Terms of Trade: Why the world is missing the Soviet Union
The roots of ongoing economic turmoil are to be found in a strategic alliance between Chinese “socialism” and American capital.
Lest the headline scandalizes you, this is not an apology for the Soviet Union or its centrally (and badly) planned economy and gulags. So please indulge me.
The world, rather two of the most powerful countries in the world, are engaged in what can only be described as a mad tariff race. At the time of writing this column, US tariffs on China stand at 145% and the Chinese tariffs on US stand at 84%. This is bound to inflict misery on not just the American and Chinese economies but the world at large. What is even worse is that it is almost certain that nothing good is going to come out of this tariff race. What is this madness all about then?
The crux of the conflict can be described as follows. The US, unless this trade war changes things, is still the world’s largest, and more importantly, hegemonic economic power. Nobody in the world has an interest in challenging the US’s position. The problem, as far as the US is concerned, is that being the best is not good enough for it anymore. This is because the opulence in US is extremely skewed and a large part of its population is living extremely precariously and rightly very angry about it. Donald Trump, who has disproportionate support within the American underclass thinks that he can take the country ‘back to the future’ by putting tariffs on imports and rejuvenating America’s manufacturing , thereby manufacturing employment for the masses once again.
China, the world’s second largest economy, which primarily owes its economic prowess by exporting to the US (and others) over the last three decades, is clearly not okay with Trump’s plans. It is doing two things, one explicitly and one perhaps subtly to derail the US’s plan. It is provoking Trump into being more and more unreasonable with his tariffs by reciprocating with successive escalations. This will make Trump’s position on tariffs go from unreasonable to insane. Two, it is perhaps also dumping US treasuries (China is the second biggest holder of them) in the market, which will have the effect of increasing US’s debt servicing costs – as bond prices fall interest rates rise – which are already very high by historical standards.
Who is right and who is wrong here? It’s not a black-and-white answer: each side has some truth and some untruth on its side.
Trump’s executive order announcing tariffs, for example, accused China of suppressing its domestic consumption to push cheaper exports in the US. The basic argument is correct and has been explained in great detail in an excellent book called Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C. Klein and Michael Pettis. The Chinese, inadvertently, might have accepted it in the aftermath of the tariffs. This Chinese TikTok video which went viral on social media shows Americans struggling working in what look like Chinese sweat shop style large factories making things such as garments and mobile phones. If the Americans find it difficult to do this, it surely cannot be fun for Chinese workers. There is more than enough evidence to suggest that China’s manufacturing prowess has been built on the back of poorly paid, heavily worked and a (de jure) democratically disenfranchised working class. It is a model which every economy in the global south has tried to imitate. Some of them have burnt their fingers trying to imitate this in a democratic framework.
The Chinese, on the other hand, are rightly calling out Trump’s economic hypocrisy by pointing out that even though poor Americans saw their jobs being taken away, rich America made a lot of money thanks to the US’s economic engagement with China. This has been clearly spelt out in the White Paper issued by China on its economic and trade relations with the US. “When the three factors of trade in goods, trade in services, and the local sales of domestic enterprises’ branches in the other country are taken into full account, it can be seen that the economic and trade benefits gained by China and the US are roughly balanced”, it says. While Trump has a lot of support within the US working class, he (at least until he went astray on tariffs) also enjoyed a strong bromance with champions of US capital and his rich friends stand to lose a lot by his planned economic realignment which is essentially a plan to decouple from China.
China is basically asking the US to start treating it as an equal power and do what is necessary to accommodate it. It is nothing but a demand for the US voluntarily undercutting overall American hegemony.
What is the larger point? The world’s problem is not the lack of economic surplus or technological innovation. Its problem, across geographies, is that its economic surplus is being usurped by a very small minority. Those waxing eloquent about the virtues of the existing economic order often chose to ignore this point. Such an attitude would be fine if there were no democracy across the world. Fortunately, that is not the case.
This is exactly where the current Sino-US bipolarity is very different from the Soviet-US bipolarity which came into being after the Second World War. While both the Soviet Union and China were not democracies, the former had a deeply democratizing impact on the rest of the world, especially its underclass, even before the post-war era thanks to a growing working-class assertion and the fillip socialism gave to decolonization. Having recognized the horrors fascism – the most effective anti-communist project capital could find between the two world wars – unleashed on the world, the capitalist block led by the US made capitalism far more progressive to persuade the working class that democratic capitalism was always better than authoritarian socialism. Today’s free marketeers would find it difficult to believe that a lot of land reform in South East Asia was actually carried out under the aegis of the American empire.
Capitalism won the battle with socialism in relatively little time. Part of this victory was owed to US opening its doors to foreign exports to incentivise countries for not joining the socialist camp, part of it was on account of the US working class being treated very well under the New Deal and a large part of it was the socialist camp messing up its economics and politics.
The economic rise of China in post-Soviet era, despite the former being a communist country on paper, is based on a very different philosophy where working class interest is always the proverbial tail to the growth dog. The latter in turn, has been trained to hunt outside domestic boundaries by exporting cheap than seek a balanced diet of consumption and investment inside the economy.
That there would be a backlash against this kind of othering growth model in the countries where cheap exports were going and destroying livelihoods was almost a given. It has taken a reactionary form like Trump only because politics in US became completely decoupled with working class concerns – one can very well say that the working class in US became de facto disenfranchised despite a de jure democracy – and nobody tapped this building anger. Until now. This, to a large extent became possible because US capital saw Chinese sweat shops as its allies rather than a class enemy which is what the Soviet Union always was for capitalism.
The Soviet Union was a lot of bad things. But the dialectics it unleashed on capitalism took it in a progressive direction which would never have been the case had markets been in command instead of democratic politics. The Chinese want the rest of the world to disregard politics in favour of economics. This is undoable in a democracy or a world which does not have colonialism.
The solution to the ongoing madness in the world is not shouting beautiful economic theorems from rooftops. It requires a politics which is aware of the class contradictions in the world and stands with the majority which if one were to paraphrase the Communist Manifesto, has nothing to lose but its sanity. Of course, this politics will have to very different in 2025 than what it was in 1917.
Roshan Kishore, HT’s Data and Political Economy Editor, writes a weekly column on the state of the country’s economy and its political fallout, and vice-versa
