In the wake of the 2008 financial crisis, tens of thousands of protesters marched on the G20 summit in London demanding jobs, justice and action on climate change. A year later, protests turned violent in Toronto and thousands of activists were incarcerated. The 2017 summit saw the streets of Hamburg transformed into a fiery battle ground between anti-capitalist protesters and police.
This year, in Osaka, Japan, the push back against globalisation is just as evident within the halls of the G20 as outside them. Donald Trump’s ongoing trade war with China is the latest evidence of waning support for globalisation, even among the political class that once so ardently championed it.
The trade war began when Trump imposed 25 per cent tariffs on $50bn worth of Chinese goods early in 2018. China retaliated proportionately, and the US proceeded to impose tariffs of 10 per cent on a further $200bn worth of Chinese imports, threatening to raise the rate to 25 per cent by the end of the year.
All signs pointed to a détente when a truce was agreed in Buenos Aires at the end of 2018. Trump agreed to refrain from raising the tariff rate from 10 to 25 per cent provided the two sides reached an agreement within 90 days.
But the ceasefire was broken in May when Trump raised the rate and threatened to impose tariffs on a further $300bn worth of Chinese goods. Many are hoping that Trump and Xi Jinping will use the time they have together at Osaka to negotiate another truce.
The escalating economic conflict between the world’s two largest economies is the cause of anxiety for onlookers. Earlier this year, the IMF warned that the trade war was the biggest threat to global growth in 2019. Christine Lagarde struck a firm tone ahead of this year’s summit when she warned that the trade war would shave 0.5 per cent off global growth in 2020 — a loss of $455bn: “larger than the size of South Africa’s economy”.
If the trade war was the only storm cloud on the world economy’s horizon this might not be such a significant concern. But the conflict has coincided with a waning global economic recovery.
Trump is nonchalant about the impact of his trade war on both the US and the global economy. His tax cuts gave a short-term sugar high to his core constituency — Wall Street — and unemployment remains at a near-record low (3.6 per cent). Indeed, somewhat paradoxically, the conflict has led to an increase in trade, as US and Chinese importers move orders forward in anticipation of future tariff hikes.
It is also important to remember that Trump’s protectionist rhetoric is hugely popular among large parts of his base. The US’s former industrial heartlands are filled with Trump voters who believe they have been betrayed by politicians preaching the virtues of globalisation. After 40 years of deindustrialisation, many blame Mexican migrants and Chinese factory workers for the decline of their communities.
But the tariffs will soon start to hit Trump voters — on Wall Street and Main Street — unless a deal is agreed. Partly owing to the trade war, global growth in 2019 is expected to be lower than anticipated. The US is nearing the peak of its business cycle, meaning another shock could tip the economy into recession.
It is the Chinese economy, however, that will suffer most from the clash — both because it is more reliant on exports and because China’s growth is already slowing. This may be why Trump believes he can still “win” the trade war, even if it does push both economies into recession. In Trump’s zero-sum view of the world — also held by many of his most vehement supporters — what matters isn’t the net gains or losses from the spat, it’s who loses the most.
The popularity of Trump’s rhetoric, and the potential for a victory over China, however pyrrhic, makes it unlikely the talks will deliver anything more than a temporary ceasefire. The impact on the global economy could be severe. But the continuation of the conflict means more than just lost output — it is also a lost opportunity to address the real issues that have emerged in the global economy since the 1980s.
Because Trump’s rust belt voters are right to be angry about the lies they were sold 40 years ago. Politicians chose to remove restrictions on capital mobility, force sovereign states to implement free-market economic policies, and conduct a race to the bottom on tax and regulation in order to benefit economic elites at the expense of working people.
But they are blaming the wrong people for the stagnation this has caused. The problem isn’t Mexican migrants or Chinese factory workers — it’s the global elite that built an economic model so extractive, exploitative and unstable that it has provoked the kind of nationalist backlash not witnessed since the 1930s. All Trump’s trade war will do is strengthen this elite by allowing them to argue, as they always have, that there is no alternative to neoliberal globalisation.