China’s plans for Green Growth

By John Ross

‘People centred development’, including special emphasis on ‘green growth,’ was a central theme of this year’s annual China’s National People’s Congress (NPC) – its legislative body. The focus of the NPC, together with the Chinese People’s Political Consultative Conference (CPPCC) which is held simultaneously, is always primarily domestic. However, China’s domestic agenda necessarily impacts on its international relations. Such international impact, in turn, reciprocally affects China itself – it is important for China that other countries do not pursue protectionism, that other countries pursue policies congruent with China’s in problems that can only be solved internationally etc.

Key policies at this year’s ‘two sessions’ will particularly have a major international impact due to the current international situation – which is seeing a slowdown in the Western economies, increasing concern within Western countries about poverty and social inequality, and increasing international anxiety and public agitation about climate change. China’s economic growth, its policies on poverty, and the policies adopted by China on the environment in general and climate change in particular will therefore have international impact. This correspond to a reality that China, in correlation with its growth target, and its poverty reduction, has set internationally leading targets for dealing with climate change and environmental issues. In this framework, this article, therefore, analyses this interrelation between China’s domestic priorities and international trends.

To avoid the suggestion of using sources excessively favourable to China all economic data used here, unless otherwise stated, is not taken from China but from the IMF. As the data for 2019 are projections if the differences they showed between China and other countries were small no great reliance could be based on such figures. However, as will be seen, the differences are not small, but the outperformance of China compared to the Western economies is extremely large – therefore, during 2019 small variations of economic performance from the IMFs projections will not affect the fundamental situation. For reasons analysed in my book Don’t Misunderstand China’s Economy, while in the past IMF projections for the Western economies have been too optimistic the current ones by the IMF are in general realistic – with one key exception noted below.

China’s growth rate

China set its economic growth target for 2019 at 6.0%-6.5%. To understand the global impact of this it is important to give an international comparison for the word’s three largest economies – the US, China and EU. China is expected to grow this year approximately two and a half times as fast as the US and more than three times as fast as the EU.

China’s performance is of particular significance as it will be set against the background of an overall slowdown of the Western economies. The IMF in its latest forecast in January projects that growth in the advanced Western economies as a whole will fall from 2.3% in 2018 to 2.0% in 2019, in the US it will decline from 2.9% to 2.5%, and in the Eurozone from 1.8% to 1.6%. Even if the IMF’s projection of China’s growth, of 6.2% in 2019 were accurate, and that is towards the bottom end of the government’s target range, this means the IMF projects that not only will China be growing two and a half times as fast as the US but the economic slowdown in the US will be more severe in relative terms than in China. Compared to this year the US economy would slow from 2.9% to 2.5%, or by 14% of the previous figure, while China would slow from 6.6% to 6.2%, that is by only 6% from the previous figure.

China’s growth target

These comparative international trends can be seen even more clearly if they are considered in per capita terms. China’s population growth is slower than other major economies – China’s population grew in 2018 by 0.5% compared to 0.7% in the US and 1.3% in India. Therefore, a part of US and Indian total GDP growth, compared to China, is simply due to more rapid population growth. However, the increase in the wellbeing of any country’s population is determined not by total GDP but by per capita GDP.

Even if India’s official growth figures are accepted, which many experts even in India would not do, then in per capita GDP terms, as shown in Figure 1, China’s growth in 2018 was the fastest for any major economy – 6.1% compared to 5.9% in India and, considering Western economies, far faster than the 2.4% in the US, 1.8% in Germany, and 1.4% in Japan.

Figure 1

Making a comparison to major Western economies for 2019, the IMF projects China’s per capita GDP growth will be 5.7% compared to 1.9% in the US and EU, 1.8% in Germany, and 1.3% in Japan. That is:

    • China’s per capita GDP growth will be three times as fast as the US.
    • China’s per capita GDP growth will be three times as fast as the EU, and more than three times as fast as Germany
    • China’s per capita GDP growth will be more than four times as fast as Japan.

To summarise, the conclusions of this are evident:

    • First, even at the level of total GDP growth, the attempt by sections of the Western media to claim that China’s economy is in ‘deep crisis’ is pure nonsense – China’s economy will grow two and a half times as fast as the US and three times as fast at the EU.
    • Second, the contrast in per capital terms is even greater – China will grow three times as fast as the US or EU.
    • Third, as the Western media is at present full of false propaganda about ‘severe slowing’ and ‘deep crisis’ in China’s economy, the slowing of the Western economies, which is already receiving increasing attention, will provide a very favourable opportunity to show once again the falsity of claims about China

Finally, from the point of view of explaining this situation internationally, it is likely to be very useful, and objectively correct, for China to emphasise per capita trends as well as total GDP trends – as the fact that China’s population growth is significantly slower than other major economies conceals some of the real international contrasts in development.

Contributions to world growth

From the viewpoint of the standard of living of China’s population per capita development is the most important. However, from the viewpoint of other countries’ trade and investment, and therefore their objective interest in interaction with China, it is the total size of China’s economy and growth which is decisive. In order to assess the international impact of the NPC decisions, therefore, it is necessary to analyse the projected contribution of China to world growth in comparison to other countries.

Calculated in PPP terms, which reflects the real increase in the number of sales of goods and services, the IMF projects that China will account for 27.2% of world growth in 2019 compared to 12.3% for the US and 11.8% for the EU. That is, China’s contribution to world growth in these terms will be more than twice that of the US and EU – or put in other terms, China’s contribution will be as large as the US and EU combined. This is, of course, vital for companies aiming to sell into China’s market.

Calculations in current exchange rates by the IMF are unclear as, for reasons which it does not justify, the IMF makes the extremely strange assumption for 2019 that the RMB will undergo a significant devaluation against the dollar. To be precise, the IMF projects that while China’s GDP in constant price terms will increase by 6.2%, and in current RMB prices will increase by 8.6%, in current dollar terms China’s GDP will only increase by 5.3% – which could only be explained by a significant RMB devaluation. This exchange rate projection is neither in line with current trends nor with reports of an exchange rate agreement between China and the US in current trade negotiations. However, this appears to be an anomaly for 2019 in that the IMF estimates that over the whole five-year period 2018-2023 at current exchange rates China will account for 26% of world growth and the US and the EU will each account for 17%. This is over the next period as whole China’s contribution to world growth at current exchange rates will be more than 50% greater than either the US or EU.

In summary, in terms of sales over the next period, China’s economy will grow more than twice as fast as the US or EU and even at current exchange rates it will grow more than 50% more rapidly – providing a firm basis on which to attract other economies to increasing economic interaction with China.

Total GDP growth is not the target

But while it is significant to note projected growth rates, China has rightly emphasised that GDP growth cannot by itself be the target of policy. The correct goal is ‘people centred development’, that is the improvement of the overall living conditions of its people – including in relation to problems that by their nature can only be solved internationally.

China has long led the way globally in speed of increase of living standards, which for the last 40 years have been by far the fastest in any major economy, and in poverty reduction – since 1978 China has accounted for almost three quarters global fall in the number of those living in World Bank defined poverty. China’s pledge to entirely eliminate absolute poverty by 2020, repeated at this year’s NPC, remains an inspiring goal for all humanity.

These issues also illustrate the link between economic development and human well-being – growth of per capita GDP is not just a question of ‘concrete and steel’, i.e. physical production. Economists know that average life expectancy is the best indicator of overall human living conditions as it sums up in a single figure all positive (reduction of poverty, education, good health care, environmental protection) and negative (poverty, bad health care, lack of education, environmental damage) trends. Internationally more than 70% of differences in life expectancy between countries are explained by differences in per capita GDP.

Regarding China its life expectancy has continued to increase steadily – an indicator of its overall improving average social conditions as well as the success in poverty reduction. But it is therefore an extremely disturbing trend that in the US life expectancy has now been falling for three years and in the UK life expectancy has also started to decline – such a situation has not existed in these countries for decades. This clearly can only reflect a deteriorating social situation which, in turn, underlies heightened social and political conflict in these countries – the political turmoil continuing to surround the Trump administration, the economically irrational Brexit decision in the UK etc.

Some people in the West now argue that changes in distribution of income within advanced economies, particularly the US and UK, where this is extremely unequal, could ensure the maximum social progress even without economic growth. But whatever position is taken on this regarding the West, where it is becoming a hot debate in some circles, in developing countries such as China this is impossible. Continued development of per capita GDP, in the framework of ‘people centred development’, is therefore vital for the well being of China’s population and its growth target maintains this.

China’s methods of poverty reduction are of direct concern in developing countries. But even in advanced economies, with a higher per capita GDP, the difference of methods used by China at different stages of development for eliminating poverty are of interest – and likely to win widespread support.

To lift more than 800 million people out of World Bank defined poverty, as China did after 1978, China necessarily relied on overall economic growth – no targeted measures would have been powerful enough. But even with economic growth the last few tens of millions of people living in absolute poverty in China could be left there – because they are in very inaccessible parts of the country or for other reasons. Therefore, for final success in eliminating poverty, China has to rely on targeted measures – which require conscious directed state policy as set out by the NPC. In both the US and UK, which rely overwhelmingly on the ‘invisible hand’ in the economy, key measures of poverty have actually increased in the last period.

China’s achievements in poverty reduction are so overwhelming ahead of the rest of the world that this should be a central part of its public image and presentation – in the West even anti-China politicians are forced to praise China for its unparalleled success in poverty reduction.

Ecological civilization

But in addition to immediate struggles to raising living standards, to provide social protection, to extend health care, and to eliminate poverty, in the present world ‘people centred development’ must also centrally include the fight against environmental degradation and against climate change. The latter, in particular, is a literally deadly threat to the whole future of humanity. These goals require building an ‘ecological civilization’, as President Xi Jinping has put it.

The effects of global climate change are already clear. The world is already seeing record-breaking temperatures, extreme heatwaves, storms, floods, and wildfires leaving a trail of death and devastation – and this situation will become progressively worse as global temperatures rise. As the UN’s Antonio Guterres has said, scientists have warned about global warming for decades, but ‘far too many leaders have refused to listen [and] far too few have acted with the vision that science demands.’

This extremely dangerous threat to the whole of humanity is therefore being increasingly reflected in generating social and political movements internationally. In the US recognition of the danger of climate change is extremely widespread with those concerned on this issue ranging from multi-billionaires such as former Mayor of New York Michael Bloomberg, through entire US states such as California, to the ‘Green New Deal’ put forward by many political figures which calls for concerted action on climate change and commands widespread popular support. Young people, who will face the worst consequences of climate change during their lifetimes, have started to become increasingly active – with in Europe an international movement of school strikes against climate change. Leaders in Pacific Islands term have termed this threat a literal genocide – their countries will physically disappear beneath rising sea levels if action is not taken.

The effective fight against climate change requires both correct policies and huge technological and industrial capacities and the objective situation is that China alone possesses both. The emphasis on ‘ecological civilization’ at the NPC is therefore particularly important given that, unfortunately, the Trump administrations in the US is continuing to undermine the Paris Climate Agreement and has made clear that the US will withdraw from it when the rules allow President Trump to do so in 2020.

The NPC decisions go in exactly the opposite direction to the regrettable US deeply irresponsible policies. They are therefore both in the interests of the Chinese people and in line with majority, and an increasing majority, of international opinion. More specifically, in a key target the work report projects China’s energy consumption per unit of GDP to continue to fall by about 3% in 2019. Regarding key forms of environmental pollution sulfur dioxide and nitrogen oxide emissions will drop by 3%, and the concentration of fine particulate matter (PM2.5) will continue to decline in key areas. This year’s chemical oxygen demand and ammonia nitrogen emissions will drop by 2%.

Progress made by China in tackling pollution in the last years is also regarded internationally as striking. A few years ago, as was recognised not only in China but internationally, major Chinese cities had very serious problems of smog and pollution – with Beijing being the most widely cited case internationally. But in 2018, as even Ian Bremmer, head of the Eurasia Group, the leading Western ‘risk evaluation’ company, and a severe critic of China noted, Beijing is no longer even in the top 100 most polluted cities in developing countries – regrettably seven out of the ten most polluted cities are now in India. This is not at all to underestimate how much still much remains to be done to fight against climate change and tackle pollution, but China is making a decisive turn to environmentally favourable policies while other countries, notably the US, are retreating from them. Furthermore, China is having measurable success. This will necessarily have an impact on international opinion.

Convergence with international forces

On the issue of climate change, therefore, China’s policies are objectively aligned with an extremely wide range of forces internationally, ranging from billionaires to school children, on what an increasing number of people in the West consider the most important issue facing humanity. This creates important possibilities for China to create alliances with very broad groups – even some who are normally hostile to China but who consider such differences less important than dealing with what they see as a fundamental threat to humanity.

The context for this is that the 2020 international climate talks are supposed to agree new national commitments consistent with constraining global temperature rise ‘well below two degrees’. This is given greater emphasis by the recent conclusion of the United Nation’s Intergovernmental Panel on Climate Change’s (IPCC) that the only science-based target to tackle the climate crisis is to constrain global average temperature rise below 1.5 degrees above the pre-industrial average – although this is not yet accepted officially as an international target.

Overall, while China’ comprehensive national strength is rising it cannot yet play an all-round leading role on international issues – views such as that China’s comprehensive national strength is already equal to the US are incorrect, and views such as that the dollar can be replaced as the leading international currency in any short/medium term period are also unrealistic. But as China’s comprehensive national strength increases it will be able to take a leading international role on certain issues. Climate change is one of them – most developing countries would welcome China playing such a role and it may be possible for China to come to an agreement with the EU, leaving the present administration in the US relatively isolated on this issue.

This trend directly coincides with increasing concern in the West about climate change and an increasingly open support for China’s policies in several fields related to this. Western experts note that China is already ahead of its target of reaching peak emissions by 2030 – recent Western estimates are that this will be achieved in 2025 or even slightly earlier. Interestingly the target date that would be required to meet a global target of 1.5 degrees is only slightly earlier – 2022.

To take specific areas, China is already by far the world leader in electric vehicles for public transport. Shenzhen is world’s first city to have a 100% electric bus fleet and this is extremely large – almost 16,000 vehicles. The next nine cities in the electric bus global top ten are also all in China and have thousands of vehicles. To show the scale of China’s lead, the next highest cities in the world after China are London and Santiago in Chile with roughly 200 each. China is also by far the world leader in urban cycle hire.

Similarly, the ‘C40 Cities – Climate Leadership Group’, which joins together 90 leading cities internationally, representing more than 650 million people and including one quarter of the global economy, asks all its cities to commit to all new buildings being zero carbon by 2030. China can technically achieve that.

There are numerous ‘hot’ issues to be considered in the coming international climate change discussions – – regarding which a strictly objective dialogue is crucial. For example, emissions from China’s own coal powered electricity generation is scarcely rising – it went up only one percent last year, but pro-China Western experts, who are overall strong supporters of the Belt and Road initiative, are worried about the effect of new coal power stations that are part of the Belt and Road initiative.

On the other hand, twenty years ago, under Clinton and Gore, the US forced the UN to adopt a method of measuring climate emissions that favours western countries – by measuring emissions at the point of production within a state boundary (so a country’s emissions are calculated from adding up pollution from power stations, vehicle emissions etc). A more accurate measure is to calculate based on what is consumed within a country and follow the emissions back down the supply chain (so looking at the materials that make up a washing machine and how they were produced, what it took to feed the pigs that are turned into bacon, the process of manufacturing clothes and how they are transported to the point of retail sale etc). The latter is more accurate in attributing real responsibility for emissions and climate change. The US’s measured emissions would rise by minimum of 20%, probably more, if such a consumption methodology was used – while China’s would fall substantially. This would of course be a good but radical change.

Serious negotiations therefore lie ahead in which both economic and environmental factors must be considered. But what is clear is that China already has the leading position among the largest states in dealing with climate change and this is increasingly recognised by other countries and international environmental organisations. This issue is not only vital for China itself but also vital for the whole world and for international perception of China.

China’s framework is, of course, its ‘national rejuvenation’. A ‘vanguard’ of clear-headed people in other countries can understand that China’s national rejuvenation is in their interests as well. But the mass of people judge things by whether they benefit from them – that is agreements must be ‘win-win’. This is a central part of Xi Jinping’s concept of a ‘common future for humanity’. China’s policies on its economic growth and climate change precisely create ‘win-win’ solutions for itself and other countries.


The need for ‘people centred growth’ adopted at the NPC, which centrally includes integrating economic growth with environmental concerns, flows from China’s own domestic needs. But it also provides a key basis for China’s international agreements – which in turn are significant for China’s own development. They are also a key part of China’s ‘soft power’. These policies have been adopted for implementation in China to correspond to China’s domestic development but, as shown, they also fit with current trends globally. It is therefore greatly to be hoped that China’s diplomacy and public relations will skilfully project these issues internationally.

This article was previously published on Learning from China and the Chinese language version of this article first appeared at on 15 March 2019.

Corbyn’s Labour – part of the new international movement against climate change

By Ken Livingstone

We are quickly running out of time to make the necessary steps required to prevent global warming exceeding the critical point of a 1.5 degree celsius rise. The International Panel on Climate Change has argued we have just over a decade to take the decisive action to reduce the amount of carbon in the atmosphere. We face a direct existential threat if we do not rapidly switch from fossil fuels by 2020, and a failure to do so will mean runaway climate change.

Already we are seeing record-breaking temperatures, extreme heatwaves, storms, floods, and wildfires leaving a trail of death and devastation. As the UN’s Antonio Guterres has said, scientists have warned about global warming for decades, but “far too many leaders have refused to listen [and] far too few have acted with the vision that science demands.”

When it comes to having both the vision and policies needed to address these severe dangers, it is only voices from the left that can put forward the radical changes to the economy needed, and it is the globally resurgent extremeright that is instead forming an international axis of climate change denial. Specifically, Donald Trump’s administration is continuing to undermine the Paris Climate Agreement and has made clear that the US will withdraw from it when the rules allow him to do so in 2020.

He is joined in this by the far-right president of Brazil Jair Bolsonaro, who has issued an executive order to facilitate the acceleration of deforestation in order to open up the Amazon rainforest for further exploitation by agribusiness, mining and construction companies. This move could destroy the ‘lungs of the planet’ by reducing the planet’s ability to absorb and store carbon.

While Bolsonaro and Trump claim these devastating policies are in the economic interests of their countries and populations, in reality they only advance short-term profits for a tiny elite. In the medium to long term they will have a devastating impact on the living standards of the overwhelming majority, especially the poorest, who are impacted by climate change the most.

This reactionary agenda faces stiff resistance from climate justice campaigners. Importantly we are also starting to see the seeds sown of an international political movement demanding a new, socially and environmentally sustainable model of political economy.

This movement understands that we need a fundamental transformation away from neo-liberalism, and that it is impossible to tackle climate change without simultaneously reducing inequality, and vice versa.

In the belly of the beast itself, the Green New Deal resolution put before the US Congress by Alexandria Ocasia-Cortez coherently melds action to tackle climate change with measures to counteract the obscene inequality and wage stagnation that has built up over decades of neo-liberalism.

The resolution starts with the Intergovernmental Panel on Climate Change’s conclusion that the only science-based target to tackle the climate crisis is to constrain a global average temperature rise below 1.5 degrees. But it also takes as its evidential starting point “hourly wages overall stagnating since the 1970s… the third worst level of socio-economic mobility in the developed world before the Great Recession…[and] the greatest income inequality since the 1920s”, including a specific focus on the racial and gender wealth divide.

To overcome this, it advocates the US government launches at least a trillion dollars in state investment to eliminate fossil fuels and switch to 100% renewable energy in the next decade, which would inevitably boost growth and create quality jobs.

Labour’s proposed green jobs revolution, creating hundreds of thousands of jobs and recently elaborated by Rebecca Long-Bailey, also shows that Jeremy Corbyn-led Labour is a central part of this international movement for change.

As Rebecca said, “We believe that together we can transform the UK through a green jobs revolution, tackling the environmental crisis in a way that brings hope and prosperity back to parts of the UK that have been held back for too long.”

After decades of neo-liberalism, our economy is structurally weak and deeply unequal. Whole communities have been de-industrialised, insecure and low paid work has soared, our infrastructure is underinvested and crumbling, and our society’s fabric is being pulled apart by austerity. In direct contrast to this failed approach, Labour’s green jobs revolution can improve the living standards of millions.

Jeremy Corbyn understands that only a total transformation of the failed neo-liberal model can change this, protecting both people and planet. This not only offers hope for a better life here, but is also part of a new international alternative to ensure humanity has a future.

» Follow Ken at Ken4London and KenLivingstoneOfficial

The above article was previously published here by Labour Briefing.

Despite himself Trump admits the superiority of China’s socialist economy to capitalism

By John Ross

Major events, such as the Trump administration launching tariff aggression against China, inevitably ruthlessly cut away hollow rhetoric and allow the objective facts of a situation to be seen – including revealing how the different forces in a situation really judge it. A particularly striking example of this principle, with deep implications not only for China but for all countries, is that the reasons given by the Trump administration for launching its trade war against China in fact entirely destroy that administration’s own propaganda that socialism is ‘inefficient’ in promoting economic development compared to capitalism. In reality the Trump administration is forced in practice, as will be shown, to acknowledge that China’s socialism is more effective as a path of economic development than capitalism.

It is certainly deeply ironic that President Trump, an avowed supporter of capitalism, is forced in practice to acknowledge the superiority of China’s socialist system – he is certainly not himself aware he is making this admission! But this reality is immediately demonstrated by the Trump administration’s own claim that China has an ‘unfair’ economic advantage due to the consequences of China pursuing a socialist economic path of development. It is therefore equally ironic that neo-liberal commentators in China attempt to claim capitalism is more efficient than socialism at the time when the Trump administration is forced by economic reality to admit the exact opposite.

This fact that the Trump administration, and large parts of the Western media, are themselves unaware that they are stating the superiority of China’s socialist economic system has no bearing on the objective content of what they are admitting. But examining this contradiction between the Trump administration’s propaganda claims, and the reality it is forced to recognise, casts an important light on the superiority of a socialist economic system compared to a capitalist one.

This article, therefore, examines this gap between what the Trump administration is forced to admit in reality and its propaganda. Given such a contradiction, analysing the logic of Trump and Western media statements, and their internal contradictions, also therefore confirms the practical correctness of China’s socialist choice of development.

But, as will be seen, the issues involved in this economic choice between socialist and capitalist paths of economic development, and of the outcome of the Trump administration’s trade aggression against China, are crucial not only for China itself but for all countries – indeed for humanity as a whole. Furthermore, they give a particularly striking and direct confirmation of one the most important principles of Marxism. Therefore, the internal contradictions in Trump’s and similar claims merit examining in detail – after all, when an opponent of socialism is forced in fact to admit the economic superiority of the socialist system this is something worth analysing and thoroughly understanding!

Slowing China

That the aim of the Trump administration’s tariffs against China is to slow China’s economic development is now either scarcely concealed, or is openly admitted, by both that administration and by anti-China sections of the Western media. Numerous examples could be used to illustrate this so simply two especially prominent ones will be taken for examination here – all similar claims have the same logic.

Taking first a leading example from the media, on 18 October, The Economist carried a long cover story ‘The End of Engagement’ that noted: ‘America fears that time is on China’s side. The Chinese economy is growing more than twice as fast as America’s and the state is pouring money into advanced technology, such as artificial intelligence, quantum computing and biotech. Action that is merely daunting today… say… to challenge China in the South China Sea—may be impossible tomorrow.’

Speaking in August, President Trump himself declared: ‘When I came [to office] we were heading in a certain direction that was going to allow China to be bigger than us in a very short period of time. That’s not going to happen any more.’

However the reality is that facts show, as analysed earlier in Trump’s Economy – Cyclical Upturn and Long Term Slow Growth that the Trump administration has failed to significantly accelerate the US economy’s growth rate. In fact, the opposite situation exists:

Peak growth under Trump is the lowest under any US president since World War II.

US growth during the whole of the current business cycle is the slowest during any business cycle since World War II.

As the Trump administration has been unable to substantially accelerate US growth, therefore the only method available to it to prevent China being ‘bigger than us in a very short period of time’ is to slow China’s development. This is, of course, the reason for the Trump administration launching trade aggression against China.

What Trump is in reality admitting

To achieve this goal of slowing China’s economy the common core demand that President Trump’s administration makes is that China’s state should not intervene in the economy – seen notably in its call for China to abandon SOE’s, the attack on state economic priorities in ‘Made in China 2025’ etc. All these are claimed to give China an unfair advantage in competition with the US.

It is, indeed, perfectly true that China’s state strategically intervenes more in its economy than the US state does in the US economy. That is, as Xi Jinping put it, China uses both the ‘visible hand’ and the ‘invisible hand’ to develop its economy. In contrast, the modern US economy attempts to rely almost exclusively on the ‘invisible hand’. China’s preparedness to use both visible and invisible hands is indeed, of course, a feature flowing from its socialist economic system.

But the contradiction between the Trump administration’s verbal propaganda claims of the efficiency of capitalism, and its actual practical positions regarding the trade war, becomes evident the moment the actual content of Trump’s claims is thought about. Because Trump’s claim that China has an unfair economic advantage simply completely contradict the US propaganda claim that socialism is less efficient than capitalism! For if state enterprises and state intervention in the economy, as part of a socialist system, were less efficient in promoting growth than private capitalism their use would not be an unfair advantage for China – on the contrary state intervention and state enterprises would be a serious disadvantage for China.

If state intervention in the economy, including state enterprises, were really less efficient than capitalism then in fact the best way for the Trump administration to slow China’s economic development would be to call for China to maintain its state intervention in the economy, or even to increase it – not for China to abandon its unfair advantage of state intervention! If state intervention in the economy were really less efficient than private capitalism the greater the state intervention in the economy the slower China’s economy would grow – SOEs, for example, should be a disadvantage for China’s economy not an unfair advantage.

The fact that Trump/The Economist etc claim that state intervention gives China an unfair advantage is therefore in fact an admission that such socialist policies are an economic advantage, not a disadvantage, for China. Naturally Trump and The Economist cannot state this openly, as this would entirely overturn their argument that socialism is less efficient in creating economic development than capitalism. Indeed, so confused are Trump/The Economist, and lacking in self-awareness and understanding of their own arguments, that they certainly do not understand themselves that they are admitting the superiority of socialism in creating economic development. But that is the inevitable and inescapable conclusion of their argument that China is obtaining an unfair advantage by state intervention in the economy – that is, of China’s willingness to use both the visible and the invisible hands in economic development.

The implications for the US

Furthermore, the implications of this de facto admission that socialism gives an advantage in economic development compared to capitalism for the US are obvious and, if considered rationally, produce the exact opposite conclusion to the one the Trump administration advocates. Their logic is that rather than asking China to abandon the unfair advantage of state enterprises and state intervention in the economy, if state intervention in the economy and state-owned enterprise gives China an unfair advantage, allowing its economy to grow more rapidly than the US, then it is urgent for the US to establish SOEs and undertake state intervention in the economy – thereby allowing the US economy to gain the same advantages as China and grow more rapidly! The reasons why the US will not do this are analysed below but, in turn, this allows the real choice facing not only China and the US but all countries to be clearly understood. For what Trump/The Economist, and similar arguments, are in fact admitting is:

1. As they claim state enterprises and state intervention give China an unfair advantage, they are therefore are in reality admitting that a socialist economic system has an unfair advantage compared to a capitalist one – that is why Trump/The Economist demand that China abandon this unfair advantage of its socialist economic system.

2. But if countries adopt a capitalist system, and therefore do not make use of the unfair advantage of a socialist economy, they will grow more slowly. Therefore, what Trump/The Economist are asking is that countries do not adopt the unfair advantage of a socialist economy but instead that they should have a capitalist economy and therefore accept to develop their economy more slowly – i.e. in fact Trump/The Economist argue that the issue of maintaining a capitalist economic system should take priority over the most rapid possible course of economic development.

Speed of China’s economic development

To understand this issue in practice, it is certainly factually true that the admission by Trump/The Economist of the advantage for speed of development of China’s socialist system, compared to a capitalist one, is accurate – as is easily shown by international comparisons.

To summarise the results of the period of development of China’s economy during the construction of a socialist market economy compared to capitalism, from 1978 to the latest available data there are 155 countries, regions or income groups for which there are GDP and per capita GDP data for the period 1978-2017 by standard World Bank classification. As shown in Table 1, during the period 1978-2017, that is the period of China’s socialist market economy, China’s economic growth ranked number one internationally among all countries, regions or income groups. In terms of international comparison China’s GDP growth was:

  • Almost 13 times greater than the US.
  • Over 12 times greater than the EU.
  • Almost 16 times greater than Japan.
  • Almost 7 times faster than the average for developing economies – the overwhelming majority of which are capitalist.

Taking the criteria of per capita GDP growth, as well as total economic growth, China equally ranked number one. In 1978-2017 China’s total per capita GDP growth was:

  • Almost 13 times that of the US.
  • Over 12 times that of the EU.
  • Almost 12 times that of Japan.
  • Almost 9 times that of all developing countries.

In summary, China’s socialist path of economic development showed overwhelming superiority in generating economic development to that of capitalism – whether capitalism is considered in advanced or developing economies.

The Trump administration/The Economist are therefore quite correct to acknowledge the superiority of the results for economic development of China’s socialist system compared to capitalist alternatives. But then it is entirely illogical for them to argue that China should abandon a socialist system, delivering more rapid economic development, and instead adopt a capitalist one which produces slower economic development. The logical choice is for countries growing more slowly to switch to the system producing the most rapid economic development, not for countries enjoying rapid economic development to switch to a system which produces slower growth!

Consequences for humanity

Finally, in order to understand the significance of these issues, and this choice, not only for China but for the whole of humanity it should be clearly grasped that the question of the rate of economic development is not simply, or even primarily, important in terms of ‘concrete and steel’ – that is physical indicators of output. Economic development has overwhelming implications for the social conditions of every country, for national well-being, and for humanity as a whole. Economic development remains the decisive issue confronting most countries – only 17% of humanity currently lives in ‘high income’ economies by World Bank international classification, that is economic development remains the decisive issue for 83% of humanity, and the consequences for the overall well-being of human beings, and of national wellbeing, of economic development is overwhelming.

Taking simply average life expectancy, which is known by economists to be the most significant indicator of overall living and social conditions:

  • The difference in average life expectancy between a high-income economy and a low-income economy by international standards is 18 years.
  • The difference in average life expectancy between an upper middle-income economy by international classification, such as China, and a high income one is over five years.

Therefore, achieving economic development is the key to improving social living conditions. For countries to abandon, or fail to adopt, the unfair advantages of a socialist economic system is therefore literally a life or death question for their citizens. What Trump is demanding by attempting to slow China’s economy is not simply that China should not achieve economic development, but that China should literally condemn its citizens to die earlier than is necessary. Equally, those who claim that countries should not make use of the unfair advantage of socialist development, or attempt to force countries to abandon them, are in fact condemning the majority of humanity to needless backwardness, suffering, and an unnecessarily early death.

Implications for other countries

These real social implications of economic development therefore show why the consequences of the choice of a socialist path of development is of decisive significance not just for China. It is why in defeating the US trade aggression against China the interests of humanity are on the side of China because:

  • China’s rapid economic development creates a stronger global economic dynamic which in turn aids other countries development – while, equally, US success in slowing China’s economy would therefore make it harder for other countries to pursue their own economic development.
  • China has created the world’s most successful path of economic development. No other country can mechanically copy China’s development, but they can learn from it. Success by the Trump administration in blocking China’s socialist path of development would therefore be a setback for every country.

Indeed, the implications of the outcome of the US trade aggression against China go further even that straightforward economics. The US has repeatedly shown that it is prepared to use military force against weaker countries (Iraq, Libya) to engage in de facto military threats even against powerful countries (expansion of NATO up to the borders of Russia, supply of arms to the separatist leaders of Taiwan Province), and to use the unilateral imposition of economic sanctions (Russia, Iran). Success of the US in trade aggression against China would therefore undoubtedly strengthen such US military and geopolitical threats. Detailed analysis of this, however, would take a further full article so here merely the economic logic of the Trump administration’s positions are considered.

The relation of national development and business development

Returning to this purely economic aspect, if those such as Trump/The Economist cannot see that by their claim that China has an unfair economic advantage that they are in reality acknowledging the superiority of the socialist system why are they blind to the logic of their own argument? Because in reality they place class values, those of the capitalist class, above those of the nation or of humanity. Thereby, despite their own wishes, they are in fact forced to confirm one of the most important arguments of Marxism.

This is shown clearly in a criticism of China such as The Economist‘s claim that:

‘Mr Trump is… right that America needs to reset expectations about Chinese behaviour. Today’s trading system fails to prevent China’s state-backed firms from blurring the line between commercial interests and the national interest.’

This alleged confusion by China between ‘national interests’ and ‘commercial interests’ is part of The Economist’s criticism of China’s SOEs. Therefore a criticism that China’s SOEs allow the ‘national interest’ to influence the ‘commercial interest’, and that when there is a conflict the SOE’s place the national interest above the commercial interest. By this, obviously, there is an acknowledgement that in certain situations there may be a conflict between national interests and purely commercial interests.

But if there is a distinction between the ‘national interest’ and the ‘commercial interest’, and The Economist admits there may sometimes be conflicts, which should take precedence? What most people, including in China, would want is that when such conflicts occur the national interest is placed first. The Economist, however, on the contrary makes it a criticism for the national interest to come before the commercial interest. That is, for The Economist the ‘commercial interest’ must come before the ‘national interest’.

But what is this ‘commercial interest’ The Economist is so concerned with? In the West it is, of course, the interest of private capitalist companies – which dominate the Western economies. Therefore, what The Economist is arguing is that the capitalist interest of companies, that is the interests of the capitalist class, should come before the ‘national interest’.

This concept is precisely why the Trump administration/The Economist argue China must not use the unfair advantage of utilising both the visible hand and the invisible hand, that is both the market and state intervention in the economy. The Economist, in line with the Trump administration, are criticising China from the point of view of a framework that in the event there is any conflict between the ‘national interest’ and the ‘commercial interest’, that is between the national interests and the interests of the capitalist class, then the interests of private capitalism must come before the national interest. It is precisely because it has the opposite framework, that the national interest must take precedence of the interests of private capitalism, that allows China’s economy to develop more rapidly than a capitalist economy. The Economist however, in line with the Trump administration, argues capitalist class interests come first – even if this produces slower economic development.

Ironically therefore, although they certainly do not intend to do it, the Trump administration/The Economist in fact prove Marx’s famous formula classically expressed in his Preface to the Critique of Political Economy: ‘At a certain stage of their development, the material productive forces of society come in conflict with the existing relations of production, or – what is but a legal expression for the same thing – with the property relations within which they have been at work hitherto. From forms of development of the productive forces these relations turn into their fetters.’

By arguing that the ‘commercial’, that is the capitalist, interests must come before the national interest, the unfair advantage the Trump administration/The Economist claims that China has is precisely its socialist economy – and its advantages compared to a capitalist economy. What the Trump administration/The Economist are in fact arguing is that countries, starting with China, should not use the advantages of a socialist system but should reduce their rate of economic development to a level compatible with the interests of the capitalist class. In summary the Trump administration/The Economist are, without understanding it, expressing in a completely classical form the contradiction between the class interests of capital and the interests of humanity.


To summarise. From the point of view of China this link between its socialist path of its development and its national rejuvenation concerns the well being of the Chinese people and the Chinese nation. Despite the People’s Republic of China’s gigantic achievements, China started its development from a position where in 1949, after a century of foreign intervention, China was virtually the world’s poorest country – less than 10 countries had a lower per capita GDP than China and its life expectancy was 35. With such a low starting point even the internationally and historically unparalleled economic development created by China’s socialist reform and opening up takes a prolonged period to achieve prosperity for the Chinese people – it will still be two years before China achieves ‘moderate prosperity’ by its national standard and around five years before it achieves the status of a ‘high income economy’ by international World Bank standards. Even with the speed of development of its socialist market economy it will be several decades before China’s living standards reach the highest in the world. The abandonment of the socialist path of development, the acceptance of the demands by the Trump administration, or anyone else, that China abandon its more economically successful path of socialist development, and adopt the slower one of capitalism, would therefore be a catastrophe for the Chinese people and the Chinese nation. It would, as in the former USSR when it adopted capitalism, inevitably lead to the growth of separatism and other deadly threats to the Chinese nation. Experience shows that the weakening of China would encourage the most militarist and other dangerous forces within the US.

But while this issue of the path of development will, of course, be determined by the issue of China’s own national development its consequences will affect every other country. That is why the interests of other countries, and of humanity, coincide with those of China in countering the trade aggression of the Trump administration.

In summary the advantages of China’s economic system only appear ‘unfair’ to the US because the US refuses to embark on a socialist path and clings to the slower path of economic development of capitalism. But in that case why should China abandon a more successful path of economic development – as the deeply illogical demands of the Trump would result in?

There is indeed a deep irony. In its empty rhetoric and media propaganda the Trump administration proclaims the superiority of capitalism and the inefficiency of socialism. But in its practical actions the Trump administration is forced to acknowledge the economic advantage of socialism. Which of these two should be taken more seriously?

As the wise English method of judging says – actions speak far louder than words.

* * *

This article was previously published on Learning from China and originally published in Chinese at on 28/11/2018.

AOC’s Green New Deal is exactly what’s needed to save the planet

By Fiona Edwards

“Many people ask what a Green New Deal entails. We are calling for a wartime-level, just, economic mobilisation plan to get to 100% renewable energy ASAP.”
AOC tweet, 2 January 2019

Alexandria Ocasio-Cortez (AOC) is proposing that the United States become a global leader in the battle to stop climate change by undertaking a rapid and thoroughgoing economic transformation to drastically reduce US greenhouse gas emissions in the next 10 years. The plan being put forward by AOC calls for the US to launch a massive programme of state investment to bring about a ‘Green New Deal’ and the necessary transformation of the economy away from a reliance on fossil fuels to 100% renewables. It is an approach that directly challenges US President Donald Trump who is currently leading the US in precisely the opposite direction. Under his Presidency the exploitation of unconventional fossil fuels has massively expanded which is causing US carbon emissions to rise at a time when they should be rapidly falling.

As AOC’s resolution to Congress points out, the US has “historically been responsible for a disproportionate amount of greenhouse gas emissions” and continues to contribute enormously to the problem of climate change. The US has a moral responsibility to play a leadership role in resolving the international climate crisis, a crisis that poses an existential threat to human civilisation and which the US has played a major role in creating. In addition to being a responsibility, leading a global effort to decarbonise the world economy does also present the US with a “historic opportunity” to break out of “a 4-decade trend of economic stagnation, deindustrialisation and anti-labour policies” to create millions of good, high wage jobs and “provide unprecedented levels of prosperity and economic security for all people of the United States.”

The scale of the planetary emergency the world is facing was underlined by the International Panel on Climate Change (IPCC) ‘Special Report’ of October 2018 which outlined the disastrous impact a 2 degrees Celsius rise in global temperatures would cause: widespread increase in famines, cities and entire countries submerged in water, deadly heatwaves, forest fires, floods and hurricanes. Global temperatures have already risen by approximately 1 degree Celsius since pre-industrial levels and on the current trends the world is on track for 3.3 degrees Celsius of warming by the end of the 21st century. Humanity is currently losing the battle to stop catastrophic climate change. Urgent and massive action is needed to limit global warming to a ‘safer’ 1.5 degrees Celsius rise and major strides forward are needed within the next decade.

In light of this reality AOC’s assertion that the ‘Green New Deal’ is “going to be the Great Society, the moonshot, the civil rights movement of our generation” is not over-blown rhetoric but entirely, as she has put herself, “the scale of the ambition that this movement is going to require.”

In the FAQs section of her draft ‘Green New Deal’ published at the end of 2018 AOC made clear the scale of the investment required to bring about a massive transformation to decarbonise the US economy, citing that “at least $1 trillion” would be needed. She is also made clear about the fact that the state will need to play a “big role” in driving and making such investments.

On how to raise the funds required, her draft proposal stated:

“Many will say, “Massive government investment! How in the world can we pay for this?” The answer is: in the same ways that we paid for the 2008 bank bailout and extended quantitative easing programs, the same ways we paid for World War 2 and many other wars. The Federal Reserve can extend credit to power these projects and investments, new public banks can be created (as in WW2) to extend credit and a combination of various taxation tools (including taxes on carbon and other emissions and progressive wealth taxes) can be employed. In addition to traditional debt tools, there is also a space for the government to take an equity role in projects, as several government-affiliated institutions already do.”

AOC’s widely publicised proposal to increase tax on the super-rich to help fund the ‘Green New Deal’, by raising the top marginal tax rate to 70% for those that make above $10million, has been very well received by the US public.

Some have dismissed AOC’s ‘Green New Deal’ as unrealistic. On the contrary, the ambition of the ‘Green New Deal’ – to make a rapid transition to 100% renewable energy and abandon fossil fuels – is entirely consistent with the what the IPCC says is necessary. The world’s carbon emissions must collectively start decreasing now and half from current levels by 2030 and this can only be achieved through the rapid phasing out of fossil fuels which must be replaced by an enormous expansion of renewable energy. And as Dean Baker points out, China is delivering its own Green New Deal right now through enormous, on-going state investment in renewables and electric cars.

It is Donald Trump’s approach that is completely unrealistic and out of step with what the international scientific consensus states is required. The US is now the number one producer of oil and gas in the world as a result of the “fracking revolution” which has seen production of unconventional fossil fuels soar. It’s a trend that the International Energy Agency is anticipating will deepen, with expectations that the US will be responsible for 75% of global oil growth and 40% of global gas growth over the next 6 years. The result of Trump’s policies on climate change has been to increase US carbon emissions, which rose by 3.4% in 2018.

Trump and the fossil fuel industry argue that aggressive exploitation of fossil fuels is necessary for economic development and that green policies are damaging to prosperity.

In reality massive state investment for a ‘Green New Deal’ could get the US economy out of its stagnation and provides a route to improving living standards as well as tackling climate change. As AOC put it in a public event on the climate change in December 2018:

“The idea that we are going to somehow lose economic activity… As a matter of fact it’s not just possible that we will create jobs and economic activity by transitioning to renewable energy but it’s inevitable that we are going to create jobs. It is inevitable that we are going to create industry and it’s inevitable that we can use the transition to 100% renewable energy as the vehicle to truly deliver and establish economic, social and racial justice in the US. That is our proposal.”

AOC’s ‘Green New Deal’ proposal is exactly the ambitious approach needed to save the planet and achieve a decent standard of living for all and it is the type of approach that Jeremy Corbyn and the Labour Party front bench are also pursuing in Britain.

Jeremy Corbyn is right to demand Britain is in a Custom’s Union with the EU

By Tom O’Leary

The importance of Britain being in a Customs Union with the EU is highlighted by the recent exchange of letters between Jeremy Corbyn and Theresa May. Jeremy Corbyn has focused on blocking a ‘No Deal’ outcome, which would be extremely negative for jobs and living standards. He has also set out his support for being in a customs union with the EU. Theresa May continues to threaten No Deal and rejects being in a permanent customs union, it being one of her key red lines.

Although there is much else in the exchange of letters which is also important to note, the principal issue examined here will be the one that Jeremy Corbyn raises, which is the vital necessity of being in a Customs Union with the EU.

Corbyn’s letter demands significant changes to the Political Declaration (which offers an outline of the future relationship with the EU) and insists that these changes need to include, “A permanent and comprehensive UK-wide customs union. This would include alignment with the union customs code, a common external tariff and an agreement on commercial policy that includes a UK say on future EU trade deals. We believe that a customs union is necessary to deliver the frictionless trade that our businesses, workers and consumers need, and is the only viable way to ensure there is no hard border on the island of Ireland. As you are aware, a customs union is supported by most businesses and trade unions.”

The full text of Corbyn’s letter is here. May’s letter rejects this, and falsely claims that the Political Declaration continues the same benefits as the customs union. This is blatantly untrue, as the Political Declaration says only that those same benefits are desired, without any mechanism to achieve that. May’s letter is here.

The nature of the EU

There is no useful purpose, either for serious analysis or promoting the interests of the working class, to suggest that the European Union is anything other than a capitalist club. It is not, as Will Hutton and other propagandists claim a repository of Enlightenment values. First these so called ‘Enlightenment values’ were used to create the greatest colonial Empires the world has ever seen. In the famous words of Gandhi when asked what he thought of Western civilization he replied ‘it would be a good idea’. Today it remains a sickeningly bad joke in light of the EU’s treatment of refugees fleeing across the Mediterranean, its treatment of Greece, the imposition of austerity across the Eurozone and much more besides. The false claims as to the EU Enlightenment project also acts increasingly as a cover for an intensification of vile Islamophobia, antisemitism and other forms of racism within Europe.

The purpose of the EU is to enhance and develop the interests of capital, most powerfully German capital, across the continent of Europe. But this development is multi-faceted in the way that the development of capitalism is in general. So, a new factory will usually entail increased labour exploitation and environmental degradation. Yet socialists do not stand against the construction of the new factory and do welcome the jobs, but instead argue for the best possible pay and conditions for all the workers in it, for environmental protections, other safeguards, and so on. Where and when it is possible, socialists are in favour of the factory passing into the hands of the workers.

The nature of a customs union

All goods and services operate in a market, irrespective of whether the producers or consumers understand that as such. For the most advanced manufactured goods in particular that market is increasingly internationalised, even globalised.

The internationalisation occurs at three different levels.
· First, there is the production of inputs for final production, which is everything from basic raw materials to the most sophisticated machinery, equipment or software.
· Secondly, there is the production of finished goods themselves which can take place at a number of different locations internationally.
· Thirdly, there is the market for the goods themselves, where the size of the market is decisive for the efficiency of the production and the Investment that is required.

The production of many services is less easily internationalised for many reasons, including language barriers and lack of labour mobility, although some services such as finance, travel etc are highly internationalised and increasingly legal and accounting services are also heading in the same direction. Many others, such as entertainment services, some aspects of design and publishing are developing in the same way.

The alternative to the customs union

Because the British economy already participates in the Customs Union with the EU and the Single Market, refusal to have any Customs Union with the EU amounts to a protectionist measure, a reduction in this economy’s openness to international trade. The Brexiteer fantasy that barriers to trade with the EU economy can be compensated by trade deals with other countries is mathematically unlikely as the EU constitutes approximately half all trade in goods. But it also ignores that fact that over 60 trade deals with third countries will in fact be ripped up by no longer being a Member of the EU. Trade deals with those countries, most especially the US, but also Japan, South Korea and other countries will have to be renegotiated from a relatively weaker position.

The increasingly internationalised production of manufactured goods has also become a hot topic in the United States because of Trump’s trade wars and protectionism. But Trump’s protectionism in favour of the autos sector has foundered precisely because so much of the content of US-marque cars that are finished in the US is from Canada, Mexico and other countries.

However, these ‘American-made’ cars are actually globally-produced. The 2017 Ford Focus, for example, is built in the United States, but only gets 40% of its parts from the U.S. and Canada, according to Federal data. At the other extreme, only 5% of the parts for 2017 BMW 7 Series Sedan were made in the US. The rest was made in Germany. For some time, the leading automakers in the ‘motor city’ of Detroit have been Japanese, outstripping the production of US marques.

At most, Trump’s protectionist measures (which have been underpinned by huge tax breaks for companies and the rich) have only deferred the further internationalisation of production. Yet the IMF has noted that they could knock $430 billion off global output.

Trump once tweeted that trade wars are easy to win for a country which runs sizeable trade deficits:

Of course, if there was one big set of factories in the US producing cars and another set in Canada and Mexico, then his protectionism might possibly have the impact he desires. Instead, his policy simply interrupts the efficient socialisation of production, in favour of a failed attempt to re-organise it on a national basis. By far the most important effect of his policy is to raise the cost of production in the US, which raises prices to US consumers more and therefore increases the competitive threat to US jobs in cars and associated industries.

A key impediment to the development of these fundamental trends is the existence of tariff and non-tariff barriers (which include product standards, local content rules, and other factors which are all subject to inspection regimes). A customs union operates to remove the tariff barriers between two different economies.

Unfortunately, there are romantic notions in left circles in Britain and Europe that would wish away the concrete issues raised by the existence of multinational or even global supply chains. It is unrealistic to believe workers’ control or ‘Lucas plan’ ideas in relation to current, complex manufacturing supply chains that dominate aerospace, cars, pharmaceuticals and other sectors can ignore these realities. As described in a previous article, aerospace and other advanced producers rely on a vast flow of inputs as part of the production process. It would require a vast, entirely unfeasible level of investment to recreate those on national territory, and for a national market that is simply too small to support even the current level of output.

Outside a Customs Union

It is clear that simply to attempt to retain key producers after Brexit, a large increase in public expenditure on subsidies would be required – as this government has already done with Nissan. Even though Ministers attempted to keep the deal with Nissan secret, it was later revealed that is was a subsidy of £80 million. Crucially, with the threat of No Deal still not removed, that subsidy was not enough to get Nissan to meet its commitment to producing new models at its Sunderland plant. As Jeremy Corbyn put it replying to Theresa May in Parliament on 12 February: ‘The Prime Minister has just told members of this House to hold their nerve. Tell that to Nissan workers in Sunderland and the thousands more worried about their job security”.

In the event of No Deal, which means having no Customs Union with the EU, the scale of the compensation needed to offset new tariffs on cars is equivalent to the carmakers’ wage bill. This is untenable over the medium-term as it would be cheaper for government to pay the workers directly. Outside a Custom’s Union with the EU similar these problems would be multiplied in numerous industries.

In general, without the reactionary political interventions from the likes of Trump and the Hard Brexiteers, the underlying economic trends are for greater trans-continental and even global production. A leading Italian transport services provider last year announced the first ever regular roll-on, roll-off route between North America and the Mediterranean. It will be used primarily to connect Turkish to European car production, and then connect the latter to Canada, the US and Mexico. These are the fundamental economic trends the protectionists like Trump and the Hard Brexiteers are attempting to fight.

Marxist theory

Marxism explains these fundamental economic trends. Despite being frequently asserted, it is not the case that Marx begins his analysis of capitalism with analysing only capitalist production. This is for the very good reason that production is not unique to capitalism. It exists in all more primitive societies, feudalism and slavery, and will of course exist under socialism. Production is a given in every form of society.

Marx actually begins ‘Capital’ with what is unique to capitalism, the transformation of commodities into their universal equivalent of money, thus enabling ‘generalised commodity production’. This is decisive in this context if it is recalled that Marx demonstrated that commodities first appear through trade, through exchange.

So, in concluding Chapter One of Volume 1 of Capital Marx writes,
‘As a general rule, articles of utility become commodities, only because they are products of the labour of private individuals or groups of individuals who carry on their work independently of each other. The sum total of the labour of all these private individuals forms the aggregate labour of society. Since the producers do not come into social contact with each other until they exchange their products, the specific social character of each producer’s labour does not show itself except in the act of exchange. In other words, the labour of the individual asserts itself as a part of the labour of society, only by means of the relations which the act of exchange establishes directly between the products, and indirectly, through them, between the producers. To the latter, therefore, the relations connecting the labour of one individual with that of the rest appear, not as direct social relations between individuals at work, but as what they really are, material relations between persons and social relations between things. It is only by being exchanged that the products of labour acquire, as values, one uniform social status, distinct from their varied forms of existence as objects of utility’.

Exchange, of which international trade is one large scale form, is central to the production of commodities. Goods only become commodities through that exchange. Not only is it impossible in the modern era to maintain efficient production on a national basis in an economy of Britain’s scale, it is also impossible to produce efficiently without international exchange. Incidentally, it will be even less possible in an advanced socialist society.

Socialists, and a government pursuing progressive socialist policies, have no interest in the political structures of the EU – which are designed to be as little democratic as possible. But they, and the working class of this country, do have an interest in ensuring access to the markets of the EU. That can be gained either through remaining in the EU, for purely economic and not political reasons, or via a custom’s union and ‘close alignment with the single market’.

As Jeremy Corbyn put it in Parliament on 12 February: ‘In order to stop the UK falling into the backstop you need a permanent customs union and a strong single market deal. That is key to maintaining an open border on the island of Ireland. That is key to protecting jobs, industry and living standards in this country.
‘The Prime Minister says there is no need to negotiate a customs union as her deal provides for the benefits of being in one. I’m afraid… that is simply not the case.
‘The deal the Prime Minister negotiated means there will be barriers to trade in goods and there will not be frictionless trade. Putting manufacturers across the country at a huge disadvantage.’

This is why May’s threat of No Deal and refusing a customs union is a deeply damaging policy, and why Jeremy Corbyn is entirely right to insist on a customs union with the EU.

Why Marx would agree with Jeremy Corbyn to totally oppose a No Deal Brexit

By Tom O’Leary

Labour, led by Jeremy Corbyn, has thrown itself full scale into the struggle to block a No Deal Brexit. The latest step in this was the correct decision not only to put forward Labour’s own proposals but to whip Labour MPs in favour of Yvette Cooper’s Parliamentary amendment – which would have lifted the 29 March deadline to give a period of time for Parliament to change the law to block a No Deal Brexit. Even although this was defeated, because a small number of Labour MPs opposed Corbyn and instead supported the government, it was entirely correct for Jeremy Corbyn and Labour to have continued the fight against No Deal – and this will have been overwhelmingly supported by Labour voters, Labour members, and supporters of Jeremy Corbyn. For reasons analysed in this article the willingness of the Tories to consider a No Deal Brexit is an attempt to carry out a policy which will constitute an extremely severe attack on the working class and ordinary population.

This fight against a No Deal Brexit is a key part of the current struggle to prevent a severe and enduring attack on living standards. It involves much more serious and damaging issues than short term disruption from No Deal. To understand a No Deal outcome would clearly be a terrible option, involving major loss of jobs and attacks on living standards, it is worth examining it in detail and from a fundamental aspect. This shows why the struggle to block a No Deal Brexit is not merely tactically correct but flows from fundamental features of Marxism.

No Deal fundamentals 

The small minority of economists who advocate a Hard Brexit or No Deal have recently begun to address the question from a fundamental viewpoint. This is largely in response to the risks that some major international manufacturers may be forced to leave Britain if No Deal is enacted. Other companies have already begun to halt, close, or relocate operations. These include among others, Jaguar Land Rover, Honda, AirBus and of course Dyson, despite its founder being a prominent supporter of Brexit.

Unfortunately, the response of the Brexit-supporting economists to the clash between their plans and the reality of fundamental economics is to seek to abolish the latter. So, prominent Brexiteer economist Roger Bootle was reported as saying he was: “Fed up with businesses talking about their supply chains as if preserving their businesses were the most important thing in the Brexit negotiations.”

Similarly, Julian Jessop Brexiteer and formerly chief economist for the right-wing Institute for Economic Affairs tweeted, “Perhaps we should sometimes question whether it makes sense to prioritise the preservation of complex business models that rely (in the case of Honda’s Swindon plant) on 350 lorries delivering 2m components every single day, with just one hour’s worth of parts kept on site…?”

But this model exists independently of Brexit and even of this country. Neither is it a ‘capitalist plot’ – in the sense of an arbitrary subjective decision by capitalists. It simply reflects the current development of modern complex production along lines analysed and foreseen by Marx long ago – the increasing division/socialisation of labour which has necessarily now assumed a globalised form. The Brexiteers cannot abolish the model, any more than the law of gravity can be repealed, their plans can only achieve Britain’s removal from it – with serious damage to production and therefore jobs and living standards.

This model, of highly complex, integrated supply chains where components arrive just-in-time and where value is added at a series of specialist locations, is simply the modern expression of the most fundamental economic forces analysed in ideas which were first set out with the founding of economics as a science and which were further and most fundamentally developed by Marx.

Division/socialisation of labour

In the opening chapter of The Wealth of Nations, Adam Smith begins, “The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.”

The division of labour encapsulates the process by which an entire complex chain of goods is created through a series of tasks performed separately and distinctly before they become the final finished product. The material expression of those tasks are the inputs of intermediate goods – Honda’s two million parts a day and the supply chains that so antagonise the Brexit-supporting economists.

In Adam Smith’s famous example, no single individual could or can possibly produce even the simplest product of his day, a pin, without the inputs of a huge number of other industries. The production process, from raw materials, to intermediate goods is just too complex.

Furthermore, this division of labour long ago passed over national boundaries. Smith himself pointed out that it was as easy then to transport coal from Newcastle to Amsterdam as it was to London (both were done by sea, which was then a far more efficient mode of transport than road).

In the course of economic development, which has of course been overwhelmingly capitalist development, the division of labour, or what Marx calls more scientifically the ‘socialisation of production’, becomes ever more international, rendering purely national large scale production increasingly obsolete and impractical.

So, in the Communist Manifesto Marx and Engels write, “The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of Reactionists, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrowmindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.”

The prime example used by Marx and Engels of this development at the time when the Communist Manifesto was written was England. Part of the genius of Marx and Engels was to foresee trends almost uniquely apparent in England at that time, and understand how they expressed the development of the world economy. This was at a time when England’s openness to trade was equivalent to just 13% to 15% of GDP, when currently the most advanced economies have an openness to trade far in excess of that. According to the World Bank world trade as a proportion of world GDP was 56.2% in 2016. The world economy is gripped by the ‘cosmopolitan character to production and consumption in every country’ foreseen by Marx and Engels 170 years ago.

The idea that a socialist economy would not aim to make the maximum possible use of the international division/socialisation of Labour therefore has nothing to do with Marx’s analysis but was introduced from Stalin onwards in the USSR. The consequent cutting off of the USSR from participation in the international division of labour was one of the primary reasons for the problems of the Soviet Union’s economy and the final collapse of the USSR. In contrast China’s ‘reform and opening up’ policies, which oriented China to attempt to use to the maximum participation in the international division of labour, were a return to Marx’s analysis, and produced the most rapid growth of a major economy in human history. It is crucial for defence of working-class living standards that the left follows the analysis of Marx and not that of the former USSR.

The effects of No Deal 

This cosmopolitanism in production and consumption, which today is sometimes called globalisation, takes different precise forms in each country. As much as it irritates Brexiteers, the truth is approximately half of all trade in goods to and from Britain is with the EU. The international division of labour that Britain’s economy participates in is primarily with the EU. The US is only a distant second, approximately one-sixth the size in relative importance in trade in goods to the EU.

With a No Deal Brexit there would be two hammer blows that would severely damage that participation, which is expressed as ‘supply chains’, which are another name for the complex process of creating inputs. The first is the imposition of tariff barriers, which would necessarily occur to any production outside the EU’s customs union. The second are non-tariff barriers, which are largely a function of being outside the Single Market, which has a single, unified regulatory regime including for input goods.

It is conceivable the effect of increased costs from tariffs could be off-set by lowering costs elsewhere. Some might argue that subsidies to industry in the form of state aid might be worthwhile, even though the World Trade Organisation also has prohibitions on certain types of state aid, as the EU does. If state subsidies of 10% per cent were required to off-set EU tariffs, the resulting cost of £27.5 billion would be in excess of the planned budget for increased public investment for an incoming Labour government.

Otherwise, the more likely off-setting factor for new tariffs would be a sharp attack on wages. In short state subsidies to offset a no deal Brexit would cost the entire amount by which Labour intends to increase public investment.

A comparison to Turkey 

But it is the non-tariff barriers which could prove even more damaging. Here the practical example of a country at a less developed stage of economic development, and therefore less integrated into modern division of labour, is useful in illustrating the fundamental issues involved – Turkey. Turkey is in a customs union with the EU since the beginning of 1996. The Turkish economy has developed strongly since that time.

The effect of Customs Union membership has been to give greater access of Turkish goods to the EU Single Market (except agricultural goods), and vice versa because tariff barriers are removed. Over time, it has helped to develop the growth of an important car production sector, including for export to the EU. This is the by-product of the Customs Union.

But it is not a member of the Single Market. So, non-tariff barriers remain. It is therefore extremely difficult for Turkish car production to become properly integrated into the continent-wide car production of the EU. Instead, production is mostly focused on stand-alone models, niche production or ultra-cheap models.

Under a No Deal settlement the entire car industry in Britain would be outside both the Single Market and the Customs Union. Under WTO rules, which would apply in case of a No Deal Brexit, a 10% tariff on car exports would apply – making production in Britain uncompetitive in the EU market. A similar process would apply to all production which is highly integrated with European output. It is no accident that that it is AirBus, car makers, advanced manufacturers and pharmaceuticals companies who are most vocal in their opposition to a No Deal outcome.

It is sometimes argued that the EU would block a fully socialist economic policy. This is true. Britain would be forced out of the EU if it attempted to replace capitalism with socialism. The gains from the introduction of socialism in Britain would be so great that they would more than offset the disadvantages of being forced out of the customs/single market of the EU.

But while Jeremy Corbyn’s policies are highly progressive, and would significantly take working people and the mass of the population forward, they do not propose to replace capitalism with socialism. Nor should they – neither the objective nor the subjective conditions to bring capitalism to an end and introduce socialism in Britain exist. What Jeremy Corbyn proposes are a series of highly progressive reforms which are in the interests of the population both in Britain and internationally – and that is exactly what should be proposed at present.

Attempting to implement such progressive changes by a Jeremy Corbyn led government might be blocked by the EU – but this is not at all certain and will be determined by the relation of forces at the time. But if implementing such progressive changes is blocked by the EU then the population will understand why Britain may be forced out of the EU. The same would apply to any country or countries who moved ahead of this country and were themselves replacing capitalism with socialism.

But what is wrong, is against the interests of the working class, and therefore will not be supported by the population, is voluntarily to give up the advantages that flow from participation in the EU’s division of labour – therefore cutting off Britain from the most advantageous participation in EU markets and supply chains.

No benefit from No Deal

The Brexiteers, including the pro-Brexit economists, provide no concrete analysis that can withstand any scrutiny. Instead, they fall back on general expressions of optimism, or complete red herrings.

Crucially, there is the assertion that No Deal or something close to it ‘will allow us to trade with the rest of the world’. On the contrary, this economy already trades with the rest of the world. No Deal will put major barriers in the way of the current trade with the EU, with nothing realistic that could compensate for that – other countries are naturally much more interested in trade with the far larger economy of the EU than with the comparatively small economy of Britain.

Once again, this is because of fundamental economics. There are three decisive factors that No Deal puts at risk:

· The most competitive access to the current inputs for production of goods and services
· The integration of British production into EU-wide production
· Access to markets

The weight of each of these can be illustrated with reference to one of the most integrated industrial sectors, Britain’s participation in Airbus. Other advanced sectors of production show the same characteristics. Some months ago, when Airbus executives previously highlighted the risks to their business from No Deal, one Tory MEP raged that, “we can build our own Airbus”.

This foolish bluster highlights the level of ignorance about the economy fostered by the Tories. Whether the ignorance is wilful is difficult to say.

For this country to create ‘its own Airbus’, would be an enormous, potentially crippling, and in reality a totally unrealistic undertaking. The market capitalisation of Airbus has fluctuated between €75 billion and €100 billion in recent months. Its great rival, Boeing is currently valued at over $200 billion, having recently been as high as $360 billion.

But this is only an indicator of the type of initial outlays required to create a new Airbus-type company in this country. As shown above, an industrial giant like Airbus requires an enormously complex supply chain. The chart below is from Airbus and highlights this point in relation to just one of its models, the A350.

Fig. 1. The Airbus Supply Chain, Source: Airbus

According to the company, the components made in various countries themselves rely on a supply chain which includes operations all across Europe and beyond, with 4,000 companies and over 100,000 jobs in this country. To overcome the imposition of both tariff and non-tariff barriers arising from No Deal, an entire supply chain would need to be replicated in this country.

This position is not at all unique to Airbus. In the course of the public debates about the effects of No Deal it was revealed that Jaguar Land Rover uses 25 million components a day in producing 3,000 cars, and that 40% per cent of these come from the EU. Investment in the motor industry already feel by 50% last year, due to the situation created by the threat of Brexit, which will translate into thousands of lost jobs over the medium/long term.

The illusion of the Tory MEP is that all of this would be a massive boost to manufacturing jobs in this country and the wider economy. The fantasy is that Britain, maybe with even bigger cuts to wages and much reduced protections for workers, could compete by replicating these enormous industries on a national scale. Unfortunately, he is not alone in this illusion.

Production is the first factor. But this is integrated, complex production, not just the finished goods but also all the inputs required for those finished products. There is the cost of establishing an AirBus-type company based in this country, say the equivalent of €100 billion. There would also need to be the creation of a supply in support of that. As Airbus estimates the workforce in the current supply chain for AirBus components in this country is about 7 times greater than the direct workforce employed here, that may indicate the scope of the additional investment needed. And all of these would need a workforce trained in highly specialist manufacturing skills, and an infrastructure, of roads, rail, energy and water services to supply them.

But production is not the only factor. As Marx and Engels wrote, the development of international production was accompanied by the growth of, “….industries whose products are consumed, not only at home, but in every quarter of the globe”. A ‘British Airbus’ would require a market.

As the production from all investment is limited by the scope of the market, and the demand for aircraft is a global market, no country of Britain’s size could hope to establish a new large-scale aircraft sector solely or even primarily on a national terrain. British Airbus would therefore have to compete directly with the two dominant global producers, Boeing and Airbus.

British Airbus would in effect need to make huge investments simply to establish itself as a third competitor to two global rivals who are already engaged in an existential struggle with each other. It would need to be more competitive and efficient than either of these two to win customers, requiring much higher rates of investment. And it would have to attempt prise open new markets in the face of fierce resistance from the US and EU authorities, who already have one of the most bitter and long-running disputes lodged at the World Trade Organisation. The whole project would be a fool’s errand.

The reality is that the advanced manufacturing that does take place in this country is integrated with the world economy, and primarily the EU economy. What is actually required is for large-scale investment to fortify and develop those sectors, one part of which is their deepening integration into the world economy, primarily the EU economy. This is a policy that Labour’s economic policy encourages, and which the Tories resolutely oppose.

By blocking effective participation in the most advanced sectors of production thousands and thousands of jobs would be lost directly, the entire economy would be held back and therefore living standards would rise more slowly than possible – at best. Due to this economic setback the pound would almost certainly devalue significantly, creating inflation and a reduction in living standards. In order to attempt to make British capitalism competitive in the new unfavourable circumstances employers would launch an all out attack on workers living standards and rights – the ‘hard Brexiters’ have already made clear their ideal is a low social protection economy of the US type.

It is important to note that there is a set of circumstances under which the above economic factors take second place. If an incoming radical or socialist government were taking measures that were so contrary to the other European governments, they might well take steps to cut off that government from both EU institutions and the European market. But that is the traditional punishment that anti-socialist governments and institutions mete out, the US increasingly so. But it is a punishment. It should not be a policy aim.

Under those circumstances, the long-term political, social and economic benefits that a socialist government could deliver would far outweigh these serious economic difficulties. But that is not the situation currently, and is not likely to be in the foreseeable future.

Crashing out with No Deal in this period in reality means the only viable alternative is a trade agreement with Trump and his successors. No-one who thinks about it seriously can actually believe that that outcome would be more favourable to the socialist project. Whether for the reason of defence of the immediate living standards of the population and working class, or for reasons of fundamental Marxist theory, or both, there should be 100% opposition to a No Deal Brexit – and Jeremy Corbyn correctly led total opposition to it.


Finally, if a No Deal Brexit is totally against the interests of the working class, for the reasons outlined by Marxism, what positions are in line with those interests? These have nothing whatever to do with nonsense claims by people from the Labour right, such as Will Hutton. that the EU is progressive representing ‘Enlightenment values’. In fact the ‘Enlightenment values’ were accompanied by the creation of the greatest colonial empires the world has ever seen, oppressing the majority of humanity, dividing the world between them, and culminating in the historic catastrophe of World War I. The EU is a cabal of European imperialists who, compelled to construct a unified European economic structure because modern production has outgrown the European state, set out about creating it in the most undemocratic form possible – with as little power as possible to the European parliament and transnational power concentrated in the non-elected European Commission. The best historical analogy is Bismarck’s Germany – the Germany capitalists, forced economically to create a unified German state, deliberately also created it in the most undemocratic form possible.

There is nothing progressive politically about the EU and therefore socialists should be completely indifferent to whether Britain is part of the political structures of the EU. What is in the interests of the working class in the present situation however, for reasons outlined in this article, is to be able to participate in the economic space of the EU if possible. This could be secured by two mechanisms:

· Labour’s goal in its ‘six tests on Brexit of securing: ‘the “exact same benefits” as we currently have as members of the Single Market and Customs Union’.
· Membership of the EU.

Therefore, the bloc of Remainers and supporters of a ‘soft Brexit’, which is the position of the huge majority of Labour voters, Labour Party members, and Jeremy Corbyn’s supporters, have a position which fully corresponds to the interests of the working class and the population – which is exactly why it is the majority position among them. It is also a position precisely in line with Marxism.

Transform: Issue #5 | November 2018 | A Journal of the Radical Left

Transform: Issue #5 | November 2018 | A Journal of the Radical Left
– includes articles by regular SEB contributors John Ross and Tom O’Leary + many more

Get your copy here.

Ten years on from the near-collapse of the global financial system in 2008, there is little sign of capitalist recovery and renewal. The consequences of the austerity policies pursued by so many governments are now playing out: from the destruction of the social and economic gains made by working people over many decades, to the rise of the far right, the crisis of social democracy and the ‘weaponisation’ of racism and Islamophobia.

Right-wing forces, given succour by an increasingly belligerent Trump White House, have often emerged stronger from the crisis, but left and progressive forces have also challenged for power, posing political and economic alternatives. Unfolding political developments and new mobilisations in Britain and elsewhere demonstrate that the right is being fought and can be defeated.

Transform #5 looks at the continuing economic crisis, with articles on the Lehman crash of 2008 and how we can tackle the power of big finance; Corbyn’s economic policy in the context of the attacks that lie ahead; economic lessons from the left governments in Latin America; and how we can learn from the struggles against neo-liberal globalisation. We also take a look at the big global strategic issues: the implications of Trump’s trashing of the Iran nuclear deal, how the differing approaches of Trump and Xi Jinping are playing out, and an assessment of NATO at 70. The political impact of film propaganda is considered through a case study of Nazi cinema, the latest issue of Socialist Register is reviewed, and we pay tribute to the late, great Samir Amin.

Even the IMF rejects Trump’s false claim that the US economy is growing fast

By John Ross
The new US GDP growth data released by the US last Friday entirely confirms the earlier analysis of ‘US growth under Trump is the slowest under any US President since World War II’ that:
·         Peak US growth under Trump is the slowest under any US president since World War II.
·         US growth during the present business cycle is the slowest in any business cycle since World War II.
Therefore, claims by the Trump administration of ‘historic’ fast US growth are simply a propaganda falsification – what is striking about present US growth is how slow it is by US historical standards.
To show the actual facts of US growth, taking the latest data and showing only US Presidents in the 21stcentury, Table 1and Figure 1show that, using the method by which the US prefers to present data, quarter on quarter growth at an annualised rate:
·         Peak growth under Clinton was 7.5%
·         Peak growth under George W Bush was 7.0%
·         Peak growth under Obama was 5.1%
·         Peak growth under Trump, in the second quarter of 2018, was 4.2%
The latest growth data under Trump, for the third quarter of 2018, shows a decline in the US growth rate to 3.5% – i.e. growth under Trump is already falling from its peak without having attained the levels under previous US presidents.
Detailed data on other US president’s since World War II, prior to the 21stcentury, is given in ‘US growth under Trump is the slowest under any US President since World War II’ and confirms peak US growth under Trump is the lowest under any US president since World War II.
An alternative method of presenting US data, in line with China’s and other countries method of presenting GDP growth, based on real annual average growth is given below – but as will be seen that makes no key difference to the result. The claim of historically rapid US GDP growth under Trump is therefore entirely fraudulent.
IMF data shows the exact opposite of Trump’s claims that US growth will accelerate under his presidency
However, while it is important to understand the latest quarter’s shifts in the US economy, even more important for  successfully dealing with the Trump administration’s trade aggression against China, which is a threat to numerous countries, it is crucial to have an accurate understanding of the underlying dynamics of the US economy – as this both provides the objective context of the Trump administration’s actions and creates objective pressure on it. Such an analysis must:
·         Understand the term long dynamics operating in the US economy which propel the Trump administration’s actions,
·         Analyse the immediate situation within these trends which affect tactics in dealing with US trade aggression.
The earlier article‘US growth under Trump is the slowest under any US President since World War II’  demonstrated that because US growth under Trump is so slow by US historic standards, therefore within  the ‘zero-sum game’ framework currently dominant within the Trump administration, this means that it cannot pursue competition with China via rapid US economic growth, but instead it can only attempt to slow China’s economy. This determines the aggressive approach of the Trump administration and explains its earlier rejection of proposals of ‘win-win’ solutions by China.
As will be seen the present article, within this long-term framework, examines the short-term situation of the US economy and therefore the pressures this creates on the Trump administration. As always in dealing with a serious matter in making such an analysis there is no virtue in ‘optimism’, and no virtue in ‘pessimism’, there is only a virtue in strict realism. Therefore, this analysis is not made using sources biased in favour of China but instead uses the data of the latest survey of the world economy by the IMF – a source which has in the past frequently overestimated US and Western economic growth. Analysis of this data shows in detail that the Trump administration has a temporary ‘window of opportunity’ during which it will benefit from a normal upturn of the US business cycle during the rest of 2018 and early 2019, before the US business cycle will begin to turn down and negative economic pressures will mount on the Trump administration.  This means that in the US trade war, due to strong pressure this economic situation places on the Trump administration to go very rapidly, it is possible the latter’s short-term tactics will be aggressive. However, the negative pressures on the Trump administration will increase with time – that is in this struggle time is on China’s side.
The present analysis of the short term situation of the US economy in the business cycle shows the same pattern as the long term trends analysed in ‘US growth under Trump is the slowest under any US President since World War II’. That is, for propaganda purposes the Trump administration engages in falsification and distortion – of the type which led to President Trump being laughed at by international diplomats in his recent speech to the UN. This method was recently summarised by the US Nobel Prize for Economics winner Paul Krugman: ‘Do you remember political spin? Politicians used to deceive voters by describing their policies in misleading ways… But Republicans no longer bother with deceptive presentations of facts. Instead, they just flat-out lie.’. Faced with an administration which utilises such propaganda methods it is more than ever necessary to pursue the method of ‘seek truth from facts’ – and it is a duty of China’s media to present an accurate picture of the real situation of the US economy.

The latest IMF analysis of the world economy

The IMF’s new publication in October of its projections for the world economy is of particular importance as it covers almost the entire period up to the 2024 US presidential election – the period, therefore, not only of President Trump’s present term but of any possible second term. To be precise the IMF now makes projections from 2018-2023.
These projections are highly significant as although the IMF chooses not to make explicit comparisons of its projections for US growth to the claims of the Trump administration, for obvious reasons, the IMF’s data shows that it gives no credibility to the administration’s claims that it will produce a strategic acceleration in US growth. Indeed, the IMF’s projections, published to accompany its October World Economic Outlook, on the contrary project that the long term slowing of the US economy will continue to worsen under a Trump administration.
To give precise numbers, Trump projected that his presidency would lead to a strong acceleration in US GDP growth – stating, ‘I think you can go to 5 or 6 percent’. In stark contrast the IMF projects that average annual US growth until almost the end of even a second Trump presidency would be only 2.0% – less than half of the growth Trump claimed he would achieve. Furthermore, the long-term average US growth rate will continue to worsen – the 20-year moving average of US annual US growth is projected to drop from 2.4% in 2016, the last year before Trump became President, to only 1.9% by 2023.
It will be shown below that the facts of US economic performance under Trump are far more in in line with the IMF’s projections than those of the claims of the Trump administration – the latter have no factual basis. This article therefore systematically compares the projections of the IMF, and the facts of US economic growth, with the Trump administration’s claims.

Summary of US long term growth

Starting first with the facts of US economic growth under the Trump administration, as already noted the article ‘US growth under Trump is the slowest under any US President since World War II’ showed that far from peak growth under the Trump administration being fast, as it claims, it is slower than under any previous post-World War II US president. This is true whether this is measured by the way the US prefers to present data (a single quarter’s growth presented at an annualised rate) or the way China and other countries prefer to publish growth (actual year on year on year growth measured between the same quarters in two successive years). To briefly summarise data presented in detail in article ‘US growth under Trump is the slowest under any US President since World War II’:
·         Peak US growth under Trump (4.2%), calculated by the US method, was lower than under Obama (5.1%), George W Bush (7.0%), or Clinton (7.5%), let alone presidents such as Nixon (10.3%) or Truman (16.7%). Peak growth under Trump is the lowest for any of the 13 post-World War II presidents.
·         Taking actual year on year growth, the maximum rate achieved under Trump is 3.0%. By this measure growth under Trump is also the slowest of any post-World War II US president – lower than under Obama (3.8%), George W Bush (4.3%), Clinton (5.3%), or, for example, Nixon (7.6%) or Truman (13.4%).
The precise present situation of the US economy will now be analysed within this long-term framework.

The long slowdown of the US economy

The slow US growth by historical standards under Trump is merely one part of the long deceleration of the US economy during the last half century – this long slowdown constituting one of the most fundamental features of the US economy. Taking a 20 year moving average, to remove any effects of short term business cycle fluctuations, Figure 2shows that annual average US growth fell from 4.4% in 1969, to 4.0% in 1978, to 3.3% in 2001, to 2.4% by 2016 – the last year before Trump became president.
In the context of this long-term US economic deceleration, the data in the latest IMF projection shows that long-term US growth will continue to decline further, to only 1.9%, by 2023 – i.e. the IMF is projecting that the US long term growth rate, far from accelerating under Trump, will actually fall further.

Projections for US per capita GDP growth

Even more striking in its consequences is the slowdown in US per capita GDP growth which flows from the IMF’s projections which is shown in Figure 3.
Because the US has relatively rapid population growth of 0.7% a year US per capita GDP growth is substantially below its total GDP growth. Figure 3 shows that US long term average annual per capita GDP growth fell from 2.8% in 1969 and 1978, to 2.4% in 2002 to only 1.5% in 2016. By 2023 US per capita GDP growth is projected to fall to only 1.1%.
Such a slowdown in US per capita GDP growth necessarily considerably impacts the domestic US situation – this is particularly the case as recent sharply increasing inequality means that for the majority of the US population living standards rises more slowly than per capita GDP. Whereas in the earlier post-war period more rapid US per capita GDP growth, and greater equality, could sustain US internal political stability, and widespread belief in the ‘American Dream’, the far slower per capita GDP growth of the recent period has necessarily been accompanied by increasing US domestic political tension – which is reflected clearly in the political and social clashes in numerous fields surrounding and following the election of the Trump administration.

US medium term growth

Turning to assess the objective ability of Trump to achieve his claims to lift the US economy to a fundamentally more rapid rate of economic development, with growth rates of 5% or 6%, it is worth first considering the situation facing his administration in light of long-term trends in the US economy.
As data and projections by the IMF are available for seven out of the eight years of a possible two term Trump presidency Figure 4 therefore shows the seven-year moving average of US annual economic growth. This, as with other measures, shows the US economy’s steadily slowing growth rate. On this measure, average annual US growth has fallen from 5.3% in 1968, to 4.4% in 1989, to 4.0% in 2000, to 2.2% in 2016 immediately before Trump came to office. To achieve growth rates of 5-6% over the period of a two-term presidency the Trump administration therefore would have to achieve rates of growth which have not been seen in the US economy for half a century – and in a situation where average US growth rates have been systematically falling for fifty years.
The IMF’s projections show absolutely no confidence in the Trump administration’s claims to be able to lift the fundamental US growth rate. On the contrary, Figure 4 shows that the IMF projects US annual average growth rates falling still further to 2.0% – compared to 2.2% in the last year before President Trump came to office.
As two years of the Trump presidency are already passed it is also useful to consider the IMF’s projections for the next five years – Figure 5 shows this, together with historic data on average US annual average GDP growth over a five year period.
This data again shows the same declining trend of US growth rate as other measures. Taking a five-year moving average US annual economic growth fell from 5.9% in 1966, to 4.6% in 1987, to 4.3% in 2000, to 2.2% in 2016. The IMF projects US average annual growth will fall further, to 1.8% by 2023. Therefore, once again to achieve its claims, the Trump administration would have to achieve growth not seen by US economy for a half a century – the IMF clearly has no confidence in this and, on the contrary projects US economic growth falling further.

Trump and business cycle

Given the extreme divergence between the facts of US economic growth, and the projections of the IMF, compared to the claims of the Trump administration, why can the latter attempt to give any credibility whatever to what are clearly false claims? The answer is that the Trump administration attempts to put forward such false assertions by making claims regarding normal fluctuations in the US business cycle to disguise the real underlying trends in the US economy.
The means used by the Trump administration to attempt to conceal the real state of the US economy may be clearly seen by comparing trends in the US business cycle to US medium/long term economic growth. To demonstrate this Figure 6 therefore shows US year on year growth compared to a 20-year moving average of annual growth. This data confirms that factual trends in the US economy correspond to the analysis predicted by economic theory. That is:
·         There are numerous short-term business cycle economic fluctuations determined by a wide range of fundamental and incidental economic factors (cycles in profitability and economic spare capacity, the situation in other countries, even the weather).
·         But these are oscillations around a long-term growth trend determined by fundamental economic factors – that is the US economy’s growth is periodically oscillating above and below its medium/long term growth rate.
Therefore, to take simply the situation under 21stcentury US presidents, the explanation of the trends outlined earlier is shown clearly in Figure 6. During the 21stcentury the long-term annual average of US GDP growth has progressively fallen from 3.2% in 2000 to 2.2% in 2018. However, above and below this long-term average, which is determined by fundamental structural features of the US economy, there are numerous inevitable upward and downward business cycle fluctuations. This combination of long-term slowdown with cyclical fluctuations produced the declining peak year on year growth rates under US presidents already noted – 5.3% under Clinton, 4.3% under George W Bush, 3.8% under Obama, 3.0% under Trump. Such a combination of a falling underlying growth rate with cyclical oscillations therefore produces the trend of peak growth under each of these presidents being lower than the previous one.
The method of the Trump administration’s propaganda misrepresentation/fraud is to attempt to present purely normal upward short-term business cycle fluctuations as changes in the fundamental US growth rate. To be precise regarding the most recent period, as shown in Figure 6a downward oscillation in US economic growth in the second quarter of 2016 meant year on year GDP growth fell to an extremely low 1.3% – 0.9% below the 20 year moving average of US growth. Merely to maintain the 2.2% moving average of US growth it would therefore be necessary for US growth to rise to rise to approximately 0.9% above the 2.2% long term average – that is US growth could rise to approximately 3.1% without this indicating any fundamental acceleration of the US economy. Therefore, not merely is the  3.0% year on year growth rate under Trump in the  third quarter of 2018 the lowest peak growth under any-US president since World War II but it is not even yet as fast as the approximately 3.1% growth in a quarter that would still indicate no acceleration in the US’s underlying growth rate – indeed growth under Trump could actually rise moderately further from its present level without this indicating any acceleration in medium/long term US growth.

The US business cycle

This fact that the present US growth rate under Trump, far from being exceptionally high, represents merely a normal upturn of the US business cycle of course has a corollary – that the US business cycle will turn down again.  Figure 7 shows this is precisely the IMF’s projection. This calculates that after 2.9% growth in 2018 US growth will fall to 2.5% in 2019, and then 1.8% in 2020 and 1.4% by 2023.
It is, of course, possible to argue with some of the IMF’s detailed projections – for example the IMF’s projected decline of the US 20-year moving average annual growth to 1.9% by 2023, from 2.6% in 2016 before Trump assumed office, may be considered excessively steep and a 20-year growth rate of still slightly above 2% may appear more likely. Nevertheless, such details clearly do not alter the fundamental trend. There is no reason, either from previous trends in the US economy or from its fundamental structural trends, to believe there will be a fundamental upturn in US growth. All that has occurred under Trump is a normal upturn of the business cycle, which will therefore inevitably be followed by a downturn in the US business cycle.

Conclusions for US tactics in its trade aggression

To analyse implications for the US-China‘ trade war’, more accurately US trade aggression against China, IMF projections are fully in line with fundamental economic trends in the US economy – also providing an independent analysis of these. The IMF’s projections clearly totally refute claims by the Trump administration that it has created a fundamental acceleration in US growth and they instead give a clear perspective for the US economy during the period in which it is launching trade aggression against China. Taking individual years, they indicate:
·         During the rest of 2018, due to the normal upswing of the business cycle, US growth should continue to be robust – which, of course, does not exclude disturbances in US financial markets.
·         US growth during 2019 will be slowing compared to 2018 – with the implication that growth will be fast in the first half of 2019 and declining in the second half.
·         By 2020 the US economy will be slowing significantly to only 1.8% growth – which implies per capita GDP growth of only just above 1%.
Taking this economic data in the context of the Trump administration’s trade aggression against China indicates that from a purely tactical viewpoint Trump has well timed the launching of his ‘trade war’ – and is attempting to gain from the purely normal upswing of the US business cycle. This means tactically for the Trump administration:
·         Tariffs against China necessarily increase prices in the US, which puts downward pressure on US living standards, and tariffs and retaliation by other countries will lead to US job losses – as is now well documented by US media. However, the negative consequences of these effects for US living standards will be minimised by the upswing of the US business cycle – therefore allowing Trump to avoid some of the political unpopularity of tariff measures.
·         The Trump administration’s tariffs have negative consequence for US companies – Ford, to take a single example, estimates that the tariffs will cost it a billion dollars. But the upswing of the business cycle while it continues will offset these negative effects.
·         Given the upswing of the business cycle Trump hopes that US share prices will continue to increase – although, as share markets can anticipate economic trends, this is not certain.
·         By misrepresenting the perfectly normal upswing of the US business cycle as an historic acceleration in the US economy the US hopes to be able to tempt other economies to enter into anti-China trade blocs with the US.
The problem for Trump, however, is that because what is occurring is a normal business cycle upswing, the cycle will inevitably turn down in 2019/20. This means that in this downswing of the business cycle:
·         Tariffs will put upward pressure on US inflation – and therefore downward pressure on US living standards.
·         The direct and indirect job losses from tariff increases will no longer be offset by rising employment created by an upswing of the business cycle.
·         The downswing of the business cycle will put downward cyclical pressure on US share prices.
It is for this reason that the Trump administration has only a relatively short period during which the US business cycle will be aiding it. By 2019-2020 trends in the US business cycle will turn against the Trump administration. It is for this reason that the Trump administration is forced to attempt to go fast in its trade aggression against China – therefore time is against Trump, and in favour of China, in terms of trends in the US economy.
It is also for this reason that the Trump administration attempts to carry out systematic false propaganda presenting the purely normal upswing of the business cycle as a fundamental acceleration of the US economy. Given its short favourable window of opportunity it is necessary for the Trump administration to attempt to convey an image of the ‘historic’ growth of the US economy in order to bluff China into surrendering to US demands – therefore the US conceals that growth under Trump is the lowest under any post-World War II US president and that what is occurring at present is merely a normal upturn in what is the slowest business cycle since World War II.

Conclusions for China

In practical dealing with the US trade aggression there are numerous factors known only to those engaged in such discussions. Therefore, this article implies no position on any specific discussions with the US. There are also specifically domestic political factors in the US, such as the November mid-term US elections which are not analysed here. But evidently the fundamental economic situation in the US business cycle has a significant effect on the overall situation of US trade aggression against China. It is clear that:
·         Analysis in China must estimate that at the present, due to the upswing of the business cycle, the US is at the peak of its favourable economic position in the trade war and the US economic position will weaken in 2019-20 as the US business cycle turns down.
·         Due to this situation the Trump administration may adopt aggressive tactics in the short term so as to attempt to gain favourable results before its economic position weakens.
·         It is of both international and domestic importance for China to show the falsity of US propaganda on its supposedly ‘historic’ growth so that – internationally as the US is attempting to lock other countries into trade pacts against China in part by claiming that the US economy is undergoing historically high growth.
For these purposes it is also crucial for China to have an accurate analysis of the state of the US economy. There is, in principle, little obstacle to achieving this. While extremely strong criticism may be made of the false propaganda claims of the Trump administration official US economic statistics are among the world’s most systematic. Similarly, IMF data and predictions are entirely public – which allows systematic comparison of IMF predictions with actual results. That is, the crucial data for analysing US economic trends is all public. Particularly in a time of US trade aggression it is therefore vital for China that its think tanks and research institutes carry out an accurate analysis of trends in the US economy.
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This article was originally published in Chinese.
The above article was published first in English by New Cold War.

US growth under Trump is the slowest under any US President since World War II

By John Ross

The US is fighting the trade war against China on two fronts.
·         The first is the US external economic attack on China, primarily centred at present on tariffs. This is designed by US policy to create objective economic problems for China.
·         The second is the US attempt to influence international debate. This is trying to use US propaganda to spread an entirely false view of the international situation and in particularly of the real state of the US economy.
The most central propaganda falsification on this second front is to attempt to present a view of the US economy as undergoing ‘very strong’ growth. The aim of this propaganda falsification is to attempt to claim that it is pointless for China or other countries to resist the US due to the latter’s economic ‘dynamism’ – and therefore that China should accept the Trump administration’s trade demands and also abandon its socialist model of development in favour of the ‘dynamic’ US one.

This US propaganda claim of ‘strong growth’ is in fact the reverse of the facts. The reality is that far from US growth under Trump being ‘strong’ it is in fact the lowest under any US President since World War II!

The aim of this article is therefore factual, to lay out in detail the factual realities of the US economy under the Trump administration – it therefore follows the Chinese dictum of ‘seek truth from facts’.

But establishing these facts is critical for judgement of the situation in the trade dispute with the US. The US is attacking China not because of ‘dynamic’ US growth but because US growth has fallen to such a low level by historic standards.

The entirely false economic claims of Trump

When President Trump claimed in his speech to the UN General Assembly on 25 September that, ‘America’s economy is booming like never before,’ and that, ‘in less than two years, my administration has accomplished more than almost any administration in the history of our country,’ the delegates literally broke out into laughter – as US media reported. The Washington Post headlined its report: ‘”People actually laughed at a president”: At UN speech, Trump suffers the fate he always feared.’ The UK Financial Times similarly noted: ‘President Trump prompted laughter and gasps.’
As Trump’s claim the US economy is ‘booming like never before’ is simply entirely untrue, as was his earlier one that growth under his presidency was ‘historic’, by which he meant historically high, it is therefore rather astonishing to see similar claims repeated in parts of China’s media. The reality is that under Trump, far from the US undergoing ‘strong recovery’, it is experiencing the slowest economic growth in any business cycle, and during any presidency, since World War II. As this article will show, the only sense in which economic growth under president Trump is ‘historic’  is in the sense that it is ‘historically low’.

US Post-War Business Cycles

To start with the most comprehensive data on US post-World War II economic performance, Figure 1and Table 1show the data for growth in all US business cycle since World War II. Table 1shows these eight US business cycles since World War II in chronological order – a business cycle is defined as the period between two recessions and a recession is defined, in the standard US manner, as two successive quarters of negative growth. As business cycles are of different lengths the key statistic for comparison is the average annual growth rate during the cycle – shown in the last column.
The feature which stands out from this data is clearly how much slower US growth is during this business cycle than it than in any previous one since World War II. To give a comparison to evaluate Trump’s claim regarding ‘historic’ fast growth, the most rapid annual average economic growth in any post-World War II US business cycle was in 1948-1953 at 4.7%. That was more than three times as fast as the 1.5% during the current business cycle. Indeed, it may be seen that in all previous US post World War II business cycles growth was faster than in the present one.
Looking in Figure 1,  at the end of the growth line for the present post 2007 business cycle, it can also be immediately seen that there is no significant acceleration during the Trump presidency – this will be demonstrated in detail below.


In order to show the trends in the post-World War II economy more clearly and in greater detail Figure 2sets out growth in US business cycles since World War II in descending rank of growth rate rather than chronological order. This shows the following clear pattern.
·         The fastest annual average economic growth in any post-World War II US business cycle was in 1948-1953 at 4.7%
·         The second highest annual average growth in any US post-World War II business cycle was in 1957-1969 at 4.3%
·         The third highest annual average growth in any US post-World War II business cycle was 3.4% in 1969-1973.
·         The fourth highest annual average growth in a US post-World War II business cycle was in 1980-1990 at 3.1%.
·         The fifth highest annual average growth in any US post-World War II business cycle was 3.0% in 1990-2007.
·         The sixth highest annual average growth in any US post-World War II business cycle was in 1973-1980 at 2.9%.
·         The seventh highest annual average growth in any US post-World War II business cycle was 2.5% in 1953-1957.
·         The slowest annual average growth in any US post-World War II business cycle was in the cycle from 2007 to the present, the latest data being for the 2ndquarter of 2018 – with an annual average growth rate of only 1.5%.
Figure 2 therefore shows clearly how much slower growth is in the present US business cycle than in any previous one since World War II. The claim that that the US is undergoing ‘dynamic growth’, due to rapid technological innovation or to Trump, is the exact reverse of the truth. What is striking about the present situation of the US economy is how slow its growth is compared to all previous post-World War II US business cycles

Growth under Trump – the US method of measurement

So far growth during US business cycles has been analysed. But the Trump presidency covers only a part of the present US business cycle – this business cycle has also been proceeding under the presidencies of George W Bush and Obama. Therefore, to compare presidencies, it might be claimed that growth under Trump is fast, whereas that under George W Bush and Obama was weak. But, once again, the facts show the exact opposite – it is growth under Trump which stands out as weak.
To show this Figure 3illustrates US GDP growth during the 21stcentury measured by the method by which the US publicises its economic data – i.e. quarter on quarter GDP growth annualised (for example growth in the 2ndquarter of 2018 compared to the 1stquarter of 2018 annualised). Figure 3shows that using this measure:
·         In the last period of the Clinton presidency peak US growth reached 7.5% in the second quarter of 2000 – the fastest growth under the Clinton presidency.
·         Under George W Bush there were successive peaks of growth of 7.0% in the 3rdquarter of 2003 and 5.4% in the 1stquarter of 2006.
·         Under Obama peak growth was 5.1% in the second quarter of 2014.
·         Therefore, the peak growth under Trump of 4.2% in the 2ndquarter of 2018, is slower not merely than under Clinton but also slower than under George W Bush and Obama during the present business cycle.

Real US year on year growth

It was demonstrated above that even taking the method by which the US choses to publicise its data growth under Trump is slower than under Obama, George W Bush and Clinton. However, there are significant problems in the way that the US publicises its GDP data – i.e. by annualising quarter on quarter growth. This is because:
·         First, as only a three-month period is used, short-term factors distort the data.
·         Second, because such short-term factors are approximately multiplied by four their effect is magnified[1]. This results in the peak growth rates achieved under all US presidents measured by the US method being exaggerated – Clinton never actually achieved 7.5% growth over a whole year, George W Bush never achieved 7.0% growth over a whole year etc.
·         Third, because different quarters are being compared a seasonal adjustment calculation has to be made which must be accurate for the data to be correct. But in the US it is generally known this seasonal adjustment is inaccurate – the first quarter growth in each year is understated, meaning growth in following quarters is exaggerated.
This method of China of publicising economic data is more robust than that of the US. China highlights the real year on year economic growth rate – that is it compares GDP in one quarter with GDP in the same quarter of the previous year (e.g. the second quarter of 2018 is compared with the second quarter of 2017).
China’s method of presenting GDP data is more robust for two reasons.
·         First, a year is a sufficiently long period to eliminate the influence of purely short-term factors – such as the weather.
·         Second, no seasonal adjustment need be calculated as the same quarter is being compared in each year.
Figure 4therefore shows the real US year on year growth rate achieved in different quarters during the 21stcentury. It may be seen that this immediately lowers the growth rates shown using the US method of presenting data that was given in Figure 3(for example, the actual peak year on year growth achieved by Clinton was 5.3%, not 7.5%). While the growth data calculated by real year on year growth are more realistic than the US method of publicising data, nevertheless it shows exactly the same pattern of the extremely weak peak growth of the US economy under Trump compared to previous presidents in the 21stcentury. More precisely
·         Peak real year on year US growth under Clinton was 5.3%.
·         Peak real year on year US growth under George W Bush was 4.3%.
·         Peak real year on year US growth under Obama was 3.8%.
·         Peak real year on year US growth under Trump is only 2.9%.
Once more it is therefore clear that what is striking about growth under Trump is not how fast it is but how slow it is.
US economic growth under Trump is the slowest under any US President since World War II.
So far, in comparing growth under US presidents, only those in the 21stcentury have been analysed. But the comparison becomes even worse for Trump if all US President’s since World War II are compared. Indeed, the extraordinary situation may be seen that peak growth under Trump is the slowest for any US president since World War II.
To demonstrate this Table 2and Figure 5shows peak growth under all 13 US Presidents since World War II. This data is shown in the way that the US itself choses to headline economic growth – one quarter’s growth compared to the previous quarter at an annualised rate. This data then shows clearly that peak economic growth under every previous post-World War II President was higher than under Trump.
In more detail, Table 2shows that, using the US method of presenting data, the peak growth under Trump of 4.2% in the 2ndquarter of 2018 was significantly lower than the maximum growth under the previous Obama administration of 5.1%. However, this peak under Obama was itself far lower than under former US Presidents. In addition to peak growth under Trump being lower than under Clinton, George W Bush, and Obama, as was already analysed, earlier Presidents achieved even higher growth rates – such as 10.3% under Nixon. Peak US post-World War II growth was achieved under Truman at 16.7% – almost four times as fast as the 4.2% under Trump.
It is therefore clear that in terms of peak growth rate, measured by the way the US presents data, Trump ranks last, 13thout of 13, of US post-war presidents.
Real year on year US economic growth
To double check the situation, it may again be recalled that the US presents its data in a different way to China. Having already given the results using the US method, Table 3and Figure 6therefore shows real year on year peak growth under all US presidents since World War II. This shows that also calculated by this method the peak year on year GDP growth under Trump, at 2.9% in the second quarter of 2018, is the lowest under any US president since World War II.
It was already noted that peak growth under Trump of 2.9% was lower than under Obama (3.8%), George W Bush (4.3%), and Clinton (5.3%). But Trump’s peak growth rate was also lower than under George H W Bush (4.4%), Ford (6.2%), Carter (6.7%), Nixon (7.6%), Kennedy (also 7.6%), Johnson (8.5%), Reagan (8.6%), Eisenhower (9.1%), and Truman (13.4%).
Therefore, whether growth is calculated according to the method used by the US, or that used by China and most other countries, peak growth under Trump is the lowest of all of the 13 US presidents since World War II. What is therefore striking is not that US peak growth under Trump is fast but that it is so slow in terms of historical comparisons.

The state of the US business cycle

Finally, given that peak US economic growth under Trump is slower than under any previous post-World War II US president, the only reason President Trump is able to make his entirely false claims of ‘historic’ growth is by  comparison to the extremely poor performance of the US  in 2016 when US growth fell as low as 1.3% in the second quarter – shown in Figure 7. But Figure 7equally shows that both the downturn in the US economy in 2016 and the recovery since then, were perfectly normal fluctuations within the US business cycle.
Analysing this trend in the US business cycle detail, it may be seen that the current long-term average of US real year on year growth is 2.2%. However, naturally, there are fluctuations above and below this. To give a rough approximation of the magnitude of these fluctuations, as the 1.3% growth in US GDP in the second quarter of 2016 was 0.9% below the long-term average then, merely to maintain the average, a 0.9% oscillation above the average might be expected. The long-term average of 2.2% plus 0.9% would be 3.1%. There is, therefore, nothing abnormally high in US growth in the second quarter of 2018 being 2.9%.
Trump’s claims on rapid growth therefore merely represent a normal fluctuation in the business cycle and in no way alter the fact that peak growth under his presidency is lower than under any US president since World War II.
Furthermore, there is a clear implication of the fact that even the slow peak growth under Trump is simply a normal upward oscillation in the US business cycle. This is that this will be followed by a perfectly normal downward oscillation in the business cycle. Indeed, this is precisely what is predicted not only by the long-term averages of US growth shown above but as is predicted by the IMF. As Figure 8shows the IMF projects that after extremely poor US growth of 1.6%, for the whole of 2016, US growth will accelerate to 2.9% in 2018. After this, however, US growth will decelerate to 1.9% in 2020 and 1.7% in 2021 – this would represent a perfectly normal oscillation in the US business cycle.
To understand the impact of this trend on US domestic politics it is important to note that the US has a relatively fast rate of population increase – 0.7% in 2017. Figure 9 therefore shows both the actual increase in US per capita GDP to 2017 and the IMF’s projections for the increase in US per capita GDP after this. As may be seen, the IMF projects annual US per capita GDP rising to 2.1% in 2018 before falling to 1.1% by 2020 and only 0.9% by 2021.Therefore, the increase in US output per person is actually significantly below the US total GDP increase. Furthermore, due to rising US inequality, the increase in actual real incomes of the majority of the US population is lower even than the increase in per capita GDP.
With such a slow increase in per capita GDP it is evident that current domestic political tension and instability in the US will continue – as has been seen in the sharp internal US political clashes since 2016.


There are numerous consequences internationally and for US domestic politics of the very slow growth of the US economy under Trump compared to previous US post-World War II presidents. However, the precondition for analysing these implications is to establish the facts – which is the purpose of this article.
These facts leave no doubt.  Peak growth under Trump is the lowest for any US president since World War II, and US growth in the present business cycle is the slowest in any since World War II. In summary, US policy is determined by how slowly its economy is growing by historic standards.
The starting point for any serious analysis of the Trump administration must be how slow its economic growth is compared to previous US post-World War II presidencies. Once that is done then the features of the Trump administration’s policies become clear.
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The Chinese language version of this article was originally published by New Finance on 6 October 2018.
[1] Strictly speaking the annualization is carried out by ((1+g)^4)-1) where g is the growth between one quarter and the next.

The above article was published first in English by New Cold War.

Austerity isn’t over. It will resume, but it has been suspended for one year

.947ZAusterity isn’t over. It will resume, but it has been suspended for one yearBy Tom O’Leary

The claim for the latest Tory Budget is that ‘austerity is coming to an end’, and has been dutifully echoed by the Tory press and the BBC.

In reality austerity policies will continue long into the future, extending the longest recorded fall in living standards in this country. The exception is the calendar year 2019, where both Government Consumption and Investment will rise as a one-off, before planned cuts in future years.

This is not an end to austerity, but a single event. On the face of it, it looks like preparation for Brexit and/or a general election either later in 2019 or early 2020 when the effects of the one-off increase in Government outlays is still being felt. This is exactly what George Osborne did in 2014, as part of the Tory Party’s plans for a 2015 general election.

Government Outlays

The Table below is taken from the Treasury ‘Redbook’ (pdf) 2018 that accompanies the Budget. It summarises the Office for Budget Responsibility’s (OBR) forecasts for key economic variables in light of its own economic analysis and its assessment of the Government’s Budget.

The Table shows there is an increase on both Government Consumption and Government Investment in 2019. They are both much higher, relatively speaking than in the two preceding years 2017 and 2018. It is also important to note that the growth rate of both these sector of Government outlays fall away again in subsequent years. Both of these were also revised substantially higher solely for 2019, compared to the March 2018 Spending Review, whereas other years have almost all been revised lower compared to March.

This is not a sustained increase in either Government Consumption or Government Investment, which would meet the claim of austerity ‘coming to an end’. Instead, it is simply a one-off event.
It is not possible to say whether this is in response to Brexit risks, where the economy will surely be worse than otherwise especially if there is no deal with the EU. It may be instead a plan to temporarily stimulate the economy ahead of an intended election. Or both. But it is not end to austerity, which will resume in subsequent years.
Negative outlook

The OBR Table also reveals a deep and abiding pessimism about economic prospects. By 2023 this business cycle will be very mature, as the last recession ended in mid-2009. Yet even without a renewed downturn real GDP growth is officially projected to average no more than 1.5% annually over the entire period. Chancellor Hammond explicitly states that the trend growth rate for the economy has been lowered by the financial crisis. On official forecasts, sluggish growth is the new normal.

The driving force of the economy is Investment, and with it the increasing participation in the division of labour through foreign trade. This is not the OBR’s framework, which remains stuck in a neoliberal/Treasury paradigm that Consumption drives growth. Even so, the OBR’s forecasts are noteworthy for expecting no increase in net trade, and the worst ever growth rate of fixed Investment over such a prolonged period.

Without better growth than is forecast, it is extremely difficult for living standards to rise.

Crucially, the OBR expects corporate profits to slow even further from 3.5% growth recorded in the first half of 2018. It projects that the slowdown will continue with just 2.8% profits’ growth in 2019 and only matching the average real GDP growth rate for the economy in further years.

It also notes that business Investment has risen by just 1.9% in the two years since the EU referendum and fell outright in the first half of this year. If the OBR is even close in its assumptions about profits, it is difficult to see where any rebound in business Investment will come from.

In fact, with weak growth from both business Investment and the Government, the OBR’s entire forecast even of very weak growth rest on a renewed increase in household indebtedness. The Chart below is Chart 3.23 taken from the OBR’s Economic and Fiscal Outlook to accompany the Budget.

It shows household debt rising once more, from 133% of household incomes in 2015 close to 150% of incomes in 2024. 
Chart 1. OBR Projections for Household Gross Debt to Incomes
According to the OBR, average earnings growth will not be contributing much at all to increased household consumption, as real average earnings growth measured against CPI inflation will grow by just 4% over 7 years. Measured against the RPI, real average earnings will fall by 2.8% over the same period.
This is at a time when the unemployment rate is expected to remain at historically low levels. Contrary to widespread assertion, wages are not set by ‘supply and demand’. Wages are set within the absolute limits of starvation level of the workers and the entire value of their output. Within those limits there is a struggle between classes for the income share of that output.
The current government, like its predecessors, is vigorously pursuing the interests of employers within that struggle. The net effect to date has been to depress real wages, but not to boost profits sufficiently to promote business Investment, as already noted. Therefore, austerity will continue after 2019 to achieve that outcome. Unless, of course they are stopped.
In a follow-up piece, Labour’s Budget alternative will be examined.