WASHINGTON, Apr. 7 (CGTN) - When U.S. President Donald Trump announced "reciprocal tariffs" practically against the whole world, ranging from 10 percent to almost 50 percent, the unilateral action sent shock waves throughout the financial markets. China reacted by imposing counter tariffs of 34 percent on all products imported from the U.S., many countries followed suit in varying degrees, while some have held off their decision, hoping for negotiating some agreement with the Trump administration.
The big question is, will this typically reckless and economically glaringly incompetent imposition of the "America first" policy lead to the re-industrialization of the U.S. which Trump hopes for? Or will it lead to the crash of the international financial system because of a chain reaction of bankruptcies in an already hopelessly over-indebted financial structure? It depends on the follow-up and implementation of sound physical economy principles.
The White House has issued a fact sheet, providing the argumentation for the measures: "Countries including China, Germany, Japan and South Korea have pursued policies that suppress the domestic consumption power of their own citizens to artificially boost the competitiveness of their export products. Such policies include regressive tax systems, low or unenforced penalties for environmental degradation and policies intended to suppress worker wages relative to productivity."
This statement, however, lumps together very different cases. While China has lifted nearly 850 million of its own citizens out of poverty, eradicated absolute poverty, created a middle-income group of 400 million people with an enormous purchasing power, and beyond that, become the engine of development for the Global South, the situation for Germany is quite different.
The introduction of the eurozone in 1999 was criticized heavily at the time because it integrated very differently developed economies into one currency zone, which was not an "optimal currency zone." When Gerhard Schroder implemented "Agenda 2010," a series of reforms, as the German chancellor in the early 2000s, it did suppress domestic wages, and in that way increased the competitiveness of the German economy relative to the less industrialized countries of the eurozone. It increased the weight of the German economy at the expense of the other European countries, since they could not devalue their currencies anymore.
As a result, Germany became the "export world champion" for a while, but many domestic investments, such as renewal of basic infrastructure, were neglected, and the buying power of the domestic market was relatively weakened. Naturally all of this was overshadowed by subsequent developments, such as the loss of access to cheap Russian gas, and the loss of the Russian market for geopolitical reasons. Theoretically, the Trump tariffs could be a wake-up call for Germany to put its own house in order.
The Trump administration's intention is obviously to undo the de-industrialization which took place in the U.S. under the neoliberal policies of his predecessors, who outsourced much of the American industrial capacities to so-called cheap labor markets. Consequently, the U.S. has almost no small and medium-size enterprises, and its productive capacities are largely reduced to the military. But the sudden shift from an economic model based on the shareholder value of Wall Street and its maximization of profit, to a more durable industrial strength entails the dangers of disruptions and bankruptcies, given the total U.S. national debt of $37 trillion and a total outstanding derivative bubble of $2 quadrillion.
Trump intends a legitimate goal for the American economy, but he seems to be surrounded by economic advisers who reflect a monetarist rather than sound economic thinking. Peter Navarro, the White House's senior counselor for trade and manufacturing, for example, has calculated that the tariffs will bring annually about $600 billion into the U.S. budget, which completely leaves out the consequences of a trade war potentially triggered by this unilateral action.
And Trump's economic adviser Stephen Miran promotes a scheme, how foreign creditors of American treasuries can be "convinced by free will" to exchange these assets voluntarily into 100-year state bonds without interest.
The only thing which will remedy the economic crisis in the U.S., and elsewhere, is a return to sound physical economy principles: investment in scientific and technological progress, international space cooperation and innovation in general. That means the education systems of the U.S. and European nations have to be reorganized to serve this orientation, and incentives have to be given to train a highly skilled labor force for this purpose.
The worst danger of this unilateral tariff announcement by the Trump administration would be the danger of the world economy disintegrating into a number of different blocs, engaged in a trade war against each other, which would be truly a lose-lose outcome for everybody.
The alternative is a cooperative approach, where real development perspectives for Africa, Asia, the Americas and Europe are put on the agenda for joint ventures and cooperative investments in infrastructure, industry, agriculture, science, health and education systems, financed through productive credits.
The trade imbalances will be removed by making the pie bigger, taking into account the different characteristics and levels of development of the individual economies in a fair division of labor. "Humanity first" will lead to a win-win outcome for everyone.
Helga Zepp-LaRouche, a special commentator on current affairs for CGTN, is the founder and international president of the Schiller Institute, a German-based political and economic think tank founded in 1984.
=FRESH NEWS
Photo from Xinhua
