Reports from the Economic Front

a blog by Marty Hart-Landsberg

Category Archives: US Foreign Policy

Media Complicity Increases The Possibility Of A New Korean War

Tensions between the US and North Korea are again rising in the wake of North Korea’s November 28th test of an ICBM that experts believe has the potential to deliver a nuclear bomb to cities on the east coast of the US, including Washington D.C.

As I have written before, we desperately need to change US foreign policy towards North Korea.  North Korea’s leaders continue to seek talks with the United States, with all issues on the table, those of concern to them and those of concern to the US government.  But the US government continues to refuse.  The Trump administration has even rejected North Korean offers to freeze its production and testing of missiles and nuclear weapons in return for a halt to US war games directed against North Korea.

Instead, Trump continues Obama’s strategy of responding to every North Korean missile launch or nuclear test with new military threats and sanctions.

Unfortunately, changing US foreign policy towards North Korea is no easy matter.  One reason is that there are powerful forces opposing a de-escalation of tensions.  Sadly, the tension is useful to the US military industrial complex, which needs enemies to support its desire increase in the military budget.  It is also useful to the US military, providing it with a justification for maintaining troops on the Asian mainland and in Japan.  The tension also helps the US government isolate China and boost right-wing political tendencies in Japan and South Korea, developments favorable to our own militarists and right-wingers.  Of course, the costs of US policy fall on ordinary people.

Another reason for the difficulty in changing US policy towards North Korea is that the US media does little to provide the context necessary for people in the United States to understand its lawless and destructive nature.

The illegality of Trump administration threats of destruction

The Trump administration has repeatedly threatened North Korea with total destruction.  What is missing from media accounts of these threats is the explanation that they represent a violation of the UN Charter and international law.  As Gavan McCormack explains:

According to the UN Charter’s Article 2 (3), disputes between states must be settled by peaceful means and (4) “All members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state …” [italics added]. Article 33 further specifies the obligation of parties to any dispute likely to endanger international peace and security to “first of all, seek a solution by negotiation inquiry, mediation, conciliation … or other peaceful means of their own choice.” By ruling out negotiations with North Korea and insisting only on submission, the US, Japan and Australia ignore or breach this clear rule (and Japan breaches also the proscription on the “threat or use of force as means of settling international disputes” in its own constitution). Going beyond that, President Trump has also not only insulted the North Korean leader from the platform of the UN General Assembly but actually threatened his country with “total destruction,” by “fire and fury, and frankly power the likes of which this world has never seen before.” That surely qualifies as threat. It is even genocidal, and therefore criminal behavior, not only on the part of those (Trump) who utter it but on the part also of those like Abe and Turnbull (to whom perhaps now India’s Modi is to be added) who endorse and encourage it.

Moreover, in 1996, the International Court of Justice, in response to a UN request, ruled that threats to use nuclear weapons against another country are a violation of international law except “in an extreme circumstance of self-defense, in which the very survival of a State would be at stake.”  In certainly seems clear that the US is in violation of international law because of its repeated threats and military exercises designed to practice a nuclear attack on North Korea.

Tragically, the US media has remained silent about this lawlessness on the part of the US government.

The illegality of US-initiated UN sanctions on North Korea

The US has aggressively pursued the adoption of UN sanctions on North Korea.  The ones adopted in August and September are the most sweeping yet. They call for blocking North Korean exports of coal, iron, iron ore, lead, lead ore, seafood and textiles, all of which are important earners of foreign exchange. The resolutions also ban countries from opening new or expanding existing joint ventures in North Korea or renewing labor export agreements.  They also impose a cap on the amount of oil North Korea is allowed to import and call for a total ban on the country’s import of natural gas and condensates.  If rigorously enforced these sanctions will devastate living conditions for the great majority of North Koreans.

However, sanctions that target an entire population with the aim of causing economic collapse, such as those being imposed on North Korea, are illegal under the UN charter.  As McCormack points out:

Only sanctions carefully tailored to apply to those who act in the name of the government and bear responsibility for its offensive actions may be legitimate. . . . The point is clear that that those imposing sanctions bear an obligation to ensure they impact only upon those who are in a position of power, not on innocent civilians. There is reason to wonder if the United Nations itself, by the ordering of collective punishment of the entire North Korean people for offenses committed by their government, may be acting criminally.

Again, where are the stories pointing out the lawlessness of US and UN actions?

The missing explanation of North Korean responses to US policy

The reporting on North Korea’s November 28th ICBM test offers another example of the US media’s failure to educate its readers. For example, here is the LA Times:

The launch is North Korea’s first since it fired an intermediate-range missile over Japan on Sept. 15, and may have broken any efforts at diplomacy meant to end the North’s nuclear ambitions. U.S. officials have sporadically floated the idea of direct talks with North Korea if it maintained restraint. . . .

Italy’s U.N. Ambassador Sebastiano Cardi, the current Security Council president, told reporters late Tuesday that “it’s certainly very worrying. Everybody was hoping that there would be restraint from the regime.”

This reporting certainly suggests that North Korea just doesn’t want peace no matter how hard the US and broader international community try.  But the story changes if we provide some missing context.

Since 2013 North Korea has offered to halt its testing of missiles and nuclear weapons if the US would halt its war games.  The US organizes two different annual war games in South Korea, the first is held over March and April and the second is in August.  But from time to time, it also engages in other smaller military exercises on and near the Korean peninsula.

The August 2017 war games included planning for a nuclear attack and “decapitation” of North Korea’s leadership.  These August war games are smaller than the March-April ones but still large.  This one included some 20,000 US and 50,000 South Korean troops.  And this year, for the first time, they were combined with a separate 18 day live-fire exercise involving US and Japanese forces on the northern Japanese island of Hokkaido.

North Korea responded to these threatening maneuvers by first firing a missile over Hokkaido on August 29, the day after the completion of the US-led exercises.  Then on September 3, it conducted its sixth and largest test of a nuclear weapon.  And finally, on September 15, it tested a new intermediate-range missile to demonstrate its ability to hit the major US air base in Guam.

There are 75 days from September 15 to November 28; this is an important interval.  The reason is that the US had publicly called upon North Korea to halt its missile testing for at least 60 days to show its good will.

For example, in August, Secretary of State Rex Tillerson told a group of reporters that “The best signal that North Korea could give us that they’re prepared to talk would be to stop these missile launches . . . We’ve not had an extended period of time where they have not taken some type of provocative action by launching ballistic missiles. So I think that would be the first and strongest signal they could send us is just stop, stop these missile launches.”  And in October, Joseph Yun, the U.S. State Department’s top official on North Korea policy, told an audience at the Council on Foreign Relations “that if North Korea halted nuclear and missile testing for about 60 days, that would be the signal the United States needs to resume direct dialogue with Pyongyang.”

As we have seen, the North Koreans did refrain from missile launches and weapon tests for more than 60 days.  But, what did the US do during that time to encourage North Korea?

On September 23 the Pentagon sent B-1B Lancer bombers, nicknamed “the swan of death,” to fly over international airspace just off the coast of North Korea, the first time since the Korean War that a U.S. bomber flew over North Korea’s east coast.

Then for five days, starting October 16, the US conducted joint naval exercises with South Korea that included the nuclear aircraft carrier Ronald Reagan, three nuclear submarines, Aegis destroyers and more than 40 other battleships and numerous fighter aircraft.

In November, the US conducted more navel drills.  This time it was a four-day exercise involving three aircraft carriers–the USS Ronald Reagan, Theodore Roosevelt and Nimitz–and their multiship strike groups in the waters between South Korea and Japan.  This was the first time all three aircraft carriers were together in the Western Pacific in a decade.  South Korean and Japanese warships also participated in the exercise.

Also in November, President Trump placed North Korea back on the list of state sponsors of terrorism, which meant new sanctions.  And finally, again in November, the US announced yet another war game to be scheduled for the period December 4-8 involving US, Japanese, and South Korean forces.  Called Vigilant Ace, the military announced that this exercise would includeenemy infiltration” and “precision strike drills” and involve 8 air bases, 12,000 soldiers, and 280 aircraft, including the two stealth fighters, the F-22 and the F-35.  This was to be the first time that the F-22 and F-35 would be used in war games on the Korean peninsula.

So, after waiting 75 days, and observing US actions, all of which were hostile, North Korea not surprisingly responded with the launch of its most powerful ICBM, showing the US that it could target even its capital if attacked.  But by presenting this missile launch without the appropriate context the media made it appear as just another example of North Korea’s recklessness and hostility.

 

Sadly, we have a lot of work to do.

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Challenging US Foreign Policy Toward North Korea

It is an understatement to say that relations between the US and North Korea are very tense—the US government continues to threaten to further tighten economic sanctions on North Korea and launch a military attack to destroy the country’s missiles and nuclear weapons infrastructure.  And the North for its part has said it would respond to any attack with its own strikes against US bases in the region and even the US itself.

Making matters worse are Trump’s personal attacks on Kim Jong Un, the head of the North Korean government.  And as an indicator of how much tensions have ramped up, Kim himself spoke, responding in kind to Trump.  It is very rare, in fact this may be the first time, that a North Korean leader has personally responded to comments made by another government; usually the North Korean position is conveyed by a government official or their news service.

This is obviously not a good situation, but it is also important to realize that what is happening now is not new.  The US began conducting war games with South Korean forces directed against the North in 1976 and it was not long before those included simulated nuclear attacks against the North, and that was before the North had any nuclear weapons.  In 1994, President Bill Clinton came very close to launching a military attack on North Korea.  In 2002, President Bush talked about implementing a naval blockade of North Korea and seizing its ships, an act of war, and also announced the adoption of a new National Security Strategy under which the US announced its right to take pre-emptive military action against any nation that it felt posed a threat to US interests, with North Korea said to be at or near the top of the list.  Since 2013, the US has conducted annual war games involving planning for preemptive attacks on North Korean targets that include the use of nuclear weapons and what the military calls the decapitation of the North Korean leadership.

The point here is not just that we have a history of threatening war, including nuclear attack, against the DPRK, but that it is a bipartisan history, involving both Democratic and Republican administrations.

Although we have thankfully so far averted a new Korean war, the cycle of belligerency and threat making on both sides is intensifying, and it is always possible that a miscalculation could trigger the start of military actions.  However, and this is very important, even if war is averted, the high level of tension between the US and North Korea itself comes with unacceptably high costs.

President Trump is continuing the strategy of past administrations of responding to every North Korean missile launch or nuclear test with new sanctions.  These sanctions are cutting deep, hurting North Korean living conditions.  It is collective punishment of the entire North Korean population.  As Gregory Elich explains, the US is already at war with North Korea, “doing so through non-military means, with the aim of inducing economic collapse.”

For example: UN resolution 2371, passed August 5, 2017, aims to block North Korea “from exporting coal, iron, iron ore, lead, lead ore, and seafood, all key commodities in the nation’s international trade. The resolution also banned countries from opening new or expanding existing joint ventures with the DPRK.”  UN resolution 2375, passed September 11, 2017, is designed to further limit “North Korea’s ability to engage in international trade by barring the export of textiles. It is estimated that together, the sanctions may well eliminate 90 percent of the DPRK’s export earnings. . . . The September resolution also adversely impacts the livelihoods of North Korea’s overseas workers, who will not be allowed to renew their contracts once they expire.”

The social costs of US policy are not limited to North Koreans, although they bear the greatest burden.  The tensions generated by the escalating US-NK standoff are helping to fuel greater military spending and militarization in Japan and China, as well as the US.  This is a dynamic that strengthens the political power and influence of dangerous rightwing forces in all these countries.  And in South Korea, these tensions are already at work undermining democratic possibilities, as labor leaders are jailed, civil rights curtailed, and progressive political parties disbanded in the name of national security.

So, it is not enough for us to just work to oppose outright military conflict.  We need to change the dynamics driving US and North Korean relations.  And, there is no mystery about the best way to achieve this end: the US needs to accept DPRK offers for direct negotiations to end the state of hostility between the two countries.  Unfortunately, there is no shortcut to forcing the US to the negotiating table. It requires building a strong popular movement that can cut through the myths and distortions that the US media and government promote in defense of current policy.  For an example of some of what we must overcome, see “The need for a new US foreign policy towards North Korea.”

Cutting through the myths and distortions also requires that we hear progressive voices from South Korea.  Jang Jinsook, Director of Planning of the Minjung Party of South Korea, a new progressive party that will formally launch on October 15, is one such voice.  What follows is a short excerpt from her talk titled “Honoring The Candlelight Revolution In A Time Of Looming War In Korea” that was given at the People’s Congress of Resistance at Howard University in Washington, D.C., in mid-September: 

The U.S.-North Korea Conflict: The Final Stage

Military tension between North and South Korea has always been headline news in Korea. Every year in March and August, when the U.S. and South Korean militaries conduct their massive military exercises, tensions escalate, and each time, people in Korea experience renewed fear: “Maybe this time, it will really lead to war.”

The U.S. and South Korean militaries say these are routine exercises, but they deploy weapons of mass destruction, rehearse the occupation of North Korea, and simulate real-war scenarios as well as the decapitation of the North Korean leadership. North Korea has strongly objected to these exercises, but this has been going on for a long time.

The Korean peninsula has always lived with the imminent threat of war. But until recently, it never made headline news in the United States.

I’ve been seeing the headlines in U.S. news in the few days I’ve been here: “Kim Jong-un, North Korea, missiles….” This ironically pleased me because finally what was once considered only a problem of the Korean peninsula has now become a U.S. problem. Now that the war threats are acute, it has finally become headline news in the United States.

It is the United States that has conducted the greatest number of nuclear tests, possesses the greatest nuclear arsenal, and has actually dropped atomic bombs on a civilian population. North Korea is in the stage of developing and testing nuclear weapons, opposes U.S. aggression and sanctions, and demands a peace treaty. Which party is the real threat?

For the first time in a long time, defending the U.S. mainland from the threat of nuclear war has become a priority policy agenda for the U.S. government. Of course, news about North Korea must be distressing for the people who live in the United States.

But it is the U.S. government that has created this situation, and the solution is quite simple. It is to realize a peace agreement between the United States and North Korea.

The more the United States piles on sanctions against North Korea through the UN, the more North Korea will become hostile and the two countries will inch closer to war. And the more this crisis intensifies, the U.S. government will sell more weapons to South Korea and increasingly meddle in South Korea’s internal affairs.

For the past sixty years, since the Korean War and the 1953 signing of the Mutual Defense Treaty between South Korea and the United States, South Korea has been a military outpost for the United States. The so-called U.S.-ROK alliance seriously undermines the sovereignty of South Korea. The forced deployment of the U.S. THAAD missile defense system is a case in point.

We demand the following:

  1. The United States must end sanctions against North Korea, which are an act of war.
  2. North Korea and the United States must sign a permanent peace agreement.
  3. U.S. forces in Korea should withdraw from the Korean peninsula along with their weapons of mass destruction.
  4. The United States must stop meddling in South Korea’s internal affairs.
  5. Lastly, we must build enduring solidarity for peace in Korea and across the world.

 

You can read her entire speech and learn more about the Minjung Party of South Korea here, on the Korea Policy Institute website.

The Bipartisan Militarization Of The US Federal Budget

The media likes to frame the limits of political struggle as between the Democratic and Republican parties, as if each side upholds a radically different political vision. However, in a number of key areas, leaders of both parties are happy to unite around an anti-worker agenda.  Support for the military and an aggressive foreign policy is one such area.

On September 18, US senators approved the National Defense Authorization Act (NDAA) of 2018.  Donald Trump had proposed increasing the military budget by $54 billion.  The Senate voted 89-9 to increase it by $37 billion more than Trump sought.  In the words of the New York Times:  “In a rare act of bipartisanship on Capitol Hill, the Senate passed a $700 billion defense policy bill on Monday that sets forth a muscular vision of America as a global power, with a Pentagon budget that far exceeds what President Trump has asked for.”

The NDAA calls for giving $640 billion to the Pentagon for its basic operations and another $60 billion for war operations in other countries, including Iraq, Syria, and Afghanistan.  The House passed its own version of the bill, which included a smaller increase over Trump’s request as well as new initiatives such as the creation of a Space Corps not supported by the Senate.  Thus, the House and Senate need to reconcile their differences before the bill goes to President Trump for his signature.

It is clear that Democratic Party opposition to Trump does not include opposition to US militarism and imperialism. As Ajamu Baraka points out:

Opposition to Trump has been framed in ways that supports the agenda of the Democratic Party—but not the anti-war agenda. Therefore, anti-Trumpism does not include a position against war and U.S. imperialism.

When the Trump administration proposed what many saw as an obscene request for an additional $54 billion in military spending, we witnessed a momentary negative response from some liberal Democrats. The thinking was that this could be highlighted as yet another one of the supposedly demonic moves by the administration and it was added to the talking points for the Democrats. That was until 117 Democrats voted with Republicans in the House—including a majority of the Congressional Black Caucus—to not only accept the administration’s proposal, but to exceed it by $18 billion. By that point, the Democrats went silent on the issue.

It is important to keep in mind that, as William D. Hartung shows, “there are hundreds of billions of dollars in ‘defense’ spending that aren’t even counted in the Pentagon budget.” Hartung goes agency by agency to show the “hidden” spending.  As he notes:

You might think that the most powerful weapons in the U.S. arsenal — nuclear warheads — would be paid for out of the Pentagon budget.   And you would, of course, be wrong.  The cost of researching, developing, maintaining, and “modernizing” the American arsenal of 6,800 nuclear warheads falls to an obscure agency located inside the Department of Energy, the National Nuclear Security Administration, or NNSA. It also works on naval nuclear reactors, pays for the environmental cleanup of nuclear weapons facilities, and funds the nation’s three nuclear weapons laboratories, at a total annual cost of more than $20 billion per year.

Hartung’s grand total, which includes, among other things, the costs of Homeland Security, foreign military aid, intelligence services, the Veterans Administration, and the interest on the debt generated by past spending on the military, is $1.09 Trillion.  In short, our political leaders are far from forthcoming about the true size of our military spending.

Militarization comes home

Opponents of this huge military budget are right to stress how it greatly increases the dangers of war and the harm our military interventions do to people in other countries, but the costs of militarism are also felt by those living in the United States.

For example, ever escalating military budgets fund ever new and more deadly weapons of destruction, and much of the outdated equipment is sold to police departments, contributing to the militarization of our police and the growing use of force on domestic opponents of administration policies, the poor, and communities of color.  As Lisa Wade explains:

In 1996, the federal government passed a law giving the military permission to donate excess equipment to local police departments. Starting in 1998, millions of dollars worth of equipment was transferred each year, as shown in the figure below. Then, after 9/11, there was a huge increase in transfers. In 2014, they amounted to the equivalent of 796.8  million dollars.

Those concerned about police violence worried that police officers in possession of military equipment would be more likely to use violence against civilians, and new research suggests that they’re right.

Political scientist Casey Delehanty and his colleagues compared the number of civilians killed by police with the monetary value of transferred military equipment across 455 counties in four states. Controlling for other factors (e.g., race, poverty, drug use), they found that killings rose along with increasing transfers. In the case of the county that received the largest transfer of military equipment, killings more than doubled.

Militarization squeezes nondefense social spending 

Growing military spending also squeezes spending on vital domestic social services, including housing, health, education, and employment protections, as critical programs and agencies are starved for funds in the name of fiscal responsibility.

The federal budget is made up of nondiscretionary and discretionary spending.  Nondiscretionary spending is mandated by existing legislation, for example, interest payments on the national debt.  Discretionary spending is not, and thus its allocation among programs clearly reveals Congressional priorities.  The biggest divide in the discretionary budget is between defense and nondefense discretionary spending.

The nondefense discretionary budget is, as explained by the Center on Budget and Policy Priorities:

the main budget area that invests in the nation’s future productivity, supporting education, basic research, job training, and infrastructure.  It also supports priorities such as providing housing and child care assistance to low- and moderate-income families, protecting against infectious diseases, enforcing laws that protect workers and consumers, and caring for national parks and other public lands.  A significant share of this funding comes in the form of grants to state and local governments.

As we see below, nondefense discretionary appropriations have fallen dramatically in real terms and could potentially fall to a low of $516 billion if Congress does not waive the sequestration caps established in 2011.

The decline is even more dramatic when measured relative to GDP.  Under the caps and sequestration currently in place, nondefense spending in 2017 equaled 3.2 percent of GDP, just 0.1 percentage point above the lowest percentage on record going back to 1962.  According to the Center on Budget and Policy Priorities, “That percentage will continue to fall if the caps and sequestration remain unchanged, equaling the previous record low of 3.1 percent in 2018 and then continuing to fall (see the figure below).”

Looking ahead

As the next figure shows, the proposed Trump budget would intensify the attack on federal domestic social programs and agencies.

If approved, it “would take nondefense discretionary spending next year to its lowest level in at least six decades as a percentage of the economy and, by 2027, to its lowest on that basis since the Hoover Administration — possibly even earlier.”  Of course, some categories of the proposed nondefense discretionary budget are slated for growth–veterans’ affairs and homeland security–which means that the squeeze on other programs would be worse than the aggregate numbers suggest.

No doubt the Democratic Party will mount a fierce struggle to resist the worst of Trump’s proposed cuts, and they are likely to succeed.  But the important point is that the trend of militarizing our federal budget and society more generally will likely continue, a trend encouraged by past Democratic as well as Republican administrations.

If we are to advance our movement for social change, we need to do a better job of building a strong grassroots movement in opposition to militarism.  Among other things, that requires us to do a better job communicating all the ways in which militarism sets us back, in particular the ways in which militarism promotes racism and social division, globalization and economic decay, and the deterioration of our environment and quality of life, as well as death abroad and at home, all in the interest of corporate profits.  In other words, we have to find more effective ways of drawing together our various struggles for peace, jobs, and justice.

It is time for audacity: demand the termination of NAFTA and KORUS.

Unfortunately, progressive forces appear content to harp on Trump policies rather than provide leadership in building a class-based movement for real change.  Exhibit A: the unwillingness of key US progressive groups to call for the termination of the North American Free Trade Agreement (NAFTA) and the Korea-US Free Trade Agreement (KORUS).

President Trump has demanded changes to both agreements and threatened to cancel them if he doesn’t get the changes he wants.  He declared NAFTA the worst trade agreement in American history.  He called KORUS a “horrible deal” that has left America “destroyed.” Progressives fought hard to stop approval of both NAFTA and KORUS when they were being negotiated, but now that Trump has raised the possibility of their termination, they seem reluctant to take up the demand.   In my opinion, that is a big mistake.

The costs of holding back

Take the current NAFTA negotiations.  Progressives seem content to criticize Trump’s negotiating process for being nontransparent and negotiating agenda for being too restricted, in particular avoiding change to the Investor-State Dispute System (ISDS). Both true criticisms.  But where is the call for actual withdrawal from the agreement?

For example, here is the AFL-CIO’s trade and globalization policy expert on the current NAFTA negotiations:

On Sept. 5, the United States, Canada and Mexico finished the second round of talks on renegotiating a new North American Free Trade Agreement. The AFL-CIO laid out 17 ways that NAFTA needs to be improved so that we can have a North American economy that works for families, not just global corporations. So how well are the U.S. negotiators doing at creating a better deal for workers? Not well.

Granted, it is early in the process, and we don’t know a lot yet, but that’s part of the problem.

Our number one recommendation was that negotiators should be more transparent, most importantly by making public the rules they’re proposing for the new NAFTA. So far, the U.S. negotiators are failing. There has been no improvement in making the process open to the general public. As working people know, if we are not at the table, we are on the menu, so this grade is crucial.

In some important areas, the United States has not made proposals, including on labor and tax dodging. In other important areas, such as rules of origin or Buy American, the U.S. proposals are incomplete. Basically, this progress report has a lot of incomplete grades.

Is the U.S. team doing well in any areas at all? Well…the positions on enforcement and state-owned enterprises are a good starting point but need to go much further.

In sum, the U.S. negotiators need to up their game. If I were still a teacher and the U.S. negotiators were in my class, I’d be calling the parents tonight to work out an improvement plan to make sure they could pass my class. Of course, there is still plenty of time left to bring the grade up, but the question is whether the U.S. negotiators are motivated to improve or whether they just want to keep recycling failed trade ideas that will add up to another pro-corporate, anti-worker deal.

Another example: a coalition of major progressive groups has united around the demand to remove the ISDS from the NAFTA agreement.  Here is the text of their call to supporters:

If you live in North America, we need you to make sure your government representative stops a corporate power grab in the new NAFTA renegotiations.

NAFTA gave vast new powers for corporations that make it easier to offshore jobs and attack the environmental and health laws on which we all rely.

Deals like NAFTA give multinational corporations the power to sue governments in front of a tribunal of three corporate lawyers. These lawyers can order taxpayers to pay the corporations unlimited sums of money, including for the loss of expected future profits.

The multinational corporations only need to convince the lawyers that a law protecting public health, digital rights or the environment violates their special NAFTA rights. The corporate lawyers’ decisions are not subject to appeal.

This corporate power grab is formally called Investor-State Dispute Settlement (ISDS).

END ISDS: Add your name to demand that any North American Free Trade Agreement (NAFTA) renegotiation removes the corporate power grab known as ISDS.

If You Live In the U.S., Canada or Mexico:

Add your name to tell your government representative (in the U.S., your member of Congress) to commit to oppose any North American Free Trade Agreement (NAFTA) renegotiation or any other agreement that includes Investor-State Dispute Settlement (ISDS).

This focus on the limitations of the process and agenda is problematic for many reasons.  One is that the call for reform can quickly become muddied as people struggle to understand the complex legal and technical nature of the agreement’s various chapters and evaluate whether changes that might be proposed will actually improve or worsen the agreement.

In this regard, it is possible that a renegotiated NAFTA agreement will actually include changes to the ISDS, ones that were proposed by the Obama administration for the Transpacific Partnership agreement.  If that happens, the progressive movement may well find itself divided and unable to communicate a clear position on the agreement’s renewal.

An even more important reason that the call for NAFTA reform is problematic is that it encourages people to believe that the US government is capable of representing something called the “national interest” and that it is possible for a “good” agreement to somehow emerge from the negotiations.  But really, these are corporate agreements negotiated by a captured state to advance a corporate agenda.

In point of fact, if you have a domestic economic agenda that is designed to weaken unions, privatize public services, slash taxes, and deregulate economic activity, like that of the US over the last several decades, then it is almost impossible to have a progressive international economic policy.  International policy flows out of domestic policy.  Said differently, you can’t have anti-worker domestic policies and hope to tack on a progressive international policy.

This means that the progressive movement, anchored by the trade union movement, needs to attack on all fronts in a consistent way, demanding wholesale change in US economic policy by highlighting the integrated and destructive nature of both domestic and international economic policy.  Until that happens, we will remain as we are now, in a situation where international economic issues are largely seen as an add on or set of separate issues that are highly technical and largely divorced from what are considered to be the more important domestic challenges.

Unfortunately, there has been almost no discussion by the progressive community of the KORUS renegotiation.  Public Citizen has been one of the few groups to take the issue on, and it has called for the agreement’s termination, although largely because of the exploding trade imbalance between Korea and the US.  It also correctly points out that most Koreans also oppose the agreement.

The odds are overwhelming that Trump will not terminate NAFTA or KORUS.  Rather it is more likely that the negotiations will end up producing a few minor improvements and several major extensions that will expand corporate power.   If we continue to call for reform rather than termination we will again find ourselves on the political sidelines, with working people turning to the mainstream media for analysis and evaluation, where they will receive misleading information on what was negotiated and the consequences of the renegotiated agreements.

If we want to build a class movement it is time for us to show leadership.  We need to do more than challenge Trump to improve these agreements.  We need to demand that he terminate them; we should call his bluff.

What is holding us back?

So, what is holding us back?  Three reasons come to mind.  The first is that the progressive movement in the US fears being tainted with Trump nationalistic rhetoric.  Some activists have told me that the termination of NAFTA to defend US interests will leave Mexico in a bad situation.  This belief highlights the desperate need within our movements for more class analysis.  The demand for termination is not a demand to defend US interests at the expense of Mexican interests, it is a demand that asserts the rights of workers in the US, Canada, and Mexico against the interests of big capital in all three countries.

A second reason is the fear of being labeled a protectionist.  Most of the progressive movement has always mistakenly accepted the notion that these agreements are primarily about trade. They are clearly about far more than that.  Actually, one could say that one is for fair trade, as most progressive movements like to do, and demonstrate that we could have fairer trade without these agreements.  Having allowed successive administrations to cleverly identify these agreements with trade, the progressive movement has undermined its ability to highlight and take-on the broader neoliberal economic agenda that drives and shapes them.

These agreements are above all designed to boost capitalist mobility, power, and profits.  By making that clear, we can show that our demand for termination is not based on a simple objection to trade, and thus does not represent for a call for protectionism as commonly understood.  Rather, our demand is motivated by a determination to refashion our economy and help workers in other countries do the same; demanding an end to NAFTA and KORUS allows us to stand with workers in Canada, Mexico, and Korea who have also suffered as their economies have become more globalized and dominated by global capitalist accumulation dynamics.

The final reason, and one rarely voiced, is the fear of the unknown.  The media drums into our heads that existing agreements are all that stand in the way of chaos.  We are told that the world economy might spiral into depression if NAFTA and KORUS are terminated.  That is hooey.  If we end these agreements the world will not end.  We still have the WTO after all; trade will continue. But we will terminate chapters that encourage deregulation, privatization, monopolization, capital mobility, competition between workers, and union busting.

Clearly, we need to strengthen our confidence in the belief that there can be life after capitalism, that we can build movements that have the capacity to restructure economic relationships and patterns of economic activity along more sustainable, solidaristic, egalitarian, and democratic lines.  This will never happen if we fear mounting a direct challenge to capitalist imperatives.

Trump has given us an incredible opportunity.  He has put the issue of termination of existing trade agreements on the political agenda.  We need the audacity to seize the moment.

The Sorry State Of The US Economy

Although reluctant to say it, a recent IMF report on the state of US economy makes clear that US policy makers have failed to protect majority living conditions.

When a country joins the IMF, it agrees to have its economic and financial policies evaluated, in most cases annually, by an IMF team of economists.  As the IMF explains:

The IMF’s regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability. . . The consultations are known as “Article IV consultations” because they are required by Article IV of the IMF’s Articles of Agreement.

The IMF recently concluded and published a summary of its Article IV consultations with the United States.  While the IMF generally pulls no punches in criticizing the policies of most member governments if it determines that they threaten to slow capitalist globalization dynamics, it tends to tap dance around disagreements when it comes to the policies of its more powerful member countries, especially the United States.  As Adam Tooze points out in his commentary on the IMF statement:

With respect to the US, the stakes are particularly high. The US has the largest vote on the IMF’s board and Congress controls the largest part of the IMF’s budget.

Not surprisingly, then, the IMF went the extra mile in finding nice ways of talking about the state of the US economy and even more importantly the wisdom of Trump administration policies. Even so, US economic challenges could not be completely hidden.  For example, after noting that the “The U.S. economy is in its third longest expansion since 1850,” the IMF goes on to comment:

However, the outlook is clouded by important medium-term imbalances. The U.S. economic model is not working as well as it could in generating broadly shared income growth. It is burdened by a rising public debt. The U.S. dollar is moderately overvalued (by around 10-20 percent). The external position is moderately weaker than implied by medium term fundamentals and desirable policies. The current account deficit is expected to be around 3 percent of GDP over the medium-term and the net international investment position has deteriorated markedly in the past several years. Most critically, relative to historical performance, post-crisis growth has been too low and too unequal.

To address these shortcomings, the administration intends a wide-ranging overhaul of policies, although a fully articulated policy plan has yet to emerge. The administration’s budget proposes to reduce the fiscal deficit and debt, to reprioritize public spending, and to revamp the tax system. However, during the Article IV consultation it became evident that many details about these plans are still undecided. Given these policy uncertainties, the IMF’s macroeconomic forecast uses a baseline assumption of unchanged policies. Specifically, it neither builds in the effect of tax reform nor the expenditure reductions proposed in the administration’s budget. Under this forecast, growth is expected to rise modestly above 2 percent this year and next, driven by continued solid consumption growth and a cyclical rebound in private investment. Growth is forecast to subsequently converge to the underlying potential growth rate of 1.8 percent.

However, IMF concerns over an uncertain US economic outlook and an unclear Trump administration policy plan pale in importance compared to the decline in US living standards illustrated in the following chart that was also in the report.

In broad brush, the US ranking on most of the selected living standards indicators has declined, which means that the US economy is losing ground relative to the other OECD countries in the sample.  But what really cries out for notice is how low the US is on such key indicators as: life expectancy at birth, overall mortality rate, health coverage, poverty rate, and secondary school graduation.  On these indicators, the US is approaching the bottom of the group of 24.  And of course, Trump administration policies, which aim to reduce spending on Medicare and Medicaid, gut worker-protecting health and safety and labor laws, slash taxes on corporations and the wealthy, and weaken unions will only intensify downward trends.

The IMF could easily have pointed out that, because of competitiveness pressures, US policies harm the well-being of workers in other countries as well as in the US, and pressed the US government to reverse course.  But majority living standards are not the most important thing to the IMF or the US government, and that is not how consultations work.

If we want improved living conditions we are going to have to fight for them.  Perhaps greater awareness of just how bad things are in the United States will help speed the effort.

We Should Demand Withdrawal From, Not Reform Of, Existing Trade Agreements

Many unions and progressive organizations hope to press President Trump to rework NAFTA and other trade agreements, such as the US-Korea Free Trade Agreement,  in ways that will strengthen worker rights in the US.  However, this effort is too limited and unlikely to succeed.  These agreements were designed to strengthen corporate rights and there is no way that they can be rehabilitated.  Our demand should be that the US government withdraw from all existing free trade and investment agreements.  Significantly, that is exactly what a number of countries have begun to do.

For example, as SouthNews reports:

Ecuador has unilaterally withdrawn from its remaining 16 bilateral investment treaties (BITs). With this decision, Ecuador has concluded the termination of 26 BITs signed by the country since 1968.

The 16 BITS which Ecuador is withdrawing from had been signed with the Netherlands, Germany, Great Britain, France, Spain, Italy, Sweden, Switzerland, Canada, the United States, China, Argentina, Bolivia, Peru, Venezuela, and Chile.

The Ecuadorian move is part of similar measures taken in recent years by a growing number of developing countries to withdraw from their bilateral investment treaties. These include South Africa, Bolivia, Indonesia and India.

Ecuador’s decision to withdrawal from its remaining BITs was driven in large part by the work of a 12 person government-civil society audit commission.  The Commission’s charge was to “verify the legality, legitimacy and lawfulness of investment treaties and other investment agreements signed by Ecuador, as well as to audit the validity and appropriateness of the awards, procedures, actions and decisions issued by Investor-State dispute settlement (ISDS) bodies and arbitral tribunals.”

The Commission’s 668 page report found that:

  1. The country’s BITs have not delivered the promised foreign direct investment
  2. The terms of the country’s BITs contradicted and undermined the country’s development objectives laid out in the country’s constitution and National Plan for Well-Being (Buen Vivir)
  3. The costs of the country’s BITs have far outweighed the benefits.

The Commission therefore recommended that the Ecuadorian government terminate all existing BITs and proposed that it negotiate entirely new investment instruments.  These new instruments, as reported by SouthNews:

should restrict the definition of investments, and strengthen the right of the State to regulate for the common good and sustainable development, including by recognizing the right of the State to impose obligations to foreign investors, apply performance requirements, secure the fiscal competence of the State, secure technology transfer, and force investors to respect international standards and human rights and the environment, among others.

The Commission also recommended the State not to include investor-state dispute settlement (ISDS) mechanisms in new BITs, and to strengthen the domestic jurisdiction in order to provide judicial guarantees for investors in national courts. These efforts should include the development of a comprehensive national policy on and specific rules for foreign investment, and the creation of one central agency to be in charge of the institutional governance of foreign investment.

Moreover, as the president of the Commission stated, “Fortunately Ecuador is not alone in denouncing these unjust investment agreements. It is joining a wave of countries around the world calling for a new international legal framework for investment which prioritizes public interest over corporate profits.”

In particular, South Africa, Indonesia, Bolivia and India are all taking steps to terminate their own investment agreements.  As SouthNews described:

Many countries in almost all regions have started to review their investment treaty regimes. . . . For example, South Africa initiated the termination of its existing BITs (when they expire) in recent years, with the objective of safeguarding its right to regulate investments and the right to establish development policies while at the same time protecting investor rights.   Bolivia has also withdrawn from its BITs.  India recently announced it would withdraw from 57 investment treaties with the objective of re-negotiating them based on its new model BIT.

The point is that the governments of these countries did not seek modification of their existing agreements, hoping to make them somewhat more supportive of national development objectives. Rather, they correctly understood that each agreement was composed of a complex interconnected set of standards, objectives, and regulations designed to promote corporate profit-making and as such were not reformable in a meaningful way.

Clearly, the US government is not interested in terminating its existing agreements.  To the extent that the Trump administration speaks about reform it is largely to blunt a growing popular movement against corporate designed globalization while it works to expand their reach to cover the digital economy, services, and financial services.  And that is precisely why we should not get into the reform game.  That is why we should sharpen the debate and make our own position clear: we support those governments that have decided to withdraw from their respective trade agreements and investment treaties and we want the US government to do the same.

 

The Need For A New US Foreign Policy Towards North Korea

US-North Korean relations remain very tense, although the threat of a new Korean War has thankfully receded.  Still the US government remains determined to tighten economic sanctions on North Korea and continues to plan for a military strike aimed at destroying the country’s nuclear infrastructure.  And the North for its part has made it clear that it would respond to any attack with its own strikes against US bases in the region and even the US itself.

This is not good, but it is important to realize that what is happening is not new.  The US began conducting war games with South Korean forces in 1976 and it was not long before those included simulated nuclear attacks against the North, and that was before North Korea had nuclear weapons.  In 1994, President Bill Clinton was close to launching a military attack on North Korea with the aim of destroying its nuclear facilities.  In 2002, President Bush talked about seizing North Korean ships as part of a blockade of the country, which is an act of war.  In 2013, the US conducted war games which involved planning for preemptive attacks on North Korean military targets and “decapitation” of the North Korean leadership and even a first strike nuclear attack.

I don’t think we are on the verge of a new Korean war, but the cycle of belligerency and threat making on both sides is intensifying.  And it is always possible that a miscalculation could in fact trigger a new war, with devastating consequences. The threat of war, perhaps a nuclear war, is nothing to play around with.  But – and this is important — even if a new war is averted, the ongoing embargo against North Korea and continual threats of war are themselves costly: they promote/legitimatize greater military spending and militarization more generally, at the expense of needed social programs, in Japan, China, the US, and the two Koreas.  They also create a situation that compromises democratic possibilities in both South and North Korea and worsen already difficult economic conditions in North Korea.

There is a choice for peace

We doesn’t have to go down this road—we have another option—but it is one that the US government is unwilling to consider, much less discuss.  That option is for the US to accept North Korean offers of direct negotiations between the two countries, with all issues on the table.

The US government and media dismiss this option as out of hand—we are told that (1) the North is a hermit kingdom and seeks only isolation, (2) the country is ruled by crazy people hell bent on war, and (3) the North Korean leadership cannot be trusted to follow through on its promises.  But none of this is true.

First: if being a hermit kingdom means never wanting to negotiate, then North Korea is not a hermit kingdom.  North Korea has been asking for direct talks with the United States since the early 1990s.  The reason is simple: this is when the USSR ended and Russia and the former Soviet bloc countries in central Europe moved to adopt capitalism.  The North was dependent on trade with these countries and their reorientation left the North Korean economy isolated and in crisis.

The North Korean leadership decided that they had to break out of this isolation and connect the North Korean economy to the global economy, and this required normalization of relations with the United States.  Since then, they have repeatedly asked for unconditional direct talks with the US in hopes of securing an end to the Korean War and a peace treaty as a first step towards their desired normalization of relations, but have been repeatedly rebuffed.  The US has always put preconditions on those talks, preconditions that always change whenever the North has taken steps to meet them.

The North has also tried to join the IMF and WB, but the US and Japan have blocked their membership.

The North has also tried to set up free trade zones to attract foreign investment, but the US and Japan have worked to block that investment.

So, it is not the North that is refusing to talk or broaden its engagement with the global economy; it is the US that seeks to keep North Korea isolated.

Second: the media portray North Korea as pursuing an out of control militarism that is the main cause of the current dangerous situation.  But it is important to recognize that South Korea has outspent North Korea on military spending every year since 1976.  International agencies currently estimate that North Korean annual military spending is $4 billion while South Korean annual military spending is $40 billion.  And then we have to add the US military build-up.

North Korea does spend a high percentage of its budget on the military, but that is because it has no reliable military ally and a weak economy.  However, it has largely responded to South Korean and US militarism and threats, not driven them.  As for the development of a nuclear weapons program: it was the US that brought nuclear weapons to the Korean peninsula.  It did so in 1958 in violation of the Korean War armistice and threatened North Korea with nuclear attack years before the North even sought to develop nuclear weapons.

Third: North Korea has been a more reliable negotiating partner than the US. Here we have to take up the nuclear issue more directly.  The North has tested a nuclear weapon 5 times: 2006, 2009, 2013, and twice in 2016.

Critically, North Korean tests have largely been conducted in an effort to pull the US into negotiations or fulfill past promises.  And the country has made numerous offers to halt its testing and even freeze its nuclear weapons program if only the US would agree to talks.

North Korea was first accused of developing nuclear weapons in early 1990s.  Its leadership refused to confirm or deny that the country had succeeded in manufacturing nuclear weapons but said that it would open up its facilities for inspection if the US would enter talks to normalize relations.  As noted above, the North was desperate, in the wake of the collapse of the USSR, to draw the US into negotiations.  In other words, it was ready to end the hostilities between the two countries.

The US government refused talks and began to mobilize for a strike on North Korean nuclear facilities.  A war was averted only because Jimmy Carter, against the wishes of the Clinton administration, went to the North, met Kim Il Sung, and negotiated an agreement that froze the North Korean nuclear program.

The North Korean government agreed to end their country’s nuclear weapons program in exchange for aid and normalization.  And from 1994 to 2002 the North froze its plutonium program and had all nuclear fuel observed by international inspectors to assure the US that it was not engaged in making any nuclear weapons.   Unfortunately, the US did not live up to its side of the bargain; it did not deliver the aid it promised or take meaningful steps towards normalization.

In 2001 President Bush declared North Korea to be part of the axis of evil and the following year unilaterally canceled the agreement.  In response, the North restarted its nuclear program.

In 2003, the Chinese government, worried about growing tensions between the US and North Korea, convened multiparty talks to bring the two countries back to negotiations.  Finally, in 2005, under Chinese pressure, the US agreed to a new agreement, in which each North Korean step towards ending its weapons program would be matched by a new US step towards ending the embargo and normalizing relations.  But exactly one day after signing the agreement, the US asserted, without evidence, that North Korea was engaged in a program of counterfeiting US dollars and tightened its sanctions policy against North Korea.

The North Korean response was to test its first nuclear bomb in 2006.  And shortly afterwards, the US agreed to drop its counterfeiting charge and comply with the agreement it had previously signed.

In 2007 North Korea shut down its nuclear program and even began dismantling its nuclear facilities—but the US again didn’t follow through on the terms of the agreement, falling behind on its promised aid and sanction reductions.  In fact, the US kept escalating its demands on North Korea, calling for an end to North Korea’s missile program and improvement in human rights in addition to the agreed upon steps to end North Korea’s nuclear weapons program.  And so, frustrated, North Korea tested another nuclear weapon in 2009.

And the US responded by tightening sanctions.

In 2012 the North launched two satellites.  The first failed, the second succeeded.  Before each launch the US threatened to go to the UN and secure new sanctions on North Korea.  But the North asserted its right to launch satellites and went ahead.  After the December 2012 launch, the UN agreed to further sanctions and the North responded with its third nuclear test in 2013.

This period marks a major change in North Korean policy. The North now changed its public stance: it declared itself a nuclear state—and announced that it was no longer willing to give up its nuclear weapons.  However, the North Korean government made clear that it would freeze its nuclear weapons program if the US would cancel its future war games.  The US refused and its March 2013 war games included practice runs of nuclear equipped bombers and planning for occupying North Korea.  The North has therefore continued to test and develop its nuclear weapons capability.

Here is the point: whenever the US shows willingness to negotiate, the North responds.  And when agreements are signed, it is the US that has abandoned them.  The North has pushed forward with its nuclear weapons program largely in an attempt to force the US to seriously engage with the North because it believes that this program is its only bargaining chip.  And it is desperate to end the US embargo on its economy.

We lost the opportunity to negotiate with a non-nuclear North Korea when we cut off negotiations in 2001, before the country had a nuclear arsenal. Things have changed.  Now, the most we can reasonably expect is an agreement that freezes that arsenal.  However, if relations between the two countries truly improve it may well be possible to achieve a non-nuclear Korean Peninsula, an outcome both countries profess to seek.

New possibilities and our responsibilities

So, why does US refuse direct negotiations and risk war?  The most logical reason is that there are powerful forces opposing them.  Sadly, the tension is useful to the US military industrial complex, which needs enemies to support the ongoing build-up of the military budget.  The tension also allows the US military to maintain troops on the Asian mainland and forces in Japan.  It also helps to isolate China and boost right-wing political tendencies in Japan and South Korea.  And now, after decades of demonizing North Korea, it is difficult for the US political establishment to change course.

However, the outcome of the recent presidential election in South Korea might open possibilities to force a change in US policy. Moon Jae-in, the winner, has repudiated the hard-line policies of his impeached predecessor Park Guen-Hye, and declared his commitment to re-engage with the North.  The US government was not happy about his victory, but it cannot easily ignore Moon’s call for a change in South Korean policy towards North Korea, especially since US actions against the North are usually presented as necessary to protect South Korea. Thus, if Moon follows through on his promises, the US may well be forced to moderate its own policy towards the North.

What is clear is that we in the US have a responsibility to become better educated about US policy towards both Koreas, to support popular movements in South Korea that seek peaceful relations with North Korea and progress towards reunification, and to work for a US policy that promotes the demilitarization and normalization of US-North Korean relations.

I discuss this history of US-North Korean relations and current developments in South Korea in a May 8 interview on KBOO radio; you can hear the interview here: http://kboo.fm/media/57730-how-us-has-provoked-north-korea

To keep up on developments I encourage you to visit the following two websites:

Korea Policy Institute: kpolicy.org

ZoominKorea: zoominkorea.org

US Corporations Continue Their Global Dominance

“Make America Great Again,” Donald Trump’s campaign slogan, was cleverly designed to suggest that the nation as a whole has been in decline.  And Trump repeatedly blamed past administrations for this situation, attacking them for pursuing policies that he said left US corporations unable to compete with their foreign rivals to the detriment of US workers.

US workers have indeed experienced a steady deterioration in their working and living conditions.  But Trump’s focus on national decline and call for national revitalization obscures what a class analysis plainly shows: leading US corporations have greatly benefited from past policies and continue to dominate global markets and profit handsomely.  In other words, US workers and US corporations do not share a common interest.  Moreover, Trump administration policies designed to strengthen US corporate competitiveness can be expected to further depress worker well-being.

Globalization Changes Things

We live in a world where economic processes and outcomes are heavily shaped by corporate globalization strategies.  This means that national statistics and measures of economic performance can be misleading.  Sean Starrs, in an essay titled “China’s Rise is Designed in America, Assembled in China,” makes this point by using a global lens to evaluate the relative economic strength of China and the United States.

In the pre-globalization era, a country’s production tended to be nationally rooted.  Thus, for example, Japan’s post World War II rise as a major producer and exporter of cars and consumer electronics meant that Japan’s “rising world share of national accounts [could be considered] synonymous [with] rising national economic power.”  But transnational corporate globalization strategies have dramatically changed things.

Thanks to the expansion of transnational corporate controlled cross-border production networks, the production of many goods and services has been divided into multiple segments, with each segmented located in a different country.  As a result, national economic activity tends to be truncated and less revealing of national value-added than in the past.

These networks are most fully developed in East Asia, and their expansion helped transform China into “the workshop of the world.” China is now the leading producer and exporter, largely to the United States, of such key products as cell phones and laptop computers.  However, in sharp contrast to the Japanese experience, most of the value-added in the production of these high-technology goods is captured by non-Chinese firms.  Thus, Chinese national accounts, especially its trade account, greatly overstate Chinese economic power.  At the same time, US national accounts, including its trade account, greatly overstate the loss of US economic power.

The table below, from Starrs’s article, shows China’s top five exports of manufactures, as well as export values and market share for each product.  It also shows US export values and market shares for the same products.  Finally, it also includes the relative share of global profits from sale of these products earned by Chinese and US corporations.  Starrs used the Forbes Global 2000 list, which ranks the top 2000 corporations in the world using a composite of four indices–assets, market value, profit and sales–and groups them by their appropriate sector of activity, to calculate the profit shares.

As we can see, China was responsible for 38 percent of world exports of telecommunications equipment in 2013, compared with a 7.4 percent share for the United States.  Yet, US firms captured 59 percent of the profit generated by sales of these products; the Chinese share was only 6 percent.  Perhaps even more striking:

There is not a single profitable Chinese firm in textiles that is large enough to make the Forbes Global 2000, despite China’s exports making up 39 percent of the world’s. Exports of clothing from production in the United States is miniscule compared to the rest of the world, at 1.3 percent, yet American firms reap 46 percent of the profit-share — even when the top two firms in the world, Inditex (owner of Zara) and H&M, are both European (Spanish and Swedish, respectively).

The reason for this is simple: Chinese production of the products listed in the table takes place within cross-border production networks largely dominated by US corporations.  US firms are able to monopolize the profits generated by the production and sale of these products thanks to their control over the relevant technologies, product branding, and marketing.

The point then is that in the age of globalization, national accounts are no longer a reliable indicator of national economic strength.

Continued US Global Dominance

A simple look at national accounts does paint a picture of declining US economic power.  For example, the US share of global GDP has slowly but steadily declined.  It was 37 percent in the mid-1960s, 33 percent in the mid-1980s, 27 percent in the mid-2000s, and most recently approximately 22 percent.  The US share of world merchandise exports has also declined.  It averaged approximately 12 percent throughout the 1980s and 1990s and then began rapidly falling.  It was down to 8.5 percent by 2010.

However, Starrs finds that once one takes globalization dynamics into account, US corporations continue to dominate international economic activity.

The table below, again from Starrs’s article, looks at 16 leading sectors and the national profit share for the top 2000 publicly traded global corporations within each sector, for the years 2006, 2010, and 2014.   As we can see, in 2014, the US was the only country with corporations that finished in one of the top three places in all 16 sectors.  US corporations had the largest profit shares in 10 of the 16 sectors, including those at the technological frontier.  They are:

  • Aerospace and defense
  • Chemicals
  • Computer hardware and software
  • Conglomerates
  • Electronics
  • Financial Services
  • Heavy Machinery
  • Oil and Gas
  • Pharmaceuticals and Personal Care
  • Retail

If we define market control as either a 40 percent share of global profits or a profit share more than twice that of the second-place nation, US corporations dominated in 8 of these sectors:

  • Aerospace and defense
  • Chemicals
  • Computer Hardware and Software
  • Conglomerates
  • Financial Services
  • Heavy Machinery
  • Pharmaceuticals and Personal Care
  • Retail

Here are the 6 sectors which were led by a country other than the United States:

  • Auto Trucks and Parts: Japan is first and the US third
  • Banking: China is first and the US second.
  • Construction: China is first and the US tied for second.
  • Forestry, Metals, and Mining: Australia is first and the US third.
  • Real estate: Hong Kong is first and the US third.
  • Telecommunications: the UK is first and the US second.

China is the only country other than the United States that finished first in more than one sector.  But as Starrs points out:

Almost all of these top Chinese firms are state-owned enterprises with heavily protected domestic [markets] with very few operations abroad (with the partial exception of Chinese firms in natural resource extraction). None of these behemoth state-owned enterprises can be characterized as globally competing head-to-head with the world’s top corporations to advance the technological frontier, yet these firms constitute the bulk of the non-foreign ownership of profit from production and investment conducted in China.

And the US is second to China in both sectors.

In short, US corporations remain dominant and highly profitable.  And, US dominance is even greater then these results suggest.  That is because US capital “disproportionately owns not only the economic activity occurring within the territory of the United States, but also around the world.”  Thus, while the US “accounts for only 22 percent of global GDP . . . the proportion of American millionaires and total household wealth is 42 percent and 41 percent respectively [of world totals].”

In sum, it is clear that the US state has done well by leading US firms and their owners.  The problem for us is that the policies that helped produce this outcome—deregulation, liberalization, privatization, and globalization, to list a few—have not benefited US workers, and in most cases workers in other countries as well.  Moreover, sustained US corporate dominance does not guarantee the vitality, or even the stability of the global economy.  Core economies continue to stagnate and there is no reason to think that renewal is on the horizon.  In fact, quite the opposite is true; there are growing signs that the US expansion is near end and that Chinese growth will continue to weaken.

Trump, with his call to “Make American Great Again,” aims to use nationalism to win support for his own efforts to advance US corporate interests. While it remains unclear to what extent his policies will differ from those of past administrations, it is already certain that they will not serve majority interests.  This destructive use of nationalism must be challenged.  The best way is to promote a strategy of resistance that flows from and helps to popularize a grounded class analysis of the workings of our economy.

Trump’s Economic Policies Are No Answer To Our Problems

President Trump has singled out unfair international trading relationships as a major cause of US worker hardship.  And he has promised to take decisive action to change those relationships by pressuring foreign governments to rework their trade agreements with the US and change their economic policies.

While international economic dynamics have indeed worked to the disadvantage of many US workers, Trump’s framing of the problem is highly misleading and his promised responses are unlikely to do much, if anything, to improve majority working and living conditions.

President Trump and his main advisers have aimed their strongest words at Mexico and China, pointing out that the US runs large trade deficits with each, leading to job losses in the US.  For example, Bloomberg News reports that Peter Navarro, the head of President Trump’s newly formed White House National Trade Council “has blamed Nafta and China’s 2001 entry into the World Trade Organization for much, if not all, of a 15-year economic slowdown in the U.S.” In other words, poor negotiating skills on the part of past US administrations has allowed Mexico and China, and their workers, to gain at the expense of the US economy and its workers.

However, this nation-state framing of the origins of contemporary US economic problems is seriously flawed. It also serves to direct attention away from the root cause of those problems: the profit-maximizing strategies of large, especially US, multinational corporations.  It is the power of these corporations that must be confronted if current trends are to be reversed.

Capitalist Globalization Dynamics

Beginning in the late 1980s large multinational corporations, including those headquartered in the US, began a concerted effort to reverse declining profits by establishing cross border production networks (or global value chains).  This process knitted together highly segmented economic processes across national borders in ways that allowed these corporations to lower their labor costs as well as reduce their tax and regulatory obligations.   Their globalization strategy succeeded; corporate profits soared.  It is also no longer helpful to think about international trade in simple nation-state terms.

As the United Nations Conference on Trade and Development explains:

Global trade and foreign direct investment have grown exponentially over the last decade as firms expanded international production networks, trading inputs and outputs between affiliates and partners in GVCs [Global Value Chains].

About 60 per cent of global trade, which today amounts to more than $20 trillion, consists of trade in intermediate goods and services that are incorporated at various stages in the production process of goods and services for final consumption. The fragmentation of production processes and the international dispersion of tasks and activities within them have led to the emergence of borderless production systems – which may be sequential chains or complex networks and which may be global, regional or span only two countries.

UNCTAD estimates (see the figure below) that some 80 percent of world trade “is linked to the international production networks of TNCs [transnational corporations], either as intra-firm trade, through NEMs [non-equity mechanisms of control] (which include, among others, contract manufacturing, licensing, and franchising), or through arm’s-length transactions involving at least one TNC.”

tnc-involvement

In other words, multinational corporations have connected and reshaped national economies along lines that best maximize their profit.  And that includes the US economy.  As we see in the figure below, taken from an article by Adam Hersh and Ethan Gurwitz, the share of all US merchandise imports that are intra-firm, meaning are sold by one unit of a multinational corporation to another unit of the same multinational, has slowly but steadily increased, reaching 50 percent in 2013.  The percentage is considerably higher for imports of manufactures, including in key sectors like electrical, machinery, transportation, and chemicals.

onea

The percentage is lower, but still significant for US exports.  As we see in the following figure, approximately one-third of all merchandise exports from the US are sold by one unit of a multinational corporation to another unit of the same company.

oneb

The percentage of intra-firm trade is far higher for services, as illustrated in the next figure.

services

As Hersh and Gurwitz comment,

The trend is clear: As offshoring practices increase, companies need to provide more wraparound services—the things needed to run a businesses besides direct production—to their offshore production and research and development activities. Rather than indicating the competitive strength of U.S. services businesses to expand abroad, the growth in services exports follows the pervasive offshoring of manufacturing and commercial research activities.

Thus, there is no simple way to change US trade patterns, and by extension domestic economic processes, without directly challenging the profit maximizing strategies of leading multinational corporations.  To demonstrate why this understanding is a direct challenge to President Trump’s claims that political pressure on major trading partners, especially Mexico and China, can succeed in boosting the fortunes of US workers, we look next at the forces shaping US trade relationships with these two countries.

The US-Mexican Trade Relationship

US corporations, taking advantage of NAFTA and the Mexican peso crisis that followed in 1994-95, poured billions of dollars into the country (see the figure below).  Their investment helped to dramatically expand a foreign-dominated export sector aimed at the US market that functions as part of a North American region-wide production system and operates independent of the stagnating domestic Mexican economy.

fdi-mexico

Some 80 percent of Mexico’s exports are sold to the US and the country runs a significant merchandise trade surplus with the US, as shown in the figure below.

trade-mexico

Leading Mexican exports to the US include motor vehicles, motor vehicle parts, computer equipment, audio and video equipment, communications equipment, and oil and gas.  However, with the exception of oil and gas, these are far from truly “Mexican” exports.  As a report from the US Congressional Research Service describes:

A significant portion of merchandise trade between the United States and Mexico occurs in the context of production sharing as manufacturers in each country work together to create goods. Trade expansion has resulted in the creation of vertical supply relationships, especially along the U.S.-Mexico border. The flow of intermediate inputs produced in the United States and exported to Mexico and the return flow of finished products greatly increased the importance of the U.S.- Mexico border region as a production site. U.S. manufacturing industries, including automotive, electronics, appliances, and machinery, all rely on the assistance of Mexican [based] manufacturers. One report estimates that 40% of the content of U.S. imports of goods from Mexico consists of U.S. value added content.

Because foreign multinationals, many of which are US owned, produce most of Mexico’s exports of “advanced” manufactures using imported components, the country’s post-Nafta export expansion has done little for the overall health of the Mexican economy or the well-being of Mexican workers. As Mark Weisbrot points out:

If we look at the most basic measure of economic progress, the growth of gross domestic product, or income per person, Mexico, which signed on to NAFTA in 1994, has performed the 15th-best out of 20 Latin American countries.

Other measures show an even sadder picture. The poverty rate in 2014 was 55.1 percent, an increase from the 52.4 percent measurement in 1994.

Wages tell a similar story: There’s been almost no growth in real inflation-adjusted wages since 1994 — just about 4.1 percent over 21 years.

Representative Sander Levin and Harley Shaiken make clear that the gains have been nonexistent even for workers in the Mexican auto industry, the country’s leading export center:

Consider the auto industry, the flagship manufacturing industry across North America. The Mexican auto industry exports 80 percent of its output of which 86 percent is destined for the U.S. and Canada. If high productivity translated into higher wages in Mexico, the result would be a virtuous cycle of more purchasing power, stronger economic growth, and more imports from the U.S.

In contrast, depressed pay has become the “comparative advantage”. Mexican autoworker compensation is 14 percent of their unionized U.S. counterparts and auto parts workers earn even less–$2.40 an hour. Automation is not the driving force; its depressed wages and working conditions.

In other words, US workers aren’t the only workers to suffer from the globalization strategies of multinational corporations.  Mexican workers are also suffering, and resisting.

In sum, it is hard to square this reality with Trump’s claim that because of the way NAFTA was negotiated Mexico “has made us look foolish.” The truth is that NAFTA, as designed, helped further a corporate driven globalization process that has greatly benefited US corporations, as well as Mexican political and business elites, at the expense of workers on both sides of the border.  Blaming Mexico serves only to distract US workers from the real story.

The US-Chinese Trade Relationship

The Chinese economy also went through a major transformation in the mid-1990s which paved the way for a massive inflow of export-oriented foreign investment targeting the United States.  The process and outcome was different from what happened in Mexico, largely because of the legacy of Mao era policies.  The Chinese Communist Party’s post-1978 state-directed reform program greatly benefited from an absence of foreign debt; the existence of a broad, largely self-sufficient state-owned industrial base; little or no foreign investment or trade; and a relatively well-educated and healthy working class.  This starting point allowed the Chinese state to retain considerable control over the country’s economic transformation even as it took steps to marketize economic activity in the 1980s and privatize state production in the 1990s.

However, faced with growing popular resistance to privatization and balance of payments problems, the Chinese state decided, in the mid-1990s, to embrace a growing role for export-oriented foreign investment.  This interest in attracting foreign capital dovetailed with the desire of multinational corporations to globalize their production.  Over the decade of the 1990s and 2000s, multinational corporations built and expanded cross border production networks throughout Asia, and once China joined the WTO, the country became the region’s primary final assembly and export center.

As a result of this development, foreign produced exports became one of the most important drivers, if not the most important, of Chinese growth.  For example, according to Yılmaz Akyüz, former Director of UNCTAD’s Division on Globalization and Development Strategies:

despite a high import content ranging between 40 and 50 percent, approximately one-third of Chinese growth before the global crisis [of 2008] was a result of exports, due to their phenomenal growth of some 25 percent per annum. This figure increases to 50 percent if spillovers to consumption and investment are allowed for. The main reason for excessive dependence on foreign markets is under consumption. This is due not so much to a high share of household savings in GDP as to a low share of household income and a high share of profits

The figure below illustrates the phenomenal growth in Chinese exports.

china-exports

The US soon became the primary target of China’s exports (see the trade figures below).   The US now imports more goods from China than from any other country, approximately $480 billion in 2015, followed by Canada and Mexico (roughly $300 billion each).  The US also runs its largest merchandise trade deficit with China, $367 billion in 2015, equal to 48 percent of the overall US merchandise trade deficit.  In second place was Germany, at only $75 billion.

china-trade-us

Adding to China’s high profile is the fact that it is the primary supplier of many high technology consumer goods, like cell phones and laptops. More specifically:

(F)or 825 products, out of a total of about 5,000, adding up to nearly $300 billion, China supplies more than all our other trade partners combined. Of these products, the most important is cell phones, where $40 billion in imports from China account for more than three-quarters of the total value imported.

There are also 83 products where 90 percent or more of US imports come from China; together these accounted for a total of $56 billion in 2015. The most important individual product in this category is laptop computers, which alone have an import value of $37 billion from China, making up 93 percent of the total imported.

Of course, China is also a major supplier of many low-technology, low-cost goods as well, including clothing, toys, and furniture.

Not surprisingly, exports from China have had a significant effect on US labor market conditions. Economists David Autor, David Dorn and Gordon Hanson “conservatively estimate that Chinese import competition explains 16 percent of the U.S. manufacturing employment decline between 1990 and 2000, 26 percent of the decline between 2000 and 2007, and 21 percent of the decline over the full period.”  They also find that Chinese import competition “significantly reduces earnings in sectors outside manufacturing.”

President Trump has accused China of engaging in an undeclared trade war against the United States.   However, while Trump’s charges conjure up visions of a massive state-run export machine out to crush the United States economy for the benefit of Chinese workers, the reality is quite different.

First, although the Chinese state retains important levers of control over economic activity, especially the state-owned banking system, the great majority of industrial production and export activity is carried out by private firms.  In 2012, state-owned enterprises accounted for only 24 percent of Chinese industrial output and 18 percent of urban employment.  As for exports, by 2013 the share of state-owned enterprises was down to 11 percent.  Foreign-owned multinationals were responsible for 47 percent of all Chinese exports.  And, most importantly in terms of their effect on the US economy, multinational corporations produce approximately 82 percent of China’s high-technology exports.

Second, although these high-tech exports come from China, for the most part they are not really “Chinese” exports.  As noted above, China now functions as the primary assembly point for the region’s cross border production networks.  Thus, the majority of the parts and components used in Chinese-based production of high-technology goods come from firms operating in other Asian countries.  In many cases China’s only contribution is its low-paid labor.

A Washington Post article uses the Apple iPhone 4, a product that shows up in trade data as a Chinese export, to illustrate the country’s limited participation in the production of its high technology exports:

In a widely cited study, researchers found that Apple created most of the product’s value through its product design, software development and marketing operations, most of which happen in the United States. Apple ended up keeping about 58 percent of the iPhone 4’s sales price. The gross profits of Korean companies LG and Samsung, which provided the phone’s display and memory chips, captured another 5 percent of the sales price. Less than 2 percent of the sales price went to pay for Chinese labor.

“We estimate that only $10 or less in direct labor wages that go into an iPhone or iPad is paid to China workers. So while each unit sold in the U.S. adds from $229 to $275 to the U.S.-China trade deficit (the estimated factory costs of an iPhone or iPad), the portion retained in China’s economy is a tiny fraction of that amount,” the researchers wrote.

The same situation exists with laptop computers, which are assembled by Chinese workers under the direction of Taiwanese companies using imported components and then exported as Chinese exports.  Economists have estimated that the US-Chinese trade balance would be reduced by some 40 percent if the value of these imported components were subtracted from Chinese exports.  Thus, it is not Chinese state enterprises, or even Chinese private enterprises, that are driving China’s exports to the US.  Rather it is foreign multinationals, many of which are headquartered in the US, including Apple, Dell, and Walmart.

And much like in Mexico, Chinese workers enjoy few if any benefits from their work producing their country’s exports.  The figure below highlights the steady fall in labor compensation as a share of China’s GDP.

china-labor

Approximately 80 percent of Chinese manufacturing workers are internal migrants with a rural household registration.  This means they are not entitled to access the free or subsidized public health care, education, or other social services available in the urban areas where they now work; the same is true for their children even if they are born in urban areas.  Moreover, most migrants receive little protection from Chinese labor laws.

For example, as the China Labor Bulletin reports:

In 2015, seven years after the implementation of the Labor Contract Law, only 36 percent of migrant workers had signed a formal employment contract with their employer, as required by law. In fact the percentage of migrant workers with formal contracts actually declined last year by 1.8 percent from 38 percent. For short-distance migrants, the proportion was even lower, standing at just 32 percent, suggesting that the enforcement of labor laws is even less rigid in China’s inland provinces and smaller cities.

According to the [2014] migrant worker survey . . . the proportion of migrant workers with a pension or any form of social security remained at a very low level, around half the national average. In 2014, only 16.4 percent of long-distance migrants had a pension and 18.2 percent had medical insurance.

Despite worker struggles, which did succeed in pushing up wages over the last 7 years, most migrant workers continue to struggle to make ends meet.   Moreover, with Chinese growth rates now slipping, and the government eager to restart the export growth machine, many local governments have decided, with central government approval, to freeze minimum wages for the next two to four years.

In short, it is not China, or its workers, that threaten US jobs and well-being.  It is the logic of capitalist globalization.  Thus, Trump’s call-to-arms against China obfuscates the real cause of current US economic problems and encourages working people to pursue a strategy of nationalism that can only prove counterproductive.

The Political Challenge Facing US Workers

The globalization process highlighted above was strongly supported by all major governments, especially by successive US administrations.  In contrast to Trump claims of a weak US governmental effort in support of US economic interests, US administrations used their considerable global power to secure the creation of the WTO and approval of a host of other multilateral and bilateral trade agreements, all of which provided an important infrastructure for capital mobility, thereby supporting the globalizing efforts of leading US multinational corporations.

President Trump has posed as a critic of existing international arrangements, claiming that they have allowed other countries, such as Mexico and China, to prosper at US expense.  He has stated that he will pursue new bilateral agreements rather than multilateral ones because they will better serve US interests and he has demanded that US multinational corporations shift their investment and production back to the US.

Such statements have led some to believe that the Trump administration is serious about challenging globalization dynamics in order to rebuild the US economy in ways that will benefit working people.  But there are strong reasons to doubt this.  Most importantly, he seems content to threaten other governments rather than challenge the profit-maximizing logic of dominant US companies, which as we have seen is what needs to happen.

One indicator: an administration serious about challenging the dynamics of globalization would have halted US participation in all ongoing negotiations for new multilateral agreements, such as the Trade in Services Agreement which is designed to encourage the privatization and deregulation of services for the benefit of multinational corporations.  This has not happened.

Such an administration would also renounce support for existing and future bilateral agreements that contain chapters that strengthen the ability of multinational corporations to dominate key sectors of foreign economies and sue their governments in supranational secret courts.  This has not happened.

Another indicator: an administration serious about creating a healthy, sustainable, and equitable domestic economy would strengthen and expand key public services and programs; rework our tax system to make it more progressive; tighten and increase enforcement of health and safety and environmental regulations; strengthen labor laws that protect the rights of workers, including to unionize; and boost the national minimum wage.  The Trump administration appears determined to do the opposite.

Such an administration would also begin to develop the state capacities necessary to redirect existing production and investment activity along lines necessary to rebuild our cities and infrastructure, modernize our public transportation system, and reduce our greenhouse gas emissions.  The Trump administration appears committed to the exact opposite.

In short, if we take Trump’s statements seriously, that he actually wants to shift trading relationships, then it appears that his primary strategy is to make domestic conditions so profitable for big business, that some of the most globally organized corporations will shift some of their production back to the United States.  However, even if he succeeds, it is very unlikely that this will contribute to an improvement in majority living and working conditions.

The main reason is that US corporations, having battered organized labor with the assistance of successive administrations, have largely stopped creating jobs that provide the basis for economic security and well-being.  Economists Lawrence F. Katz and Alan B. Krueger examined the growth  from 2005 to 2015 in “alternative work arrangements,” which they defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers.

They found that the percentage of workers employed in such arrangements rose from 10.1 percent of all employed workers in February 2005 to 15.8 percent in late 2015.  But their most startling finding is the following:

A striking implication of these estimates is that all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements. Total employment according to the CPS increased by 9.1 million (6.5 percent) over the decade, from 140.4 million in February 2005 to 149.4 in November 2015. The increase in the share of workers in alternative work arrangements from 10.1 percent in 2005 to 15.8 percent in 2015 implies that the number of workers employed in alternative arrangement increased by 9.4 million (66.5 percent), from 14.2 million in February 2005 to 23.6 million in November 2015. Thus, these figures imply that employment in traditional jobs (standard employment arrangements) slightly declined by 0.4 million (0.3 percent) from 126.2 million in February 2005 to 125.8 million in November 2015.

A further increase in employment in such “alternative work arrangements,” which means jobs with no benefits or security, during a period of Trump administration-directed attacks on our social services, labor laws, and health and safety and environmental standards is no answer to our problems. Despite what President Trump says, our problems are not caused by other governments or workers in other countries.  Instead, they are the result of the logic of capitalism. The Trump administration, really no US administration, is going to willingly challenge that. That is up to us.

Join Koreans In Opposing THAAD Deployment

The US government, with the approval of the South Korean government, wants to locate a Terminal High Altitude Area Defense (THAAD) anti-missile system in South Korea.  Growing numbers of South Koreans oppose this.  They fear that the anti-missile system, which is largely aimed at China and Russia, will only increase military tensions and fuel a new arms race in the region as well as worsen relations with North Korea.  Those living close to the proposed location for the THAAD battery worry about the long term health effects of the associated high-intensity radar system.  Their fears and worries are well founded.

no-war

While the anti- THAAD struggle is big news in Korea, little is known about it in the United States.  This is unfortunate because the U.S. effort to expand its military presence in the Asia-Pacific region also has real consequences for people in this country.  For example, the resulting militarization will lead to ever higher levels of U.S. military spending, draining resources away from needed social programs.  And, of course, it increases the risk of a new war.  In short, it is in the interest of people living in the United States to join with people in South Korea to oppose the THAAD deployment in South Korea.

Therefore, several U.S. based organizations have joined in coalition under the banner of “Stop THAAD in Korea and Militarism in Asia and the Pacific.”  Its demands are simple:

  • We urge the U.S. government to rescind its decision on THAAD deployment in South Korea.
  • We urge the U.S. government to pursue all possible avenues for reducing tensions on the Korean peninsula by re-engaging in diplomacy with North Korea.
  • We urge the U.S. government to resolve conflicts in the Asia-Pacific region peacefully, through diplomacy and dialogue.

The coalition’s website, http://stopthaad.org/, includes a longer statement of purpose and links to articles that analyze both the political aims and consequences of the proposed THAAD deployment and the growth of the resistance movement in South Korea.  As you will see, close to 100 organizations have already endorsed the coalition’s demands.

As a first action, the coalition is organizing candlelight vigils in select U.S. cities in solidarity with candlelight vigils taking place in South Korean cities; information about them can also be found on the website.