The Cold War Daily

Notes on the new great power struggle.

Tag: trade

#NeverTrump? The question is #WhyTrump?

In a first, guest contributor journalist B.J. Bethel explains how the Donald Trump phenomenon has been decades in the making.

Guest post by: B.J. Bethel

Third-party movements are nothing new in US presidential elections, and aren’t as rare as one would believe. What is rare is for a third-party movement to strike fire within one of the two established parties.

Essentially, this is the accomplishment of Donald Trump. A portion of the party’s constituency is mad as hell, and isn’t going to take it anymore, and has found its voice in the Donald – wealth inheritor, real estate tycoon, multiple bankrupter- the last person to lead a working-class populist uprising.


Crippling the Republican Party

Many are clamoring at Trump’s audacity, the calls for a border wall; banning Muslim immigrants, and the other awful things he’s said, and universally ignored what’s been the biggest factor in his rise. They raid his rallies, interrupting them with protests. One tried running on stage. A rally in Chicago turned into a riot. (As someone who has covered many a politician and knows how difficult it is to get into a rally with a press pass, let alone with the intention of making a ruckus, maybe the protesters should ask themselves why they seem to get in so easy) .

Trump just didn’t show up at a rally or debate, and start making people angry. This is a phenomena building for 25 years, beginning with the rise of talk show host Rush Limbaugh, and his numerous carbon copies, moving along to the advent of Fox News and the Internet. The conservative movement has profited from and had success with an incessant rage machine that’s pumped money, intensity and voters into elections for two decades. This coalesced into the Tea Party.

The Tea Party was an honest grassroots movement. It grew out of Porkbusters and other small, internet based conservative and libertarian activist groups that emerged after the bank bailout. Middle and working classes were both enraged. After years of preaching from conservatives on the evil of welfare, handouts and championing law and order; the bailout was a step too far. Quickly donors and the party saw something they could use to their advantage, and the organizing began and the money followed. The Democrats took a historic beating in the 2010 midterms, and the GOP was well on its way to making Barack Obama a one-term president.


White working class – plaything of the right, ignored by left (pictured Archie Bunker)

Except the GOP never understood the nature of the grievances held by those voters. When angry Baby Boomers and senior citizens (caustically mocked by those in the coastal media for their preference for baseball caps, polo shirts and cargo shorts), began appearing at town halls, they were mad about health care law that might cut Medicare and Social Security benefits – not exactly a conservative position.

Trump’s following is built primarily from disenchanted working and middle class whites who see both parties selling them out for trade deals that benefit Wall Street and wreck Main Street. Clinton passed NAFTA and GATT, the Republicans let companies offshore without a fight, now both parties are working hard to get the largely secretive TPP agreement – a 12-country NAFTA for the Asia-Pacific region – passed with as little scrutiny as possible.

Trump’s strategy when he speaks has been to generate enough vitriol to dominate the news cycle. He can do this at appearances and with his Twitter account, making CNN perhaps the most important member of his constituency.

The other half of his typical stump speech consists strictly of economic talk – focused directly on trade and offshoring. Facts are, worker productivity and hours have skyrocketed in the last 40 years, along with health care costs. Plummeting are wages and benefits. Thirty years ago, a family of three could live a middle-class lifestyle with one working spouse – all while preparing retirement. Those days are history.

This is the core of the Trump message, the part Democrats and Republicans don’t want to talk or deal with. This would mean going against their main constituency, the donor machine, Wall Street, K Street lobbying, which lies in direct opposition to the working class on nearly every treaty, law and court ruling the last 30 years.

What are the stakes? The two-party system as it now exists. During prior third-party runs, if these candidates carry serious support, generally one of the parties would adopt their key issue as their own. Ross Perot took home nearly 20 percent of the vote in 1992, largely on the strength of concern over the national debt. Republicans adopted much of his agenda when they ran and won Congress in 1994.

Would a party do this on trade, jobs and offshoring? This would clash with the desires of big donors, big business and big finance.

When groups with politically unpopular concerns are left out of the process in Europe (the biggest issue of late immigration), the tendency is for far-right movements to grow. The US can avoid this result by one or both parties giving them a seat at the table. This means looking money in the face and saying no – when was the last time a politician did that?

B.J. Bethel is a journalist living in Ohio. He’s covered government, politics, sports and the environment for a decade.

China-US cyber espionage dispute: the fallout continues

There are some who would describe management consulting firms as one of biggest boondoggles in US capitalism, so there is an irony that American ones are being cut off from China’s state-owned-enterprises in retaliation for the indictments of the Chinese hackers.

report in the FT says Boston Consulting Group, McKinsey & Co, and the firm formerly known as Booz & Company (Strategy&) may all be effected.

All snickering aside, presumably these companies would offer China’s SOEs practical advice on the kind of reforms that would make them more market responsive. SOEs in their current form are a hazard to the longer-term health of China’s economy because of their poor efficiency, transparency and allocation of resources.

China’s decision to cut these ties brings to mind the Western sanctions on Russia. It also brings to mind Russia’s warnings that all sanctions boomerang. If the long-term effort to reform the SOEs becomes longer because of a lack of help in reorganizing them, the decision to banish US consulting firms may come back to haunt China.

My former colleague Peter Cai at the China Spectator argues that the dispute “will be disruptive to the beneficial process of globalization of technology and standards” potentially leaving Americans and Chinese companies trapped in their own markets.

“We cannot afford to have technological tribalism in a globalised economy, especially a damaging fight between China and the US. Businesses should be wary of protectionist policies enacted in the name of national security. The growing trend of paranoia will hold back the development of technology globally and make the world a less connected place.”

Yet, globalization is plainly in retreat anyway. China is stronger now and no longer needs the constant flow of Western technology to grow. Western economies are facing ever-growing inequality linked to the globalization process of the past few decades.

Globalization has allowed big companies to arbitrage their labor costs and shift production and profits to whatever country is the most welcoming, all over the head of legitimate governments and civil society. This corporate power in the West has triggered a strong populist political backlash.

Already, the Balkanization of the internet is happening. China has the Great Firewall. Russia wants bloggers who get more than 3000 hits a day to register. Even the US indictments of the Chinese hackers seem to mark an inflection point following the Wild West era of the Internet. So it’s only natural that with the Balklanization of the Internet comes the Balkanization of technology to some degree, hence “technological tribalism”.

It’s interesting that in the kind of services the US management firms provide, the US actually ran a trade surplus with China in 2012 of $17 billion. But in goods, of course, there is little to stop the torrent of Made-in-China products pouring into the US.

The bigger question for the US is how profitable US-China trade is.

AP writes: Trade in goods between the U.S. and China last year hit a record $562 billion. American companies earned nearly $10 billion last year in China, another record. American direct investment in China exceeds $50 billion.

To put these figures in perspective, General Motors (which is very active in China) had an adjusted EBIT in 2013 was $8.6 billion in 2013. Google’s net income in 2013 was $3.4 billion.

If AP is correct, that means earnings to US companies from the $122 billion in goods exported to China was just over the amount of the total profit for GM in 2013. Meanwhile, in 2013, the US imported $440 billion of goods from China, leaving the US with a trade deficit of some $318 billion with China, according to the US Census Bureau.

The goods forming that trade deficit help the US enjoy “Always Low Prices” which seem to go hand-in-hand with “Always Low US wages.” It doesn’t necessarily add up to the most robust kind of trade situation from the US perspective, particularly given the large and growing barriers for US companies active in China. So this tit-for-tat response from China is really not the end of the world by US corporate standards.

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