Socialist Studies Socialist Studies

No.6 The Trade War Between China and The United States

The media is full of comments from economists about the “the trade war” between the United States and China. President Donald Trump has been incensed about the flood of Chinese imports and the reluctance of the Chinese to devalue their currency exposing their markets to greater imports from abroad.

Trump has passed an Executive Order in March in the belief that China deliberately undervalues its currency by as much as 40 per cent so that Chinese goods remain cheap to foreign buyers. President Trump imposed tariffs on as much as $60 billion worth of Chinese goods to combat the rising threat from a nation that the White House has called “an economic enemy.” In addition to the tariffs, the Treasury Department will restrict Chinese investment in American technology firms — a practice that officials said China uses to nurture its own “national champions” in cutting-edge industries like artificial intelligence and autonomous vehicles.

The aim of the legislation is to impose additional duties on Chinese goods until China allows the Yuan to revalue to make its exports more expensive and change its predatory behaviour in forcing American companies to transfer valuable technology and trade secrets, and “systematic” data theft by China through hacking of American computer systems.

The 2017 trade figures showed the US imported $375,227.5 more in goods and services from China in March than it exported. The trade gap increased even as Chinese exports fell in general and US imports to China increased.

However, the US companies making profits importing Chinese goods, and their customers who buy them, are not incensed and are not asking their politicians and government to do anything. They “buy Chinese” because the goods are cheap, and they want to go on buying them. The people who want it stopped and who happen to have got the support of the President are those US manufacturers who are being driven out of business because they cannot produce as cheaply as their Chinese rivals and claimed a perceived unfair manipulation of the currency. It is a development seen many times before in the history of world capitalism but with different countries taking the leading role.

At first it was Britain: “the workshop of the world” which flooded other countries with cheap commodities. Among the later leaders have been the US and Germany. Then it was Japan. Now it is China. In due course it will be Chinese manufacturers’ complaining about cheap imports from India or Brazil. But it will be the Chinese manufacturers who will complain not the Chinese import companies and their customers.

The important aspect of this to take note of is that it is one example of the sectional conflicts of interest inside the capitalist class in each country –those who favour “free trade” and those who favour protective tariffs; the borrowers who want interest rates to fall and the lenders who want them to rise; the export industries pressing for a lower foreign exchange rate for the currency and the import industries pressing for a higher rate; and the capitalists who want inflation with its higher prices. And it is those wanting deflation with its lower prices and those who prefer the gold standard and a stable price level.


The row with China raises the issue of Free Trade. In the mid-nineteenth century two Liberal politicians, Cobden and Bright evolved a comprehensive theory. Each country should, they said, cease all forms of discrimination against foreign goods and always buy in the cheapest market. Prices would fall, production would increase and all would benefit through universal; peace and prosperity.

The theory suited British manufacturers at the time because of the cheapness of their manufacturer would give them access to the markets of all countries operating a free trade policy. The Tory, Benjamin Disraeli, understood the world better than did the Cobdenites when he said that: “the continent will not suffer England to be the workshop of the World”. Not only was he right about that, but within thirty years, when British goods no longer had the advantage of cheapness, the manufacturers were campaigning for protection against foreign imports.

The error of the Cobdenites was in their belief that the nations are simply geographical associations of manufacturers, traders and workers happily co-operating together and ready to join with those in other nations to the advantage of all people.

As a picture of the one hundred and ninety five nations in the world are not recognisable. Capitalism is not like that. In all the nations there is exploitation of one class by another, production carried on for sale and profit, and armed forces both to protect the property of the owners and to maintain their interests against the other nations. The nations were born in conflict and live in conflict.

The nations came into existence, with greater or less violence, out of the break-up of the old empires such as the Turkish and Austro-Hungarian Empires, and later, out of the dismantling of the British, French, Spanish and Portuguese colonial empires. How violently can be seen in our own times because nation forming is still going on; the creation of Israel and its wars with neighbouring States; the break-up of Bangladesh from Pakistan and of Pakistan from India, which now faces separatist movements of the Sikhs in the Punjab and the Ghurkhas in West Bengal; the Corsican independence struggle against France and of the Basques in Spain; the Tamils in Sri Lanka and the movements by the Kurds in Turkey, Syria, Iraq and Iran to form a Kurdish nation. In other parts of the world there are similar movements. In the late 1960’s the Nigerian government in a bloody civil war beat off an attempt by oil-rich Biafra to form an independent State. Over recent years there has been the break-up of what was the Soviet Union and Yugoslavia into smaller countries.

There is a common pattern in all past and present successful and unsuccessful attempts to form new nations. Local groups of politicians and businesses men who think they can do better for themselves on their own form so-called national independence movements, using as their power-base local populations having the same language, or religion, or tribal loyalties or the same facts or legends of history (some Israelis invoke events of some 2,000 years ago).


Marx and Engels sketched out the nation-forming process in the COMMUNIST MANIFESTO in 1848. In opposition to the idealised vision of Cobden and Bright,

The bourgeoisie finds itself in a constant battle…at all times, with the bourgeoisie of foreign nations”.

The principal forms taken by the constant battle are attempts to grab sources of raw materials, minerals and fuels needed for industry and the need to protect the sea and air routes along which they are transported.

An interesting example comes from Alsace and Lorraine. Acquired by France in the 17th and 18th centuries, this area was taken in war by Germany in 1870, re-occupied by France in 1918, retaken by Germany in 1939 and returned again to France after World War 2. The lure was the rich iron ore deposits.

Then there is the so-called trade war between the nations. If has been widely misunderstood and has produced a crop of fallacious theories from economists and others to explain how it works. It can happen, though instances are few, that a group of capitalists induce the government to turn trade war into real war, as when, early in the 19th century, Britain made war on China to force the Chinese government to allow the import of opium into China.

The extent to which a nation depends on foreign trade reflects the extent to which it has all the resources it needs within its borders. The US exported $23 trillion in goods and services in 2017. That generated 12 percent of US total economic output as measured by GDP. However only 1 per cent of US businesses export falling behind China and the EU

For Britain the figure is higher and some other countries like Germany very much more. In general foreign trade ranks in importance far below the strategic interests of the nations. Despite the current “trade war” between the US and China no one has suggested that it might lead to a real war.

As Professor Edwin Cannan pointed out during the 1914 war:

Where there are not supposed to be divergent strategic interests, no amount of divergent or supposedly divergent commercial interests produce either war or preparations for war” (AN ECONOMISTS PROTEST page 26).

Several writers, including J. A. Hobson, Major Douglas, founder of the Social Credit Movement, and the economist J. M. Keynes took a different view, giving the pressure to find export markets an importance out of all proportion with the facts. Keynes in particular (in the last chapter of his GENERAL THEORY), holding that the pressure to export is a principle cause of war. All three based their theories on a supposed, but in fact non-existent, overall “deficiency of purchasing power” in every nation.


The governments in all countries face an acute political problem in the discontent that arises if large numbers of workers are unemployed. They and their advisors are therefore concerned to find out what it is that causes periodic crises, and the depressions which follow the crises, that are an inevitable feature of the whole modern world.

One of the flimsiest of the anti-Marxist theories selects as the cause of crises the restricted purchasing power of the working class because the ability of the workers to buy consumer goods is limited to their wages. The theory held that the industries producing consumer goods soon find themselves in financial difficulties as they compete with each other for a limited market, so a crisis occurs. This theory was known to Karl Marx who ridiculed it. He pointed out that in a boom which is a forerunner to every crisis, the wages of the whole working class not only rise because wage-rates rise as more workers are in work but the working class “get a larger share of the annual product intended for consumption”. So the sales of the consumer goods industries do not go down but go up. As Marx said: “such a period should rather remove a crisis”.

Hobson, Douglas and Keynes put forward a more substantial version of the deficiency theory. They argued that the combined purchasing power of the capitalists and the workers together is insufficient to buy all the commodities on sale on the market. They offered different reasons for this deficiency.

Hobson said it was due to the existence of monopolies. Douglas said it was because the government did not put enough currency (notes and coins) into circulation. Keynes said it was because the government borrowed and spent too little to create full employment.

There is no need to go into the details of their theories because history has disproved them all. Crises and depressions with mass unemployment occurred before monopolies were formed and after they had been suppressed. The amount of currency in circulation in 2017 was £3,663 million with something like 32.2 million people employed which is more than 18 times what it was in the 1950’s when there was a continuing labour shortage. There has been a similar big increase of government borrowing and spending during the last decade compared with the 1950’s.

Louis Boudin, who had written usefully about Marxian economics in his THE THEORETICAL SYSTEM OF KARLMARX, went quite off the rail about the supposed deficiency of purchasing power and consequent compulsive pressure to find markets for exports. He argued that industrially developed countries cannot export to each other at all. There only outlet, he said, is in primitive economies not yet in the sphere of capitalism. So as those economies become industrially developed all exports would dry up. Rosa Luxemburg put forward a similar theory in her book THE ACCUMULATION OF CAPITAL. Boudin and Luxemburg expressed these views some seventy years ago but the volume of world trade now is enormously greater than it was then, most of it between the industrially developed nations.

If it were true that capitalists have to export because of a deficiency of purchasing power at home and therefore British capitalism had to export in 2016 $404 billions who is who bought $625 billions of imports?


Marx dealt with and disposed of the whole deficiency theory. There is and cannot be an overall deficiency of purchasing power to buy back all the commodities on sale in the market. However, possessing purchasing power is not the same thing as using it at once to but commodities in the market.

Marx made this point in his reply to the French economist J. B. Say in the first volume of CAPITAL (Chapter on Money, or the Circulation of Commodities). Say held that a serious depression is impossible because, in his phrase, “every seller brings to market a buyer”, by which he meant that every capitalist who has sold commodities then has the money with which to go out at once and buy other commodities. To which Marx replied by pointing out that being able to buy at once does not mean a capitalist has to buy at once: “No-one is forthwith bound to purchase, because he has just sold

”. He went on to say: “if the interval in time…between the sale and the purchase becomes to pronounced, the intimate connexion between them, their oneness, asserts itself by producing - a crisis”.

If the buyers of a certain line of commodities suddenly cease to buy them the industry producing the commodities is in financial trouble. This happens because in every boom some industries over-produce for their particular market. Prices drop, profit margins disappear and production is curtailed or halted. Because of the growing unemployment, the total wage of the working class falls and with it the sale of consumer goods too. Capitalists produce to make a profit. They are not interested in production for its own sake. It is how the capitalists behave that cause crises, not the limited purchasing power of the working class.


It has to be emphasised that the “trade war” is not just about exports but about both imports and exports. The pressure behind both is the same, the search for profits by the import and export capitalists. The competition is the same. Export capitalists compete with each other for overseas markets and with foreign manufacturers. Import capitalists compete with each other and with foreign manufacturers for access to the home market. Each section seeks to get backing of government by seeking subsidies, tariffs or restrictive taxes in their own particular interest. Sometimes governments put obstacles in the way of the export industries in order to help home producers.

At the beginning of the 20th century the British government levied a heavy tax on every ton of coal exported. The coal owners objected but it was welcomed by the British factory owners because it meant lower coal prices in the home market. The Argentine government levies a tax on the export of meat and the Indian government fixes a minimum price for the export of tea. Only the high priced tea can be exported, with the effect of keeping prices low and promoting sales in the home market. Developing nations producing raw materials to be manufactured abroad eventually decide to restrict exports in order to promote the development of manufacturer at home. It all depends on which section of the capitalist class succeeds in getting government support for its particular benefit.

Whatever countries exist in the world, whatever section of the capitalists wield effective political power, the position of the working class is clear enough.

The interests of the working class lie in the abolition of capitalism and its classes by replaced the profit system with Socialism, a higher social system altogether, which will have no need for countries, trade wars or real wars, poverty and its related problems and insecurity. Instead of the constant search for profit through the exploitation of workers, production of useful things will be carried out because they are needed. Gone will be the days of taxes, tariffs, and all the other hallmarks of private property society.

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