08.03.2018

Negotiating with guns

Donald Trump’s tariffs are about politics, not economic renaissance, argues Paul Demarty

A cynical observer, up to March 1, could be forgiven for thinking that Donald Trump’s protectionist tough talk was mere campaign-trail bluster. Such an observer may end up being proved right in the end: the tariffs are yet to be enforced, and there are some indications that Trump might settle for less.

Nevertheless, things have clearly moved on. Trump’s plan to impose a 25% tariff on steel imports and 10% on aluminium hardly represents the first protectionist measures in American history, nor even in the period of America’s global supremacy since 1945. It has been a while, however, since tariffs have been presented in openly protectionist terms, rather than merely America doing on the quiet the sins it loudly denounces in others through its agencies such as the World Trade Organisation. Trump is giving full throat to his tendency to talk about global economic intercourse in the terms of the market-stall huckster haggling over counterfeit Calvin Klein boxers. The list of ‘bad deals’ has been excavated from the box-file left on Steve Bannon’s desk.

Until recently, we were wondering what had become of Bannon, but he has now resurfaced in Italy, wanting a front-row seat for the next victory for the insurgent far-right. A man who served the American establishment well as a devil figure, a demagogue and an intellectual, Bannon could quote Lenin, compared his film style to Leni Riefenstahl and openly exulted in winding up his political opponents. He came to appear as a sort of cross between Goebbels, Kissinger and the Norse god, Loki - in his own mind as much as anyone else’s. He began the year with the suicide strike that was Michael Wolff’s Fire and fury, for which he was the most unguarded source, and promptly found himself outside the Breitbart news organisation he had rejoined; but he will be pleased as punch with all this.

Leader of the free world

It is worth keeping Bannon in mind, as we examine the great unease that has gripped the bourgeois world in response to Trump’s statement - and still more in response to his refusal to back down from it. There are two strands to this (though they are hardly separable with any great rigour): the diplomatic and the economic.

The most acute problems are probably diplomatic, in that Trump - however great an opinion he has of himself - is only the latest in a long line of right-nationalist world leaders to have arisen in the past decade or two. The marquee name of this tendency, before Trump came along anyway, was Vladimir Putin - thus Adam Shatz, a couple of years ago, could write a piece on “Israel’s Putinisation”,¹ but might also have remarked on the “Putinisation” of Shinzo Abe’s Japan, or China under Xi Jinping (the Chinese regime’s recent hypocritical hymnals to globalisation notwithstanding), and now Italy … The “Putinisation” of America has the added twist that the intellectually barren creatures in the US punditocracy seem to believe that it was literally Putin’s work, but apart from that is an iteration in a known pattern.

However, it is an especially important iteration, thanks to the US’s hegemonic position. Were Russia to blare on about making itself great again through industrial protection, the US would have the WTO inflict some sort of penalty and make the Russians suffer - never mind some smaller irritant, like Venezuela or Zimbabwe. But now? Who will guard the guards? The WTO has warned that the consequences of a trade war will be grave; but can America’s closest rivals really expect that the big beast of the capitalist world will submit to sanctions or arbitration?

The answer can be read in their actual behaviour. Spokespeople for the European Union have talked fairly tough, although the much-trumpeted targets of retaliatory sanctions - bourbon, Levi jeans, Harley-Davidson motorcycles, and so on - will hardly have US industrialists quaking in their boots. There is some suggestion that the brands named are very targeted - Harley-Davidson is based in Republican house leader Paul Ryan’s state of Wisconsin; bourbon comes from Kentucky, represented by Senate majority leader Mitch McConnell; and, for the sake of insurance, Levis is a blow against California, which returns Nancy Pelosi as leader of the house Democrats. Who knows if such ‘clever tactics’ have any purchase, however. It is more the principle of the thing: can we imagine the EU threatening even to put a tariff on anything American-made 10 years ago - or even five?

Closer to home, Trump is on safer ground. He has made it clear to the governments of Mexico and Canada that they might be treated more favourably, depending on how the ‘renegotiations’ of the North American Free Trade Agreement (Nafta) go; it is not beyond imagination that the whole thing basically comes down to Trump pulling a gun in the middle of a drug deal, in order to gain more favourable terms.

Goldman grumbles

Pulling a gun in a real drug deal is, of course, risky, for the simple reason that the other lot might also have guns. The United States can have no such fears with regard to its North American neighbours (Europe and China are another matter). The immediate problems for Trump come instead from the horrified response from almost all those who claim to speak for America’s business interests.

The immediate reaction from the markets can have surprised nobody. The Dow Jones industrial average took another dive, although it recovered some of the losses on March 6, when Trump started making special cases for Canada and the like. Treasury secretary Steven Mnuchin has little choice but to carry the can on this one, but the vast tentacular society of Goldman Sachs alumni to which he belongs will no doubt agree with the mother-squid itself, whose head of commodities research, Jeffrey Currie, tells us:

Not all metal is created equally … US allies produce many of the value-added steels that current US capacity cannot fully replace without [a] substantial increase in investment … As a result, the US will end up simply paying the tariffs on the higher-quality imported metal from US allies even if the amount was at or under the quota.²

We tend to think of the steel industry, in other words, as basically low-tech, on account of the appearance of its products as so many tons of stuff. But, of course, that is not true - many subtly different combinations of the same basic ingredients are possible, but a given plant can only ever produce some subset of the same. The analysis from Goldman, much like the views of most of its peers, is that America will simply be unable to replace the high-tech metals it needs domestically in time to avoid its firms simply having to pay the higher prices, leading to a sharp division between those higher-margin industries that can absorb the higher input costs, and the lower-margin industries that cannot. Currie’s graphs have automobile and auto parts firms - so totemically important in the American mind in spite of everything - very much in the latter category.

From the Goldman-alumnus White House caucus, it seemed to have fallen to National Economic Council director Gary Cohn to try to sort this mess out - until he resigned. Currie pointedly states that a tariff targeted only at countries who are not US allies would have only a “modest” effect on prices, and such a ‘clarification’ would allow Trump to retreat without being seen to cave in.

Eyes on the prize

To listen to the anxious rhubarbing of the bourgeois establishment, as so often when it comes to Trump, you might be left with the impression that he has simply miscalculated badly: the juice (‘better’ terms in Nafta, whatever that means) isn’t worth the squeeze. But, while the Goldmanites are surely correct, in economic terms, that the immediate effect on the basic economic indicators of these tariffs is very likely to be negative, we must pay attention to what they gloss over.

For this is an election year and Trump knows that he must deliver the goods, or he is at great risk of impeachment; he needs a solid bloc of Republican congressmen who owe him their jobs to protect him from Department of Justice special counsel Robert Mueller’s endless fishing expedition. Having divested himself of Bannon’s services last summer, and publicly feuded with him since - “Sloppy Steve”, who “begged for his job”, etc - here is Trump, lurching suddenly towards Bannonism.

If the EU’s retaliation threats are targeted, how much more so the original insult! For what is the home of the US steel industry if not Pittsburgh, Pennsylvania? That state was one of the handful that swung for Trump, giving him the most unlikely of victories; but perhaps the Democrats noticed that Trump not only took the Republican primary by a country mile, but won in each individual county. The harsh impact of deindustrialisation in the state gave Trump’s message serious bite. The message that worked there is exactly the one he pursues with his tariffs - make American industry great again!

From that point of view, it is actually pretty clever politics - not least because it puts the Democrats in a trap. They must either line up with Trump on the basis of concern for the ‘American working man’, or (more likely) line up with Goldman, offering wonkish wisdom about why it is futile to object to being tossed on the dung heap of America’s economic history. This autumn’s midterms, on the historical trends for the parties of incumbent presidents, are the Democrats’ to lose; but one would not put it past the enervated gang of idiots who still somehow run the party machinery to increase the Republican majority in both houses via their unshakable commitment to neoliberalism.

If that happens, of course, Steve Bannon will be happier still. For it will prove that ‘economic nationalism’ works. But it will be more significant than that: it will prove it likewise to many more movements comfortable with the message around the world. We have already said that the prevailing wind in global politics is towards such nationalism; the true danger of Trump’s policy is that it could reach gale force, and send us tumbling towards war. While the ‘sensible’ neoliberalism opposed to Trump only accelerates this process, a serious socialist alternative remains, alas, a distant prospect in the United States.

Notes

1. www.lrb.co.uk/v38/n04/adam-shatz/israels-putinisation.

2. www.cnbc.com/2018/03/06/goldman-trumps-tariffs-are-draconian-and-will-raise-prices.html.