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A Second Great Recession?

Ten years ago this month the financial services firm Lehman Brothers filed for bankruptcy protection, triggering the 2008 Crash and the subsequent Great Recession from which the world’s economies have still not fully recovered. Will we look back on this month as the turning point when Donald Trump’s trade war with China unleashed the Second Great Recession?

In the past week the slow dribble of tariffs and counter-tariffs has rapidly grown into a full-fledged confrontation between the world’s two greatest economic powers.

In July the US imposed tariffs on $34 billion worth of Chinese exports to the United States, extending them to another $16 billion of Chinese goods in August. China responded cautiously, announcing roughly comparable tariffs on $50 billion of US exports to China in August.

Trump deemed that unfair, and on Monday he slapped a 10 percent tariff on another $200 billion of Chinese exports to the US, due to go into effect at the end of this week. He warned that if China retaliated again, he would impose a similar tariff on all the rest of China’s exports, another $267 billion.

Trump also threatened to raise the rate of the tariff to 25 percent if there is no US-Chinese deal that meets US requirements by the end of the year. Did he imagine that this threat would force an autocratic regime like China’s to back down and lose face? Who knows?

The Chinese replied hard and fast, announcing on Tuesday a new tariff on all the rest of America’s exports to China, worth some $60 billion. So if Trump fulfills his threat and hits the remaining $267 billion of Chinese exports as well, by next Sunday ALL America’s imports from China and ALL China’s imports from the United States will be paying tariffs.

China, trying to lower the temperature, is keeping its tariffs on US goods down to 5 percent for the moment, but it can’t hold that line forever if the US goes on ratcheting up the ones it has imposed on China. Trump has got the trade war he was clearly itching for, and it’s a much bigger deal than his spat with the European Union or his bullying of Canada.

We’re still not talking about cataclysms here: China’s trade to the US accounts for less than a quarter of its total exports, and its exporters will still get paid for what they sell. (It’s the importer who pays the tariffs.) The same goes for US exports to China, which are only one-sixth of total American exports.

In the long run higher prices for Chinese goods in the US might damage its market share there, with negative effects on employment in China, but that’s a slow process. The same applies to potential US job losses due to declining exports to China: they won’t happen fast enough to have any impact on November’s mid-term elections in the United States.

It’s the long term that counts, and this trade war will probably not be settled for a long time. Multi-billionaire Chinese businessman Jack Ma predicts that it could last 20 years, which sounds a bit pessimistic, but as long as it lasts, it will poison relations between the world’s two greatest powers.

Trump seems to think that China’s economy is now so wobbly that the tariffs will push it over the edge, forcing it to come to the US begging for mercy. It’s true that the Chinese economy is growing very slowly, if at all: nobody believes the official figure of six or seven percent annual growth. It’s also true that the Chinese financial system is as overloaded with bad debts as American banks were in 2008.

But China is only a sham capitalist economy. If lost exports to the US trigger a financial collapse in China – an unlikely but imaginable outcome – Beijing would slam the doors closed on international capital flows, bail out the Chinese banks, and flood the domestic economy with cheap credit. In this scenario, it’s international trade that would collapse, which wouldn’t be in anybody’s interest.

Meanwhile, Xi’s regime would be stoking Chinese nationalism and blaming the United States for all the domestic misery. Indeed, Xi and the Communist Party hierarchy are coming to the conclusion that Trump’s trade war is designed to “thwart China’s rise.” There can be no compromise with the United States if that is the case.

That’s not just Chinese paranoia. There really are those around Trump (and elsewhere in Washington) who are encouraging his obsession with the American trade deficit with China for exactly that reason. Yet his obsession is completely misplaced: 85 percent of the seven million American manufacturing jobs lost since 2000 were eliminated by automation, not by trade.

This nonsense is going to go on for a long time, and everybody will end up at least slightly poorer, but it probably won’t bring on the Second Great Recession. It may, however, start the Second Cold War.
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To shorten to 700 words, omit paragraphs 8 and 9. (“We’re…States”)

No More Palestinian Refugees

Who said this? “The weak crumble, are slaughtered and are erased from history while the strong, for good or for ill, survive. The strong are respected, and alliances are made with the strong, and in the end peace is made with the strong.” Nietzsche? Goebbels? You-know-who?

No, it was Binyamin Netanyahu, prime minister of Israel and newly minted philosopher of power. He and his ally Donald Trump are on the brink of erasing the Palestinian refugees from history, or at least they think they are, and he was allowing himself a little moment of self-congratulation.

He said it last Saturday at the renaming ceremony for the Shimon Peres Negev Nuclear Research Center, where Israel makes its (unacknowledged) nuclear weapons. It was no coincidence at all that just the previous day President Trump had announced that he was ending all US financial support for the United Nations Relief and Works Agency.

UNRWA is the agency that has looked after the health, education, and sometimes even the feeding of the Palestinian refugees who were driven from their homes during what Israelis call their ‘Independence War’ in 1948-49. It is funded by the voluntary contributions of UN members, and until this year the United States has been picking up about a third of the bill.

It has done a good job in difficult circumstances, with half of its clients living in the Israeli-occupied West Bank and the besieged Gaza Strip, and the other half in refugee camps in Jordan, Syria and Lebanon. Palestinians are the best-educated population in the Arab world, and since 1948 their population has grown from 700,000 to 5 million.

This is not as fast as Israel’s Jewish population, which has grown from 550,000 in 1948 to about 6.5 million in the same period, but if all these Arab refugees were to go home it would return the country to the half-Jewish half-Arab balance that prevailed in early 1948. For this reason, the Israeli government has always been adamant that the Palestinians cannot return, no matter what international law says.

Israeli officials even insist that the Palestinians are not real refugees unless they were actually living in what is now Israel before 1948. Their children and grand-children should not inherit their status, and are therefore not entitled to claim either the ‘right of return’ or compensation for giving up their rights.

You can see why Israeli governments might favour this view, since by now only Palestinians over the age of 70 would qualify as refugees. There’s only about 20,000 of them left, and they’ll all be gone soon. However, Zionists might want to think twice before elevating this way of thinking about refugees into a general principle.

The Jewish claim to Palestine is based on the idea that the ancestors of today’s Jews were made refugees by the Romans about two thousand years ago. If the rights of Palestinian refugees can be legitimately extinguished after the first generation, the Jewish claim becomes equally invalid. But this is just lawyers’ talk, of course.

What really matters is power, as Netanyahu helpfully pointed out, and he and Trump believe they hold all the cards. Trump recognised Jerusalem as Israel’s ‘eternal capital’ last year, cutting the Palestinians out, and Netanyahu is convinced (probably correctly) that the rest of the world will come along eventually.

Now they are going to starve the Palestinians out. In the same week that Trump ended US funding for UNRWA, he also cut off the $200 million annually that the United States gives to the Palestinian Authority, the almost-puppet government that administers the occupied Palestinian territories under Israeli supervision. When they are all hungry enough, he assumes, they will accept Israel’s terms.

Maybe so, but there is a flaw in the grand plan. US funding covered only a third of the UNRWA’s budget and even less of the PA’s. Other countries will continue to cover the rest, and are promising to raise their contributions to replace at least part of the American contribution. The Palestinians will definitely be hungry, but probably not hungry enough to surrender unconditionally.

If there was ever a time when such a radical strategy could succeed, it is now. Syria is off the board, as is Iraq, and most of the other Arab states near Israel are so caught up in their obsession about the alleged threat from Iran that Palestine has dropped to the bottom of their priorities.

But even now the Palestinians cannot simply be magicked away by some tricky redefinition of their rights, and even now there is a limit beyond which no Arab regime can go in terms of abandoning the Palestinians to Israel’s and America’s tender mercies. Nobody in the Arab world loves the Palestinians, but nobody wants to be the first to sell them out.
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To shorten to 700 words, omit paragraphs 8 and 9. (“You…course”)

America’s Trade War with China

The United States could probably extract major concessions from China in a carefully managed confrontation on trading issues, because the Chinese don’t want a trade war with their best export customer. But the US can’t win the trade war that Donald Trump is planning to wage, and it kicks off on Friday.

That’s when the first chunk of Trump’s new tariffs on Chinese exports to the United States – a 25% import tax on $50 billion of Chinese goods – actually goes into effect, and Beijing retaliates with similar tariffs on $50 billion of American exports to China. That’s just a drop in the bucket in terms of the size of either economy, but it’s also just the opening salvo in the war.

Trump has already said that Chinese retaliation would be ‘unfair’, and that if China goes ahead he will slap a 10% levy on an additional $200bn of Chinese goods. (He subsequently reduced that amount to $100 billion, but who knows?) And China has already said that it would respond with measures of a “corresponding number and quality” if the US goes ahead with that.

This is where the real tit-for-tat escalation starts, and it’s hard to see how it can be stopped. Trump is trapped by his own pugnacious rhetoric, and China’s President Xi Jinping is trapped in two ways.

One is that Trump has already imposed big new tariffs on exports to the United States by the European Union and by America’s closest neighbours, Canada and Mexico. They have all responded by imposing similar tariffs on American exports of equal value.

Xi can hardly do less, even if China’s real interests might be better served by not responding in kind to the new US tariffs. He would not wish to be seen as weaker than Justin Trudeau.

On 21 June in Beijing, according to the Wall Street Journal, President Xi Jinping met a group of chief executives of American and European multinationals and assured them that China would definitely strike back at US trade tariffs. “In the West, you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” Xi reportedly said. “In our culture, we push back.”

The other factor weighing on Xi’s decisions is that Beijing is starting to see American trade policy as part of a deliberate attempt to stop China’s emergence as a great industrial and technological power and a real peer rival to the United States. After all, there are undoubtedly people in Washington who would like to do exactly that.

Trump himself does not think in geo-strategic terms, but the Chinese may well see his actions on trade as inspired by those who do. If they come to that conclusion, their willingness to go all the way in a trade war may be greater than the financial experts think it is.

China’s exports to the United States amount to about 40% of its total exports, whereas only 5 percent of US exports go to China, so an all-out trade war between the two countries would obviously hurt China more. President Xi, however, is far more able to ignore the resultant job losses and higher prices than Trump is – especially because the Americans who were hurting worst would be his own political ‘base’.

Or, alternatively, China’s heavily indebted economy may turn out to be even more fragile than it looks – in which case a trade war could drive the country into a deep recession (with unpredictable political consequences at home), and drag the whole world economy down with it. That wouldn’t be much fun either.

There’s a reason that trade wars went out of fashion after the Second World War, and it wasn’t just because international trade tends to enhance prosperity overall. Back when trade wars were the normal way of doing business internationally, in the 16th-19th centuries, the European powers spent almost half their time at war.

The first great era of free trade, ca. 1870-1914, was also the ‘Long Peace’, when no European great power fought any other for almost half a century. That peace was destroyed by the First World War (so free trade does not prevent all wars), but the trade wars of the 1930s certainly deepened the Great Depression and facilitated the rise of fascism and a second world war.

And then came the Second Long Peace, from 1945 to the present, when once again free trade (or at least free-ish trade) reigns and the great powers never fight one another directly.

I’m not saying that Trump’s assault on free trade is going to lead us back down the path to great-power war again. Many other factors go into making such a catastrophe possible. But he may be putting one of the key factors back into place.
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To shorten to 725 words, omit paragraph 7. (“On 21…back”)

Universal Health Care

Nothing is perfect, and that definitely includes health care. On the 70th anniversary of the first full-coverage national health care system that is ‘free at the point of delivery’, Britain’s National Health Service, English people have been marching in the streets demanding better funding for the NHS, and Donald Trump naturally got the wrong end of the stick again.

Back in February, as part of his war against Barack Obama’s attempt to improve the coverage of the rudimentary US health care system (‘Obamacare’), Trump claimed that the marchers were protesting because the British system is “going broke and not working.”

It’s tough trying to defend the existing US system when every other developed country provides universal health coverage for its citizens, but Trump battled bravely onwards, later tweeting that the Democrats in the United States “want to greatly raise taxes for really bad and non-personal medical care.” Like the British allegedly suffer under the NHS.

In fact, the English National Health Service (Scotland and Northern Ireland have separate but similar systems) is, in former Conservative cabinet member Nigel Lawson’s words, “the closest thing the English have to a religion.” It is almost universally loved, and the protests were about government under-funding of the NHS.

Even the Conservative government that has strictly limited funding increases for the NHS over the past seven years, despite rising demand due to an ageing population, has now been forced to yield to popular demands. Prime Minister Theresa May announced last week that the NHS would get a funding increase of 3.4% per year over the next four years, giving it an extra $27 billion annually by 2023.

But are the English right to love their health-care system – and are the French and Germans and Russians and Japanese and the people of almost every other developed country right to revere their own similar systems? The United States may be the odd country out, but it does spend far more on health care than anybody else.

The United States spends 16% of its entire Gross Domestic Product on health care, almost twice as much as the average (8.2% for Japan, 8.4% for the UK, 8.5% for Australia, 10.4% for Germany). In theory, that ought to mean that Americans are healthier than everybody else and live longer. In practice, it’s just the opposite.

The United States is the only developed country where the average life-span is less than 80. In fact, it’s barely 78 years in the US, whereas everywhere else it’s in 80-82 range. The US also has the highest ‘preventable death’ rate of any developed country, and the highest infant mortality rate by a very wide margin. Americans spend more on health, and get less back, than anybody else.

They also spend far more of their time worrying about health care. The principal cause of personal bankruptcies in the United States is ‘catastrophic’ health emergencies, and all but the very rich have to devote much time to finding affordable medical insurance. Elsewhere in the developed world, nobody really thinks about that. The care will be there when you need it, and nobody goes bankrupt.

The model that was pioneered by Britain’s NHS on July 5, 1948 has been so successful that it is now spreading into many developing countries as well. India is still a poor country, but its National Health Policy 2017 goals include a commitment to “progressively achieve Universal Health Coverage.” China is working to provide affordable basic healthcare to all residents by 2020. And so on.

Attitudes change over time. In the 1930s nobody thought that there was some sort of basic human right to health care. The well-off paid for their own, and the rest depended on charity (which wasn’t very dependable). What changed that attitude was the Second World War, a time of great national solidarity and sacrifice in every country.

It was the worst war in history, but it produced a generation who believed that the people who had shared in the sacrifice (in both the countries that won and those that lost) must not be left behind in the peace that followed. The will was there to do new and great things, and they did them.

It is no coincidence that the same year of 1948 saw the signing of the Universal Declaration of Human Rights, which said (among other things) that “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.”

The world had turned, and what had been a privilege became a right. One that is still widely abused or neglected, of course, but it has nevertheless spread across the entire planet in the past 70 years. Why did the United States miss out?

The answer is probably a free-market ideology so strong that it enabled the insurance companies and the medical profession (which opposed the idea of a national health system in every country, at least initially) to win the political battle in the US and strangle the idea in its cradle. It keeps coming back even there, but for the moment Americans must go on paying the costs of their ideology.
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To shorten to 725 words, omit paragraphs 5 and 9. (“Even…2023”; and “They…bankrupt”)