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The World Trade War

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The World Trade War

Original by Crimsonalter published at cont.ws; translated exclusively for SouthFront by J.Hawk

Even prior to the signing of the Trans-Pacific Partnership treaty, it became known that Doctors Without Borders (MSF) are preparing a scathingly critical report on the consequences of that pact. The humanitarian organization argues that signing the treaty will lead to a sharp increase in drug prices for millions of users, in many cases leading to premature deaths. One day prior to the TPP, US aircraft bombed an MSF hospital in Afghanistan, killing 12 medical personnel. Pentagon issued condolences. It was a very symbolic coincidence.

We are living in an era of trade wars. People are not dying over metals or ideologies, but over market access.  One must keep in mind that market access and control are not simply means of makign money. It’s much more complicated and terrifying. Market access and control determine who lives and who dies, who will continue to exist and who will be gradually extinguished while helplessly watching as the locomotive of technological and economic progress speeds away.

The laws of economics are merciless. If a country can’t use a big market to recoup its investments in high-tech manufacturing, those products will either not be made at all, or it will take such a long time to recover the investment that the competition, with greater market access and higher investment returns, will move far ahead before the investment cycle is complete.

One of the reasons why USSR lost the Cold War hands down is that the Western global market was far greater than the COMECON market, and moreover far more capitalized. This deserves to be underlined in red: no matter what the economic system, NOBODY can alter the fact that for microprocessor manufacturing to be profitable one has to have orders for at least five million units. That’s a laughably small number for the global market, but for Russia it’s the entire state order plus installing a Russian microprocessor in every mobile device used by the military, police, medical personnel, and teachers in the country. One can certainly compensate for small market size with budget investments, but that usually ends badly and quickly since it reduces the resources one can use to provide social benefits, and moreover even a very wealthy country (for example, USSR) can only afford to support one or two strategic directions in this manner, which means falling behind in others. Thus the inevitable conclusion is this: competition over market access and control is the struggle over a country’s right to exist in the 21st century with 21st century technologies, or otherwise be a country of proud neanderthals in the space age.

One has to also keep in mind that the struggle over market access and control is a zero-sum game. A market one country takes under control is a market lost to others. What is more, it is a time-sensitive game: market capture cannot be delayed until all social problems are resolved and every hipster has his bike route to his beloved office. Unless one moves quickly and immediately, the only path remaining to countries that “don’t find a market niche” will be to serve as organ donors or to line up for visas to a more successful country to clean their toilets.

Russia’s need to expand its markets and the understanding it’s a zero sum game forces a number of obvious and harsh conclusions when it comes to our geopolitical strategy. For example, Ukraine will be either part of the Customs Union or it will be depopulated. Under certain conditions one might carve it up with the EU.

If it’s impossible to capture the Ukrainian market in its entirety, one can slice off a few needed pieces (Donetsk, Lugansk), integrate them, and then repeat the process of slicing and integrating. One should not pay attention to or sympathize with the whining of certain Ukrainian and Belarusian politicians who complain that the process of integration into the Russian market amounts to “capture of the economy by Russian oligarchs”. Russian integration is humane and it always includes profitable opportunities to participate in Russian technology and production chains. One can readily see what an inhumane integration looks like on the example of what Germany did within the EU to the industry of the Baltic States or the Bulgarian nuclear industry.

We’ll return to Russia’s tasks in the sphere of market access and control, but in the meantime let’s look at the recent brilliant US victory on one of the fronts of the world trade war.

After the humiliation in Syria, Obama badly needed a PR victory and he got it. Signing the TPP is clearly a victory for US diplomacy and a hard blow against China’s interests. If journalists of the semi-official Chinese Global Times are forced to write headlines like “Why TPP will not damage China’s economy”, it means that the stakes are genuinely very high. It’s not a reason for hysteria, panic, or the classic internet “we’re done for”, but rather a reason to have a serious discussion about what it is that Washington gained in Asia and what it’s trying to accomplish in Europe.

Contemporary West is not a single market but a more complex structure. A detailed description of the trade agreements and limitations on the West’s trade map which is actually a thick quilt would take a university course, which means here I’ll have to limit myself to broad strokes. There are two important trading blocks, the EU and NAFTA, with trade between them being limited by a whole range of price and non-price (technical) barriers. The well-known European technical requirements, ecological standards, and other bureaucratic “barbed wire” are Europe’s effort to defend Western (actually, German and French) manufacturers from US and other manufacturers. North America under US leadership is defending itself against imports in a similar manner. There is no such bloc in the Pacific, or rather there wasn’t until the US pushed through the TPP. Now many of the markets which China was aspiring to will fall to the US. That’s bad.

One must understand there are several models of integrating smaller markets (Belarus, Latvia, Vietnam)  into larger ones (Customs Union, EU, TPP). The rarest of them is the humane one, or Russian one. The country being integrated has the ability to become part of the technological and manufacturing chains of the larger system, receiving its proportion of profits from the overall market. The more widespread model is the inhumane European one, which entails the annihilation of entire sectors of smaller countries’ economy, and the victims of integration are invited to go into debt to be able to buy German products. But even against that background, what the US is trying to do right now represents a harsh strategy which reminds one of “gunboat diplomacy” of the 19th century. I think everyone remembers how in 1854 the Americans forced Japan to open its markets to US goods, where the US manufacturers could easily destroy any competitors by “addicting” the Japanese to US goods. This also created the basis for Japan’s return visit to Pearl Harbor, but that’s a whole different story.

The two main US foreign policy projects, the TTIP and TPP, represent a new form of market absorption by comparison with which even the EU’s actions toward its weaker members seem like a paragon of justice and humanitarianism. The text of both agreements is classified at the highest level, and the public is only being fed short paraphrases and assurances by officials that the US couldn’t possibly offer them anything bad. The essence of these agreements is not only that participating countries open their markets to one another, but also that the participants’ sovereignty is severely limited. The signatories of the agreement: Japan, Australia, Canada, Malaysia, Mexico, Peru, Vietnam, Chili, Brunei, Singapore, and New Zealand, not only cancel more than 18 thousand taxes and duties on imported (mostly American) goods, but also abdicate their sovereignty in the realm of economic, trade, technical, labor, and ecological regulation. If the international (in most cases–US) corporation believes that a country’s law violates its interests, the corporation can sue the country in a special private (non-governmental) court of arbitrage which may force the country to void the law. The mechanism has already been tested in other trade agreements and works flawlessly. For example, cigarette manufacturers sued the government of the Australian city of Canberra for its efforts to compel cigarette manufacturers place warning labels. There is a reason why labor unions, ecologists, and local manufacturers are protesting the TPP.

The future course of events is clear: armed with cheap credit, the larger and wealthier US firms squeeze weaker competitors from the market, and arbitrage courts defend their interests by preventing victim countries from defending their manufacturers through legislation. This will allow Washington to postpone the collapse of its own economy and prevent TPP countries’ markets to fall to China.
“When more than 95% of our potential clients live outside our borders, we can’t allow countries like China to write the rules of the global economy. We must write these rules, opening new markets to US products and establishing high standards of worker and environmental protections. The agreement signed in Atlanta will ensure that,” Obama said. He really has a reason to celebrate.

How to respond to this success of US diplomacy?

1. China will use all of its lobbying resources to prevent the TPP from being ratified by individual countries. There is the possibility it will be blocked in Canada, Australia, and New Zealand.

2. China will make every effort to ensure countries like Indonesia or South Korea, which are still resisting the colossal US pressure, don’t join the treaty.

3. Most importantly, China and Russia will make every effort to ensure something similar doesn’t happen on the European front, so that the TTIP with the EU is never signed. In order to ensure own development and prevent the US from significantly postponing its own collapse, both Beijing and Moscow need Berlin. One mustn’t allow the US, which postponed its collapse by a couple of decades by looting USSR to repeat the trick with Europe. Whenever you read the statements by yet another “patriot” on how Europe is hopelessly lost and one must abandon efforts to tear it away from the US sphere of influence, keep in mind they are written by a complete idiot or a conscious enemy who is working for Anglo-Saxon think tanks for whom the very idea of a continental European union has been the worst of nightmares for several centuries.

That’s what Putin was talking about at the UN when he touched on the topic of “agreements for the chosen ones” which the US is pushing, offering instead the alternative Russo-Chinese economic cooperation model:

“I’d like to point out another symptom of the growing economic egoism. A number of countries have entered the path of closed, exclusive economic treaties which are negotiated behind the scenes, in secret from their own citizens, from their own business circles, from the society, and from other countries. Other countries, whose interests might be affected, are not being informed about anything. It seems that they want to force us to acknowledge that the rules have been changed, and they have been changed in favor of a narrow circle of participants without WTO participation. This threatens to unbalance the trading system and to fragment the global economic sphere… In contrast to this policy of exclusivity, Russia offers the harmonization of regional economic projects, the so-called integration of integrations based on universal transparent principles of international trade. I’d like to cite as an example our plans to synchronize our Eurasian Economic Union with the Chinese “Silk Road Economic Belt” initiative. We also continue to see big future in harmonizing integrating processes pursued by the Eurasian Economic Union and the EU.” –Vladimir Vladimirovich Putin

Russia and China are offering the EU a model of integration on equal rights with benefits being equally distributed. The logic is simple: it’s better to own 33% of shares of a factory making rocket engines for a big market, than 100% of a bike shop which services one village. European politicians have so far been able to successfully resist the TTIP while at the same time preserving the appearance of readiness to negotiate. The main battles are still ahead, and for the sake of bright future of the entire Eurasian continent, we must win.

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