Method in madness; Trump’s tariffs Part 3

A week ago Chris Hedges introduced a guest on his YouTube channel with these sombre words:

The final stages of capitalism, Karl Marx wrote, will be marked by developments intimately familiar. Unable to expand, and generate profits at past levels, the capitalist system will begin to consume the structures that sustain it. In the name of austerity and government efficiency it will prey on the working class and the poor, driving them ever deeper into debt and poverty and diminishing the capacity of the state to serve the needs of ordinary citizens. It will increasingly relocate jobs, including both manufacturing and professional positions, to countries with cheap pools of labor.

Industries will mechanize their workplaces to trigger an economic assault on not only the working class but the middle class – bulwark of a capitalist system – initially disguised by the imposition of massive personal debt as incomes decline or remain stagnant.

Politics in late stage capitalism will become subordinate to economics, leading to political parties hollowed out of any real political content, and abjectly subservient to the dictates of corporations and oligarchs. But as Marx foretold, there is a limit to an economy built on the scaffolding of debt expansion. There comes a moment, he warned, when no new markets are available, and no new pools of people who can take on more debt. Capitalism will then turn on the so-called free market itself, along with the values and traditions it claims to defend. It will in its final stages pillage the systems and structures that make capital possible. As it causes widespread suffering it will resort to harsher forms of oppression, and attempt in a frantic last stand to maintain profits by looting state institutions in contradiction of its avowed nature. The final stage of capitalism, Marx grasped, is not capitalism at all.

The guest was Richard Wolff: like Radhika Desai, ideologically close to Michael Hudson and often more on the nail. If you’ve 49 minutes to spare, Richard’s dialogue with Chris will repay with interest the investment.

Here though I want only to pick out the final sentence of Chris’s opening remarks. It chimes with my Part 1 observation of:

… Western capitalism morph[ing] into a fragile system of global rent extraction some call neo-feudalism …

And the relevance to Trump’s tariffs? Bear with me as I set out the argument of Joeri Schasfoort, that tariff mayhem is the opening phase of a concerted effort by some very smart minds around the 47th POTUS to let US capitalism have its cake and eat it by resolving the dilemma framed in Part 1; viz, that America may be sole issuer of a global reserve currency or run a trade surplus. It cannot do both.

Dr Schasfoort, I added, isn’t saying it can – or can’t. Rather, that:

US Treasury Secretary Scott Bessent, and economic advisor to the president Stephen Miran, believe  [it] can. So when Trump says at breakfast he wants America to reindustrialise – and at lunch the dollar must keep a reserve currency status premised since the Nixon Shock on running a trade deficit which leaves creditor economies holding their surpluses in dollars and treasury bonds issued as Washington sees fit – that isn’t because he couldn’t sustain a joined up argument to save his life, but because his team has a strategy.

And what might that be? Here’s Dr Schasfoort’s twenty-four minute answer.

It’s an easy watch: “Janet & John”, as one SCS reader put it, and you won’t catch me slating it for that when so much of what economists put out hides its lack of predictive power ¹ – vital to any discipline aspiring to the status of a science – in arcane obfuscation. The first half covers ground common to Parts 1 and 2 of this series, namely Bretton Woods 1944, Nixon Shock 1971, and the triumph of supply-side monetarism over demand-side Keynesianism heralded by the free for all market liberalisations of Reagan and Thatcher. ²

So far so good, and not especially eyebrow-raising, though something crucial goes unnoticed by Dr Schasfoort. That eclipsing of Keynesianism by monetarism, both as academic orthodoxy and sine qua non  of political electability in our fake democracies, ³ has been accompanied by a more material shift within the West from industrial to finance capitalism. This pachyderm-in-the-parlour oversight leaves him blaming US deindustrialisation on the strong dollar consequent on reserve currency status, its hiking of demand for the greenback making exports uncompetitive. That’s true as far as it goes but the offshoring of manufacturing, to leverage the global south’s cheap labour and ‘business friendly’ aversion to safety and environmental protection, escapes Dr Schasfoort entirely. I cannot emphasise too strongly how so one-sided a diagnosis subverts what he says Team Trump is trying to do. It embodies political, economic and epistemological blind spots traceable, I will argue, to the truth of Chris Hedges’ insight pace  Marx that:

The final stage of capitalism is not capitalism at all.

Before I turn to why that is, and how it relates to Trump’s tariff mayhem, let’s consider The Plan as Dr Schasfoort sees it. Those pushed for time and familiar with the ground covered in the first half of his podcast as summarised – along with its core defect – above may cut to the chase by jumping in at 13:00 for the second half:

The modern master plan for a new global order [is] a plan that is supposed to help re industrialize the US while at the same time keeping the US dollar as the global reserve currency. Because, as Trump himself has said, “if you want to go to third world status, lose your reserve currency. We have to have that. We cannot lose it.”

So how do you keep your reserve currency status, and re industrialize at the same time?

According to Dr Schasfoort, treasury secretary Bessent and SpAd Miran have sold their boss on a three stage plan. If you can, do watch the podcast, its presenter a good communicator who makes excellent use of audio-visuals, including soundbites of Nixon and Trump, Bessent and Miran. The essence though is easily expressed.

Having belatedly seen the dangers of deindustrialisation, not least (though Dr Schasfoort omits this) through the wake-up call of US inability to weaken Russia in the Ukraine, ⁴ both the need to reindustrialise and  retain reserve currency status are clear to all wings of America’s ruling class. Amid the consequent intellectual paralysis, however, only Team Trump believes it has a plan to do both. That plan, says Dr Schasfoort, has these three components:

• Create mayhem in the markets through April 2 “Liberation Day”. (Whether the April 9 ‘pause’ of ninety days marks a setback as bond markets nosedived, or is all part of the Master Plan since it leaves everyone scrambling for position amid the uncertainty of what happens on Day 91, takes nothing away from – nay, adds to – this analysis.)
• Leverage the mayhem through reciprocal tariffs which make bilateral deals with favoured trading partners conditional on their de facto surrender of sovereignty via a …
• … Mar-a-Lago Accord whereby those ‘partners’ pay to be placed under the US security umbrella and  agree to upwardly adjust their currencies when the dollar gets too strong. This from the Australian Broadcasting Corporation, April 10:

According to the Trump administration, more than 70 countries are lining up to try and negotiate their way out of the new levies of up to 49 per cent — which have mostly now been “paused”.

“These countries are calling us up, kissing my ass,” the US president told a Republican event this week in Washington. Many have pre-emptively offered to cut their tariffs on US imports and start buying more American exports. But Mr Trump and his advisers may have a much bigger prize in mind.

Some believe the tariffs are the first step in a strategy to reshape global trade, boost US manufacturing, reduce the US budget deficit and make America’s allies pay for the US security umbrella. It’s being called the Mar-a-Lago Accord. It’s never been confirmed by the Trump administration and is widely regarded by economists as a terrible idea that won’t work. But that doesn’t necessarily mean that Mr Trump isn’t going to try and make it happen.

Why, ask the “terrible idea” nay-sayers invoked by ABC, would the ‘partners’ – including NATO states which routinely fall below the 2% of GDP agreed in 2014 – pay the heftier bill Trump is sure to stick them with? But if Schasfoort is right, Trump is betting on tariff chaos, plus Western elites’ fear of China Rising – and in Europe’s case of Russian boots on the Champs-Élysées and Buckingham Palace Road ⁵ – to sell the deal and square the circle.

Me, I return to a corollary of the flaw I identified earlier. Dr Schasfoort, and more importantly Scott Bessent and Stephen Miran; highly intelligent men who, like so many of the super smart, can be blind to holes – especially holes they are ideologically conditioned not to see – in their otherwise nuanced assessments, attribute US industrial decline to a strong dollar. They really are that reductive. ⁶ Unsurprisingly, since bad diagnoses give rise to worse cures, they seek to reverse US decline by dazzling dollar diplomacy; removing, by sheer chutzpah, manufacturing – ostensibly the point of the exercise – from the equation. Glaringly absent from such a “plan” – Dr Schasfoort prefers the term, “cookbook of options” – is any strategy for re-industrialising a nation which like the West at large has allowed its infrastructure to decay, ceded technological edge to China and ignored the deskilling of its workforce.

(All this, mind, before we even get to the glacial but inexorable movement to challenge dollar hegemony through the BRICS project.)

To all of which there are remedies conditional on two things. One is time – decades of the stuff – in a political economy notoriously short-termist and averse to anything that smacks of central planning. Formidable as those obstacles are, the other is more so. How can a state captured by a rentier  oligarchy possibly acknowledge, far less remedy the fact, that the cause of US decline resides not in an overvalued dollar but in levels of financialisation which – as Marx foresaw and observers like Hedges and Varoufakis now document – dig the grave of capitalism itself?

Tariff mayhem, though uniquely Trumpian, reflects in its long shot desperation not the man’s stupidity, volatility or other mental handicap. It reflects the recognition, shared for all its deep divisions by the US ruling class as a whole, that the days of Western supremacy are numbered.

This applies whether or not Dr Schasfoort is on target with his assessment of what the tariff mayhem is really about. For the most part this post has proceeded as if his understanding of Trump’s intent is accurate. Part 4, by contrast, will question that assumption …

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See also:

Method in madness; Trump’s tariffs Part 1

Method in madness; Trump’s tariffs Part 2

Method in madness; Trump’s tariffs Part 4

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Notes

1. Queen Elizabeth famously asked economists at the LSE why they hadn’t seen the 2008 crash coming. Like other Marxists, I say economics forfeited its ability to understand its own subject when it shifted from the descriptive to the normative. Where Smith, Ricardo, Mill and other classical economists had been dispassionate enquirers, by mid nineteenth century the political implications of a labour theory of value hitherto seen as self evident and unremarkable now argued for its replacement by the subjectivism of marginal utility theory. Since that, like the law of supply and demand, can account for the movement of prices but not price itself, economics was reduced, having abdicated for ideological reasons the role of studying the nature and origins of profit, to that of apologetics and – with mixed success, as Her Majesty discovered on taking a reputed £25 million haircut – that of maintaining capitalism on behalf of its paymasters.
2. I keep making this point because it matters. Market liberalisations in the West after 1980 expedited the deindustrialisation bewailed by Trump and MAGA, while their attendant financialisation set the scene for 2008/9 in a bonfire of regulations, including Glass-Steagall, put in place after the 1929 crash. Those of Deng Xiaoping, by contrast, kept a tight rein on China’s banking sector. The distinction is not lost on bourgeois economists in the West, who have for some two decades witlessly confirmed their lack of predictive power through endless and dire warnings of China’s imminent collapse due to “the heavy hand of the state”. It is  lost, however, on the West’s far Left which, having failed to make its own revolutions, now lectures Beijing on how to build socialism in a neoliberal world. The more clueless ultra-leftists have no interest in differentiating China’s use of industrial capitalism from the West’s rentier  model, while the smarter ones who do nevertheless denounce it – accurately but, absent any convincing alternative, in tones I deem unduly harsh – as state capitalism. That’s an argument for another day.
3. Fake democracies? A Chris Hedges piece of September 2022, Let’s stop pretending America is a functioning democracy, has broader applicability in the West at large:

   Politics is a tawdry carnival act where a constant jockeying by the ruling class dominates the news. The real business of ruling is hidden, carried out by corporate lobbyists who write the legislation, banks that loot the Treasury, the war industry and an oligarchy that determines who gets elected and who does not. It is impossible to vote against the interests of Goldman Sachs, the fossil fuel industry or Raytheon, no matter which party is in office.

   As for “an oligarchy that determines who gets elected and who does not”, while media manufacture of opinion is not the only subversion of democracy, it is the one most easily articulated. Democracy implies consent. Consent is meaningless if uninformed. Informed consent requires truly independent media. That last we do not have when media are, as Chomsky pointed out, “corporations selling privileged audiences to other corporations. Now the question is: what pictures of the world would a rational person expect from this arrangement?”

   More on the systemic corruption of corporate media, including seeming exceptions like public sector broadcasters of BBC, ABC and PBS stripe, here and here and here.

4. Russia’s outperforming of the West in terms of materiel in the Ukraine War has brought home the truth that the manufacturing capacity needed for a war of attrition against a peer adversary has been hollowed out in the West, in whose military industrial complex the interests of profit trump those of effective arms output. My November 20 post, Five things to know about Kiev’s ATACMS, noted the West’s inability to rapidly step up arms production when:

   Surge capacity means maintaining slack – plant standing idle – to enable a near instant stepping up of arms production when needed. Such wastefulness from a profit-centric standpoint requires levels of state oversight which are anathema to the neoliberal mind. Add to this the fact of Raytheon et al having every incentive – costs + 10%  – to make eye-wateringly expensive weaponry which can wow arms fairs, and may do lethally well in seven-day wars on the global south, but whose shortcomings – inability to produce at scale, and unreliability in the heavy usage of protracted war as opposed to the quick-win conditions of “shock and awe” – stand exposed in the Ukraine. Ditto that revolving door between government and the military industrial complex (whose gravy-train influence, by the way, vastly exceeds that of the Israel lobby) which has earned the incumbent [at time of writing] Defence Secretary the moniker, Lloyd ‘Raytheon’ Austin.

5. To be clear, I don’t for a moment suppose the Kremlin has any interest in sweeping west – “first we take the Donbas, then we take Berlin” – but as I’ve observed in many posts – this for instance – on America’s proxy war on Russia in the Ukraine, and Europe’s failed gamble in signing up for it, lying begets credulity. The evidence-defiant propaganda blitz needed first to sell the war as defence of an innocent nation targeted for land grab, then as being won by said innocent nation with a little help from its friends, was believed by political and military leader alike. If cognitive dissonance alone doesn’t argue this point, inability to see, even in purely military terms for the first two years, that this was always a war of attrition rather than one of territorial conquest assuredly does. Any Russian moves beyond her original remit – implementing Minsk in the Donbas, denazification in Kiev, no NATO admission for Ukraine – must now be considered in light of (a) Ukraine’s forfeiture, courtesy Boris Johnson at Istanbul in March 2022, of a territorial integrity now off the table given the oceans of blood subsequently spilt, and shrugged off by BoJo with the whistle, swagger and capacity to lie effortlessly and outrageously that we Brits have had the misfortune to observe over some fifteen years; (b) the West’s failure to meet Russian security needs now increasingly acknowledged even by Western experts as legitimate.

   

6. Just kidding. Bessent and Miran aren’t “really that reductive”  as to blame everything on an overvalued dollar. As noted in Part 1 they also, and even more ridiculously – but with the dual advantage of simplicity and priming Americans for hardships up to and including war – speak of China as “cheating”. That’s a charge I’ll return to in Part 4; here it suffices that whether they blame industrial decay on a strong dollar or unfair trading by Big Bad China, Bessent and Miran are ideologically debarred from siting its root cause in finance capital having for half a century found it more profitable to offshore manufacturing.