy US technology have been blocked at every turn by the US Government and this, of course, threatens any lead it might have in information technology. China is urgently trying to address this issue but so far with limited success.
It has been more successful in cashing in on Trump’s decision to pull out of the Trans-Pacific Partnership. This has allowed it to win more influence in Asia. China is also supporting the European governments in their attempt to keep the Iran deal alive. As we write, new trade talks between the EU and China are ongoing. China is also offering loans to emerging markets like Argentina to offset the dramatic collapse of their currencies, and having to rely on the IMF for bailouts which come with austerity packages. All with the aim of “soft power” victories against US threats and bluster. The Chinese are even cutting down on the propaganda about 2049 (one hundred years after Mao’s victory over the Kuomintang) being the year when China takes over leadership of the world.
However all Chinese, or indeed US, calculations about the long game will count for nothing if there is yet another financial crash. The next crash will find the various states with fewer options. Instead of quantitative easing to disguise fictitious capital losses there will have to be real losses in terms of capital, investment and jobs. The consequences of this will upset all calculations that “trade wars are winnable” and plunge humanity into an enormous social crisis. Once again the question that has been posed so often in the last century will be posed once again “socialism or barbarism”. At the moment, given the relative quiet of the world working class, few are placing their bets on the former. Yet we see it as our task to fight within the working class for the only course which can save humanity. The only war we support is the class war to end this system of increasing brutality and misery.
21 July 2018
- 2For our analysis of this airstrike at the time see leftcom.org
- 3For a more detailed analysis see leftcom.org
- 4See middleeasteye.net
- 5This is our translation of the Italian original “Siria. L’attacco americano è arrivato puntuale come al solito appoggiato da Francia ed Inghilterra” from Prometeo 19. At the time of going to press it has not yet been made available on our website.
- 6For how this came about see leftcom.org
- 8We are currently preparing an analysis of the economic and social situation in Iran which will be published on our website. In addition to sanctions Iran also faces acute water shortages (drought affects 40% of the country) which are only getting worse year on year. There were riots in Khuzestan (in the West of Iran) over the poor quality of water in July. See aljazeera.com
- 9See leftcom.org
- 10France recently sold Saudi Arabia $16 billions in arms whilst the UK sold it 48 Eurofighters for use against Yemen receiving in return trade deals worth $60 billion.
- 11The phrase was once attributed to President F D Roosevelt speaking about Somoza in Nicaragua but this is now believed to be apocryphal. However it neatly sums up Washington’s collusion or turning a blind eye to some of the most brutal regimes of that epoch.
- 12Robert H Wade, Professor of Global Political Economy, LSE, in a letter to the Financial Times 26 April 2018.
- 13See theatlantic.com
- 14Quoted in “From leader to lone ranger” Financial Times 12/13 May 2018
- 15Shawn Tully fortune.com
- 16See “China Long-held US Fears Becoming Reality?" in Revolutionary Perspectives 11 (a few copies still available) or at leftcom.org
- 17See Louise Lucas “US-China trade friction raises risk of carnage” Financial Times 9 May 2018