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A rustbelt romance

United States
China
Trade
Picture: STEVE MUNDAY

You can visit the steel mill town of Gary, Indiana, as a tourist. Rustbelt Ruin Tours will take you to the vestiges of Gary Screw & Bolt Factory, formerly a major employer, for example.

Since 1980 more than six million – that’s more than a third of all – manufacturing jobs in the US have vanished. Much of this loss is concentrated in the Midwest.

The received wisdom of globalization – and its centrepiece, free trade – is that it produces some winners and some losers in the short term, but in the longer term we are all winners. All boats will rise on the tide of free trade.

Well, it didn’t happen in Gary – which also happens to be the town where Nobel prizewinning economist Joseph Stiglitz grew up. Every year, for the past five decades, he has gone back for his school reunion.

During one such event he detected in many former schoolmates who had stayed in the area, ‘a sense of bitterness... They had a feeling that the system was unfair, rigged. I saw in my former classmates what the statistics had been telling me for years.’

Those statistics weren’t just about jobs. Life expectancy in the US Midwest had stopped increasing – education and health services were in decay and crime was up. Recent years have also witnessed an epidemic of opioid addiction in areas ‘left behind’ by globalization. The parallels with some post-industrial towns in the north of England, such as Sunderland and Middlesbrough – where citizens voted to leave the EU – are striking.

When tariffs are used by richer countries on top of all that they have already got, they are a way of bullying

Who was to blame for the misfortune of the ‘left behind’? ‘Immigrants’ said the nationalist Right and its media. And people in foreign countries who had ‘stolen our jobs’.

The hitherto dry topic of international trade leapt into daily conversation. US journalists reported people in the Midwest attributing their woes to one word – ‘NAFTA’. For many Britons, battered by years of government-imposed austerity, that word was ‘EU’.

In the most deprived areas, disgruntled Americans and Britons felt they had lost everything. All they had left was their sense of national pride, which had been artfully reignited by patriotic-sounding politicians and media outlets.

Trump told US voters that China was out to ‘rape’ the US economy; that American trade negotiators had been ‘snookered’ and had been given a ‘bad deal’. For Britons it was metropolitan elites in league with crafty Brussels Eurocrats, rather than the post-crash politics of austerity, that had cheated them.

Slapping on tariffs

Trump did not tarry. On his first day in office he used an executive order to withdraw the US from the Obama-era Trans-Pacific Partnership (TPP) negotiations.

He set about renegotiating NAFTA, the controversial North American Free Trade Agreement with Canada and Mexico, and US trade deals with other countries.

Then he started a trade war, imposing tariffs on steel and aluminium entering the US. Aimed primarily at China, it also directly affected the EU, Canada, Mexico and South Africa. Steel would be subjected to a 25-per-cent import levy; aluminium to 10 per cent. American steel and aluminium producers cheered; shares in US Steel and AK Steel rallied.

International trade representative Robert Lighthizer cited ‘national security’ under Section 232 of US law as the rationale for imposing the tariffs, which usefully provided exemption from important trade treaties and review by the WTO.

The EU retaliated swiftly, putting several symbols of Americana – including Harley-Davidson motorcycles and Levi jeans – on its tit-for-tat list of imports to be taxed.

The US administration turned its guns on China again. Lighthizer commented: ‘Years of talking about these problems with China has not worked... China’s unprecedented and unfair trade practices are a serious challenge not just to the [US] but to our allies and partners around the world.’

China is accused of: not being ‘open’ enough to foreign business; ‘forcing’ technological transfer by making access to its market contingent on handing over sensitive technological know-how; ‘stealing’ US intellectual property; giving special terms to its own state-run companies; and ‘manipulating’ its currency to make Chinese goods cheaper.

But it’s the trade imbalance between the two countries that bugs Trump most. In 2017 China exported $505 billion worth of goods to the US but imported only $130 billion worth from it.

At the time of writing, both sides have imposed tariffs on billions of dollars’ worth of goods. The US has hit $250 billion of Chinese goods with tariffs since July 2018, and China has retaliated by imposing duties on $110 billion of US products including soy, beef and poultry.

China has also filed a complaint with the WTO against the US for starting ‘the biggest trade war in economic history’.

Following December talks between presidents Trump and Xi at the G20 summit in Argentina, the two agreed to suspend escalating the trade war for 90 days. The US had been threatening to hit the remaining $267 billion of Chinese exports with tariffs of between 10 and 25 per cent in January 2019. China agreed it would buy more agricultural, energy and industrial goods from the US but did not specify how much.

Fair protection, unfair protectionism

But is Donald Trump wrong to try to protect American jobs and livelihoods?

Trade justice campaigners have long argued for the right of developing countries to apply protectionist trade measures (or ‘trade distortions’ in the free-trade lingo) to defend local agriculture, fledgling industries or basic services.

‘But when tariffs are used by richer countries on top of all that they have already got, they are a way of bullying,’ says Nick Dearden of Global Justice Now.

All major world economies of the 20th century grew up behind tariffs or state subsidies to protect domestic employment or keep basic food items affordable.

Economist Dani Rodrik observes: ‘The guiding principle that governed until the 1970s was that nations needed the policy space within which they could manage their economies and protect their social contracts.’

All that changed when free-market liberalism and economic globalization became the dominant ideology that swept the world. The US and its allies went all out for hyper-globalization. Governments believed that ‘the market’ had its own wisdom and interfering with it was wrong. Trade unions were legislatively weakened; national companies became transnational corporations, free to shift production to parts of the world where labour was cheaper, and using their international status to avoid tax on an industrial scale. Corporations and the super-rich saw their wealth grow while others saw equality shrink and wages stagnate, especially in the US.

The emerging economies that benefited most from globalization were those that didn’t go for full-blown, free-market liberalization but had a more cautious, selective and protective approach.

China, South Korea and India all kept parts of their markets closed while opening other areas to free trade and foreign investment. They did not ‘let their enthusiasm for free trade and free flows of capital get the better of them’, as Rodrik puts it.

For many years critics have complained that free-trade agreements were unfair. And they are, says Stiglitz: ‘Unfair in favour of America and other advanced countries that had created the system and shaped its institutions in the second half of the 20th century.’

He promised the jobs were ‘all coming back. They’re all coming back. Don’t move. Don’t sell your house’

‘It was called free trade,’ he writes, ‘but it was really “managed trade” – managed for corporate and financial interests... Under these agreements knowledge moved freely but short-term capital moved more freely. Agricultural subsidies for rich farmers were allowed in developed countries but subsidies to help the poor developing countries to catch up were frowned upon.’

The benefits of globalization could have been shared, he says, but ‘to put it bluntly, the winners as a group were selfish.’

Now the US is not winning as it was and China is about to knock it off the top spot as the world’s leading economy.

Are Trump’s tactics working?

In September the President tweeted: ‘Tariffs have put the US in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable.’

A few weeks later, it was reported that duty on steel and aluminium imports had cost US companies about $545 million in September alone.

By November, General Motors announ-ced it would be shedding almost 15,000 jobs and closing four plants in the US. Tariffs were costing the company $1 billion. Republican Tim Ryan tweeted: ‘I implore President Trump to keep his word when he came to the Mahoning Valley last year and promised the jobs were “all coming back. They’re all coming back. Don’t move. Don’t sell your house.”’

Soy farmers, hard hit by China’s retaliatory tariffs, were promised $12 billion in state aid to offset their losses. But Illinois soy and corn farmer Lynn Rohrscheib said she would have to let staff go if the stand-off with China continued. ‘We don’t want handouts. We want to trade. We want to sell the crop.’

And China’s trade surplus to the US actually rose by 10 per cent in September 2018, to a record high of $34 billion for that month, as US manufacturers rushed to fill their inventories before more tariffs kicked in.

Tariffs are a blunt instrument and trade is complicated, especially in today’s world of complex supply chains. ‘No-one wins in a trade war,’ the saying goes. US business and even senior advisers in the White House are worried about Trump’s tariff war, though he does enjoy considerable support for confronting China.

Can his strategy help American workers? Not likely. Trump’s simplistic view sets worker against worker, farmer against farmer, North against South, when for decades the actual battle lines have been elsewhere – between worker and corporate capital.

And that’s where they lie today – even in the new project that Trump hails as the great symbol of re-industrializing America. The Taiwanese electronics corporation Foxconn is to build a massive facility in rustbelt Wisconsin, encouraged by a controversial $4-billion package of tax breaks. But in a recent BBC interview, a company spokesperson let slip that what really excited him about the move to the US was the shift towards robotics it signified.

Trump’s promise to revive the rustbelt and bring the jobs home has a strong emotional appeal to his base, but it is built on nostalgia. The ‘glory days’ of US manufacturing are over. But there is a silver lining, perhaps, to Trump’s protectionist renegotiation of NAFTA.

In the new US, Mexico and Canada free-trade deal (under the catchy name of USMCA) there is a labour clause stipulating that workers in Mexico producing components for the automotive parts exported to the US must be paid at least $16 an hour. This is progressive indeed – unless, of course, a US robot can make it more cheaply than a Mexican worker.

Another positive surprise in USMCA is that it does not include the hated Investor-State Dispute Settlement mechanism (ISDS) – the topic of the next article.

New Internationalist issue 517 magazine cover This article is from the January-February 2019 issue of New Internationalist.
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