Economic foundations of the coming US-China conflict

This is an interesting piece of news I wasn't aware of, which strengthens my argument against the idea that Sino-US trade links will prevent a new superpower conflict (from The Wall Street Journal Asia, 2008 July 31):

[In March 2007] the Bush administration reversed a two-decade-old policy that prevented U.S. companies from seeking protection against unfair government subsidies of goods produced in "nonmarket" - usually communist - economies. For years, the limit effectively shielded China from such complaints.

. . . the number of complaints filed under U.S. law has soared. In 2006, American companies filed five complaints similar to those pursued by [steel tube manufacturer] Wheatland, alleging unfair pricing, government subsidies - or both. In 2007, complaints jumped to 20. So far this year, 13 such cases have been filed.

Since the Carter administration, US presidents have consistently ignored 中国/China's "trade-distorting" advantages, like government subsidies, cheap repressed labor, or a fixed undervalued currency. That's because every president has sided with multinational businesses, which not only had a long-term vision of gaining access to the enormous China market but themselves benefited from China's trade advantages as they shifted production from unionized American factories to Chinese sweatshops in low-tax free trade zones.

The Cheney administration has by no means reversed this policy, but its increasing openness to the protectionist demands of smaller domestic capitalists and more aggressive approach to trade disputes (seen in the first WTO ruling against China a couple weeks ago) are revealing. And the room for trade conflicts is only going to grow. The seven-year-old Doha round of trade liberalization talks collapsed on Tuesday as China, for the first time, made a high-profile rejection of the American "free" trade agenda. As China continues to climb the value chain, it will start to threaten an increasing number of American businesses at the same time that Chinese businesses, with quiet support from their government, squeeze American companies out of the China market.

Meanwhile, perhaps the most explosive economic dispute - access to resources - continues to develop underneath the surface. China has been extremely aggressive over the last five years in securing long-term rights to raw materials across the globe (these articles cover China's activities in Africa, but it has been active from Myanmar and Indonesia to Brasil and Argentina as well). This poses no immediate threat to the United States, but in the long run Chinese and American capitalists might find themselves running up against each other in the search for production inputs, impelling their two governments to fight for control over conflicting neocolonial claims. And of course the issue of control over oil supplies will loom increasingly large unless some breakthru is made in energy technology or oil extraction.

The best way to conceptualize the emerging conflict may be to interpret China and the USA's diverging interests as an unavoidable contradiction within capitalism itself. To survive, capital must constantly expand; failure to do so leads to crisis, as even mainstream economists will admit. For the last thirty years, this expansionary process has proceeded with remarkably little resistance as obstacles like revolutionary movements and organized labor were brutally destroyed and vast new markets (China chief among them) were opened to the movement of capital. But this expansionary phase may be coming to an end as profitable new opportunities diminish and raw materials become more scarce.

If capital requires the ability to range freely across the globe in search of new opportunities, it must also remain rooted geopolitically to a certain extent. It cannot thrive without the regulatory environment provided by the state, and when it runs into insuperable obstacles it turns to the state to clear the way. Thus distinct groups of nationally based capitalists emerge, and can coexist in harmony as long as raw materials and exploitable labor are abundant. But when those essential inputs become scarce, businesses may demand their state take action to protect their supplies. Unfortunately, as we saw in the Great Depression, erecting autarkic economic blocs may secure the conditions of accumulation in the very short term, but it simply aggravates the situation in the long term by restricting capital's freedom of movement and further constraining its options for profitable deployment. The crisis of the 1930s was ended only by the massive destruction of World War II, which eliminated all of the rivals to American capital and provided fabulous new investment opportunities in the guise of reconstruction contracts.

World war is certainly not the only way to resolve these contradictions - the last major crisis in the global economic system, the stagflation of the 1970s, unfolded very differently. And economic tensions between the USA and China are only now beginning to emerge, so it will be some time before open conflict can develop. But don't discount the possibility too quickly. Those of us 30 years and younger have never experienced global capitalism in crisis or major challenges to American hegemony, so it might be easy to imagine that "globalization" or "interdependence" or some other slogan has superseded the kinds of global conflict that defined the years 1914 to 1989. But it's worth remembering that capitalism today is more similar to the capitalism that preceded the Great Depression than any other time since.

How i-bankers' foul-ups turn into recessions

I hope to write more in the next couple weeks about the growing economic crisis, but for now I just want to point out this article: Worried Banks Sharply Reduce Business Loans. This is how a disaster in the financial sector gets transformed into a disaster for the entire economy.

Up until now the collapse of the housing bubble, which had been inflated thru an incredibly complex trade in mortgage-backed securities and other forms of glorified gambling in the financial sector, has mainly hurt the banks themselves, those they tricked into taking out loans they couldn't afford, and the thousands of eager young private college graduates who had been dreaming of a job in arbitrage or securities for the last four years. If you haven't been following the news closely, you might not even be aware that the entire financial system came perilously close to complete collapse, and has been saved only by the major and repeated interventions of the US government and huge capital injections from the investment funds of foreign governments. But now we're moving into that part of every capitalism-induced crisis where problems in the credit markets infect the real economy - that part where people make things and serve human needs rather than trading in fictitious capital.

Businesses rely on bank credit for everything from everyday expenses to investments in the expansion of production. When that credit dries up, they have to forgo expansion, fire people, or even go out of business. Even those businesses that can still get loans have to pay higher interest rates. What constrains or destroys one business inevitably has an impact on the whole supply chain. In the same way, consumers find it harder to borrow for big purchases, further reducing effective demand. This is what the American economy is now facing.

Earlier this year, credit extended by banks to companies and consumers was still growing at double-digit rates compared with three months earlier, according to an analysis of Federal Reserve data by Goldman Sachs. By mid-June, bank credit was declining at an annualized pace of more than 6 percent.

The liquidity crisis arises from the fundamental laws of capitalism: at the end of every speculative expansion, all loans become suspect as banks must rapidly increase their capital base to cover their losses in the markets. People interviewed in the article talk as if bankers are behaving irrationally in denying loans to solid businesses. But this pattern has been well-established for several hundred years, and even mainstream economists will tell you it's built into the business cycle. Massive irrationality is certainly present, but at a much more profound level than the decisions of an individual loan officer.

Add the emerging credit crisis to rising costs for food and energy, the big drop in state and municipal spending that will unfold over the next few months, and the possibility of some spectacular failure in the financial sector, and we have the worst economic crisis in a generation. It's hardly a surprise - capitalism produces these kinds of crises every thirty or forty years. The interesting question is whether the crisis will reshape the basis of capitalist accumulation, and with it all the economic, political, and cultural formations that are based upon it.

The betrayal of Chicago public housing

All Chicagoans should read this article, and so should anyone else interested in fundamental urban problems. Skeptics on the left and public housing tenants themselves suspected from the beginning that Daley and the Chicago Housing Authority's Plan for Transformation - which ostensibly was going to replace the concentrated poverty of highrise public housing with the harmonious integration of mixed-income walk-up developments - was actually meant to disperse the poor and seize the valuable real estate they occupied. As the progress of the Plan for Transformation makes clear, these fears were all too well-founded.

Nine years into what was supposed to be a 10-year project, the CHA has had no trouble destroying 13,000 units of housing, breaking up the tenants' communities and forcing them to move further south into neighborhoods just as bad as the ones they left. (The wait list for public housing, which was closed to new applicants in 2001, stands at 56,000.) The CHA also had no difficulty giving developers close to Daley a wide variety of sweetheart deals on the razed properties, from selling the land once occupied by Stateway Gardens for $1 to dispensing heavily subsidized building contracts and lucrative retail concessions.

What CHA has had problems with is actually building homes for the thousands of displaced public housing tenants. Only 30 percent of the planned units have been built, and half of those were completed before the plan officially started, while the CHA was under federal supervision.

These problems could have been avoided if that single success had been made the model of the whole program. Henry Horner Homes on the West Side was torn down and rebuilt in phases, so that residents could stay on site and move into the new apartments as they became available. But it was only the organizing efforts of the residents themselves and federal oversight that forced CHA to follow this model. Once CHA, whose history is shot thru with negligence and racism, again had the upper hand it gave priority to destroying public housing communities and getting tenants off the land over replacing their homes. (Incidentally, Valerie Jarrett, one of Obama's close advisers and former top Daley official, has had a major hand in this housing disaster.)

If the city were serious about creating communities integrated along race and class lines, it would not only devote more attention to creating public housing than channeling profits to developers - it would require all new developments to include a real mix of affordable or public housing. The unspoken flaw in the Plan for Transformation all along has been the fact that rich people and professionals don't want to live near poor people, especially if they're black. Even if it hadn't been for the delays and cost overruns wrought by corruption and the implosion of the American property market, the CHA's new developments would have been a tough sell for Chicago's privileged. The only way to get around that would be to level the playing field by integrating the entire city instead of only pockets on the South Side.

Of course, residents of Lincoln Park or Streeterville would riot if poor people started moving in next door, and Daley isn't about to offend his most powerful constituency. But forcing Chicago's elites to permit enough affordable housing is more urgent than ever.

The rising price of gas and the transition to a low-carbon society will cause a massive movement of population back into the city in the next couple decades. This is a wonderful prospect, as America is finally on the cusp of reducing its unsustainable suburban expansion. But if market forces are left to operate freely, the cost of housing in the city - especially that near the Loop and convenient to transit - will skyrocket and force all but professionals and the rich to the outskirts of the city and the near suburbs. The movement of poor minorities into some south and west suburbs is already quite striking. If anything, the revival of the city will actually make these people's lives worse because they will be even more remote from good jobs and educational opportunities.

Of course even if the Plan for Transformation's rhetoric had been faithfully pursued, integration thru housing would remain a reformist measure, meant to mitigate the devastating effects of social inequality rather than to root it out. But as two generations of experience with the post-Brown v. Board ghetto has shown, the social deterioration caused by joblessness, lack of services, and crime thoroughly frustrates the revolutionary potential we might assume large concentrations of poverty would have. Integration seems like a good goal, but only if it is used to facilitate more effective organizing against the social structures that produce such massive inequalities in the first place.

The 20th century's record on rising powers: Two world wars and the Cold War. How will the 21st century turn out?

The question has been raised in the comments whether there’s any chance at all that 中国/China and the USA will move toward conflict. As everyone knows, bourgeois democracy is dominated by commercial elites, and the most powerful American companies all support engagement over containment. The progress of the debate over granting China permanent “normal trade relations” in 2000 provides a lot of support for the idea. Commercial interests, piously cloaking themselves in the crackpot idea that expanded trade would cause political liberalization, steamrolled human rights, labor, and security concerns.

Yet American elites are far more divided on how to approach China than the relative calm in the media would seem to indicate. Certainly the dominant faction, based in multinational industrial and finance capital, wants to avoid confrontation so as to continue exploiting Chinese labor and taking advantage of China's weak environmental regulations. But an insistent minority based in the security bureaucracy and domestic industry view China as America's most important enemy. And that minority is likely to gain strength as China does.

You can see hints of the “China threat” group in the widespread Congressional criticism of China's exchange rate policies and the outburst that killed the 中海油/CNOOC offer on Unocal in 2006. For a better idea of these people’s solid presence in the halls of power, just skim thru some of the testimony and reports of the Congressionally mandated US-China Economic and Security Review Commission, which every year warns about the growing threat from China. Support for anti-China policies is already quite deep, if not yet very broad.

It'll be interesting to see the military/small capitalist faction battle it out with the big capitalist faction - it's not a conflict that too often makes it into the light of day. Right now the engagement group has the upper hand - altho Cheney, like Clinton before him, has been quietly encircling China with military bases even as the US speaks the language of trade and cooperation. There are two things that make me worry about long-term conflict. First, any sudden crisis (over 台湾/Taiwan, say) would immediately destroy all the leverage of the accommodationists. And we shouldn’t kid ourselves - the United States will go to war to deny Taiwan to China.

Second, US economic interests in China will probably start to decline relatively soon. The Chinese government only tolerates foreign investment because it needs the capital and access to technology. China is fast catching up on technology, and if the Chinese economy can make the transition from export-led growth to sustained growth driven by domestic consumption - which I think it will - American companies will find a less inviting market. Those companies might leave on their own anyway, in search of even cheaper labor - many are already starting to move to Việt Nam.

Just think about the anti-Japan panic of the early '90s - a nearly hysterical fear gripped the whole country before the bursting of the bubble economy abruptly ended the Japan "threat". Now consider what's going to happen when China starts to pose strong competition not only economically, but in diplomatic and military affairs as well.

On the Chinese side as well, there are strong pressures toward confrontation. Popular nationalism is so strong that the government would have to take a hard line on any international crisis - especially over Taiwan - even if it didn’t want to. Chinese people themselves have almost no awareness that their country is rapidly assuming the role of imperialist power, and even less of a critical stance toward that fact. Nor do they understand the colonial character of Chinese policy in Tibet (西藏/Xizang) and شەرقىي تۈركىستان/Sherqiy Türkistan (新疆/Xinjiang), and they interpret international criticism of those crimes as a form of aggression.

Most important, China is in the midst of a capitalist revolution, which necessarily creates massive inequalities and constant cultural instability. For many people, the anxieties created by this process will be displaced onto the international sphere, and a reactionary nationalism will fill the void of ideology and provide an anchor in the turmoil wrought by commodification. For elites, nationalism is a useful direction to channel popular grievances into, and popular support for imperialism will soon enough become a necessary condition for expanding profitability.

So for the moment, capitalism prevents conflict - but in the long run it will probably require it. Maybe this time the USA will deal better with a rising power than it did with the Soviet Union after the war, or than Britain did with rising Germany in the early 20th century. But I doubt it.

Chinese spies are everywhere!

This is a disturbing article from The New York Times. Essentially a scare-piece written as if to drum up paranoia against Chinese Americans and Chinese living in the United States, it largely relies on Joel F Brenner, the government's leader of counterintelligence, for the conclusion that China is pursuing an "orchestrated, deeply thought-out, strategic campaign" to steal American national security secrets and conduct industrial espionage.

The reporter suggests that American "authorities have reason to be more suspicious of Chinese researchers and students", as well as citizens of Chinese descent, whose "ethnic loyalty" is leading them to betray the United States. Brenner's claims as to the threat of Chinese spying should be taken especially seriously because of his deep understanding of the Chinese Mind. For example, in discussing the case of a Chinese-born engineer and "sleeper agent" who was convicted of selling China naval secrets after working his way up in the weapons industry, Brenner notes that this "bespeaks a patience that the Chinese are especially good at."

Perhaps Brenner was concerned that the reporter might miss his obvious Orientalism, because he goes on to illustrate China's strategy of collecting pieces of information to get a larger picture by saying, "You can get to know the dragon by its claw".

Our intrepid reporter does not provide any reason to think that the crafty Oriental who sold naval secrets was in fact a "sleeper agent" rather than someone who was contacted by the Chinese government after he reached a position that would make him useful. We do learn, however, that this threat to our national security will be jailed for 24 years - a fitting punishment for selling information that "was not classified, . . . although it was illegal to provide it to China." (In another case discussed in the article, a white man convicted of selling real secrets received a sentence of less than 5 years.)

Okay, so we have intelligence officials who learned about China primarily from 1930s movies, we have inscrutable yellow hordes infiltrating our society - but what do the Chinese want? According to Brenner, "China is especially interested in improving its naval capability against any threat from the United States and obtaining intelligence that might be important in a military confrontation in the Taiwan Strait." In addition to government-directed spying, commercial trade secrets have also been targeted.

In other words, Chinese government spying is directed primarily at countering the threat of an American attack - it is completely defensive and does not threaten the United States in any way (America's imperial interests are, of course, another story). Chinese companies are mainly interested in getting access to advanced technology, which American companies hold monopoly over by virtue the US head-start in industrialism. And yet Brenner would have us believe we face a rising threat from China to our national security, and his mouthpiece at The Times - by excluding the possibility that American counterintelligence is protecting secrets that have no right to be kept - concurs.

The real threat China poses is to the military and economic hegemony that the USA exercises over the entire world. And barring a catastrophic economic crisis in China, that threat is only going to increase. With this rising danger to American supremacy, we can expect increased fear-mongering against China and against those of Chinese descent in the United States. We must be on guard against this kind of agitation, both to prevent racial profiling and to prevent getting sucked into a new cold - or hot - war in Asia.

Bomb bomb bomb, bomb bomb Myanmar

There's certainly nothing wrong in contrasting the massive amounts of money that Myanmar's government spent on its new showcase capital with the visible poverty surrounding it and with the staggering social needs ignored by the government. I just wish Americans were as sensitive to the similar contrasts easily seen in our own capital, or to the American government's similarly consistent preference (ie predating Bush II by many decades) for military spending over spending to help the impoverished.

It's also interesting that the reporter casts the Myanmar military's suspicion of a foreign invasion as irrational paranoia - proving the point by quoting an eminently objective source, the US government's representative in Yangon. Yet not two months ago Robert Kaplan, a prominent foreign policy intellectual, published an op-ed in America's most prominent newspaper calling for the invasion of Myanmar. Now where could Myanmar's paranoia be coming from?

Not that I would object to one of the world's worst regimes being overthrown. But as with the overthrow of Saddam Hussein's government, the fact that the real reasons behind an American invasion have nothing to do with helping the victims of the regime would once again lead to a disastrous occupation.

Why do powerful Americans periodically call for an invasion of Myanmar? Because it is one of the few countries left in the world that does not acknowledge American suzerainty, and - most important - it is a vital strategic asset for 中国/China. Surrounded on all sides by reliable American client states and massive American military bases, China has cultivated Myanmar as a source of raw materials and a base for projecting its power into the Indian Ocean. Toppling the Myanmar government and installing a puppet regime would complete the US cordon sanitaire around China and secure the interest of burgeoning client state India in establishing its preeminent position in the Indian Ocean.

It's a measure of how thoroughly Cheney's adventures in the Middle East have distracted his administration from larger threats that an attack on Iran is gathering steam while Kaplan's proposal was ignored. Iran poses absolutely no danger to the United States, and very little danger to US imperial interests. China, on the other hand, could very well some day seize hegemony over what is emerging as the economic center of the world, East Asia. Of course Cheney's plan to consolidate American control over the world's oil supply is in large part aimed at establishing permanent leverage over China, but to allow an obsession with Iran to distract to from the more pressing task of containing China's geopolitical reach is a remarkable strategic failure.