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  January 25, 2017

Without Industrial Policy, Trump Can't Revive U.S. Manufacturing

Trump will nonetheless try to look tough on China to appease his supporters, says economist John Weeks
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John Weeks is a professor emeritus of the University of London's School of Oriental and African Studies and author of Economics of the 1%: How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy. His recent policy work includes a supplemental unemployment program for the European Union and advising the central banks of Argentina and Zambia.


SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore.

The U.S. Senate is about to approve billionaire Wilbur Ross, for the position of Secretary of Commerce. Let's have a look.

WILBUR ROSS: China is the most protectionist country. They talk much more about free trade than they actually practice. We would like to levelize that playing field, and bring the realities a bit closer to the rhetoric.

SHARMINI PERIES: Once Ross is confirmed, Trump's administration will have assembled an economic team that is outspoken in its determination to change U.S.-China trade relations. The other key person in the Trump team is Robert Lighthizer, who is Trump's trade representative.

Both Ross and Lighthizer have accused China of not playing fair when it comes to trade, and have suggested that the U.S. should retaliate against China.

In response, China's foreign ministry spokesperson, Zhang Jun, recently issued a warning to Trump, saying a trade war, or an exchange rate war, won't be advantageous to any country -- somewhat mocking the U.S. for wanting to trade on the one hand, have a trade and exchange rate war with China, and on the other hand wanting to strengthen growth for the United States. He says these two objectives are contrary.

Joining us now to discuss the Trump administration's trade relations with China, is John Weeks. John, who joins us from London, is Professor Emeritus of Economics at the University of London, and is the author of "Economics of the 1%: How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy". Thanks, again, for joining us, John.

JOHN WEEKS: Thank you for inviting me.

SHARMINI PERIES: So John, the Trump administration is reacting to the fact that the U.S. has an enormous trade deficit with China, where China exports many times as much to the U.S. as it imports from the U.S. Their argument for this trade imbalance is that China is cheating by subsidizing manufacturing, and by keeping its exchange rate artificially low. What's your take on that?

JOHN WEEKS: Well, I think the first point to make is that no one's trade in this area is fair. Every government of a major trading company is using some trick or other to advance its exports, and it is a mistake to think that the trading patterns that we see are the result of a relative cost across those countries, or even absolute costs.

So, the particular dirty trick that the Chinese use, is the same one that the Japanese have used in the past, mainly a state trading system that will... China is much more of a centralized government than Japan. What you do is, that you make profits at home, and those are used to subsidize your exports abroad. So, you sell cheap abroad, and you sell expensively at home. And the Chinese have been doing... I mean the Japanese have been doing it for decades. And when you take over a market -- for example, if you take over the market for automobiles, and in Britain there's hardly a British automobile left -- then you begin to raise your prices.

It's an old, familiar, capitalist pattern, and the Chinese practice it, the U.S. practices it, and so on. The Chinese are more effective in practicing it, because they have an authoritarian government that can make business behave much better than... I mean, it's much more effective in making business behave in the so-called national interests, than would be the case in Japan -- though Japan has done a very good job -- or in Germany. Germany has its own trick to be a major exporter of... the German trick is a dual labor market. They bring in cheap labor from Eastern Europe and from Turkey, and that is the basis of their low-wage payment. So, everybody's got some deal or other.

Now, I think what has happened in the U.S., is that the rise of finance capital has meant that the great financiers don't actually produce anything. See... they obtain their profits from dealing in money, basically. And so, the U.S. running a trade deficit, is actually in their interest, because they are the middlemen selling the bonds which finances the U.S. trade deficit selling U.S. Treasury bonds to the Chinese and the Japanese -– the Japanese are the second largest holder of those bonds –- and to the Germans and the others that have a trade surplus with the United States.

Now, that has been going on for about 30 years. But U.S. capitalism has been reaching the limit of that process, because if viewers reflect on that for a moment, should realize you can't go on doing that forever, because you're building up a bigger and bigger foreign debt which you have to service. And with our slow-growing economy it becomes harder to do that.

So, actually the back-story is that are the Chinese playing in an unfair way? Of course, they are. Everybody does. And the situation in the United States is that it has not been having these subsidies to its exports because finance capital is so powerful in the United States.

SHARMINI PERIES: So, John, the Trump administration is really threatening to start a trade war with China. It's imposing, or talking about imposing, tariffs on Chinese imports. First of all, can it do that with existing WTO rules? And then what would be the consequences of such a move?

JOHN WEEKS: I think he's taking the position he takes, first of all, because it has been now, 30 or 40 years of a decline of U.S. exports. And the foreign debt situation has become worse and worse, and sooner or later some president was going to have to do something about it.

Particularly with the WTO, it is in effect a dead letter. The U.S. has not had a permanent representative in several years. And, under Obama, these special trade deals were being pursued, you know, the Trans-Pacific Partnership, the Trans-Atlantic Trade and Investment Partnership. So, those actually were bypassing the WTO.

I wouldn't be surprised if Trump were actually to have the U.S. pull out formally, from the WTO, because it is no longer serving U.S. interests, and hasn't been for a while.

The question, will Trump shift the U.S. economy towards manufacturing? I don't think he will shift the U.S. economy, because he's not prepared to take the steps to weaken finance capital. He will try to generate manufacturing growth, a parallel with the power of finance capital. I don't think that that is possible, because I don't think that he will pursue the industrial policy which is necessary to achieve that.

The reason that Germany, the reason that China, are major manufacturing exporters, is they have an industrial policy in which they foster investment. They have infrastructure, design for manufacturing. They train people, so that you have a skilled labor force. Those things are absent in the United States. And Trump, I don't think, is going to make those investments.

Bernie Sanders would have made those investments, and I think he would have had... it would've been difficult, but he would have a real possibility of rejuvenating U.S. manufacturing. I think what Trump will do is, he will use the tariff instrument, which is a relatively ineffective way of stimulating your exports. But it will satisfy his right-wing supporters, just as he will, I think, he will have a registration for Muslims, not that he cares one way or the other -- he has no conscience whatsoever. He'll do that because it'll get the cheers of his supporters.

He'll introduce tariffs, because they'll say, "Oh, Donald is being tough with the Chinese." And then, he'll try to cover up the failure to advance manufacturing with sort of smoke and mirrors and is his usual bravado.

SHARMINI PERIES: John, in Donald Trump's inauguration speech he insisted, and emphasized, that this is going to be a new era, where it's America first. What do you think this means in terms of U.S./China trade relations, and what can we look out for?

JOHN WEEKS: I think what Trump has in mind, and some people think, like my good friend who's been on The Real News sometimes, Michael Schwag, he thinks that Trump has an ad hoc approach to foreign policy and to international trade. That could be. That could be right. I think that he has a plan. I think the plan is to reinforce the America First argument, and the way you do that is by creating spheres of influence.

So, I think what's going on in negotiating with China is establishing the U.S. sphere of influence, and trying to restrict the Chinese sphere of influence. And so the negotiation, Trump will begin with very outrageous demands, that's his technique. He'll say everything that's gone before, forget about it, we're starting from zero. And then he'll try his old trick of negotiating, see if the Chinese will fall for it.

After you make the outrageous demands, you make less outrageous demands, and your opponent heaves a sigh of relief and says, "Well, he didn't really mean those extreme things." I don't think the Chinese will swallow it, actually.

So, I think we're looking forward to a very tense world, divided into spheres of influence, in which initially, Putin and Trump will be allies. I don't think either one of them thinks they're going to trust the other one for very long, so the U.S. and Russia ganging up against China, and so, leaving Germany to have continental Europe as its sphere of influence.

At least that would be what I would anticipate. I think it will be a very dangerous, and very volatile world.

SHARMINI PERIES: All right. John, I thank you so much for joining us today, and we look forward to having you back, because I think we are just touching the cusp of what is about to unfold as very interesting conflictual trade relations with China. Thank you.

JOHN WEEKS: Thank you.

SHARMINI PERIES: And thank you for joining us on The Real News Network.




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