Contents "The internationalist proletarian" n.15
STATE INTERVENTION IN MONETARY POLICY AND TRADE WAR
"In the interwar period, the bourgeoisie, which ‘cannot exist without continually revolutionizing the modes and relations of production and the whole complex of social relations’ has - it certainly has - progressed, studied and learned. On a national scale, the courses of professors Mussolini and Hitler, from whom the bonfires have not taken away the quality of precursors, have irrevocably taught them that the state power at their service is not only a police tool and political instrument of domination and corruption of the proletarian leaders in parliaments or in the hierarchies, but that it must become a machine of economic regulation of production, of distribution and last but not least of the monetary instrument." (Marxism and misery, 1949)
After the PARALIZATION of production and subsequent EPILEPTIC RESUMPTION of the process of reproduction of capital, the succession of SPASMS in the supply chain was generated, which translated into an INFLAMMATION of circulation and an increase in inflation – momentarily pulling world capitalism out of the swamp of deflation – which translated with a phase delay into an increase in interest rates (see “The Internationalist Proletarian” n.11, p.16-17). The causes which produced the ELECTROSHOCK having receded and in spite of the additional shocks which capitalism has inflicted on itself (conflicts in Ukraine and in the Middle East), the swelling of circulation has subsided and with it monetary inflation (see “The Internationalist Proletarian” n.14, p.11) and, always with a delay, interest rates have begun to do the same.
As can be seen in the evolution of the Freigthos Baltic Index, the shock generated by the paralysis and subsequent epileptic resumption of capitalist production and circulation far exceeds the subsequent increase in the price of transport resulting from the blockade in the Red Sea and consequent diversion through the Cape of Good Hope or the sectorization of the routes with the corresponding transshipments of the goods transported until they reach their final destination. While the current price of transport shows – besides a speculative component – an increase in the price of transport resulting from the extension of transport routes that does not translate into an inflationary process, in the period 2020-2022 it was an increase in the price of transport that expressed the high tension between the poles of capitalist circulation, a contributory cause but above all an effect of the process that produced the inflation of the price of goods.
Inflation and unemployment in the US and the EU
US inflation is still far from its most recent peak, and far from the peaks reached in previous decades.
Also in the EU, inflation is well below a level of concern for the bourgeoisie:
The unemployment rate is another magnitude used to justify the direction of monetary policy and if we look at the historical evolution of the unemployment rate in the US and the EU in the graphs below, we will see that these are historically low rates. In January 2023 the US unemployment rate was 3.4%, rising subsequently to 4.2% and placing itself at 4.1% in December 2024.
Monetary policy in the US and the EU
In this situation, both imperialisms are trying to reduce the balance accumulated through successive quantitative easing programs, but they have barely been able to reduce a quarter of all that has been gobbled up.
Let's remind that as long as a part of these balances is maintained that means that the central banks continue to intervene in the market by buying debt.
Both imperialisms also began to have to reduce interest rates in the second half of 2024, a process in which 30 central banks had already immersed themselves (see “The Internationalist Proletarian” n.13, March 2024, p.27). Let's remind that the European graph corresponds to the deposit facility while the US version shows the refinancing rate, but the movement is analogous:
Evolution of the euro/dollar ratio
The differential between Fed and ECB interest rates has weakened the euro, which “(...) has depreciated by 8.65% against the dollar since September 2024 and exchanges at just 1.02 greenbacks.” (Expansión, 14-01-2025).
This situation tends in general to favor European exports by reducing the price of European goods in dollars, but everything has a limit. Thus, the European bourgeoisie considers that an exchange rate higher than 1.2 euro to the dollar could be counterproductive for these exports by making their goods more expensive. But at the same time, a level lower than the euro-dollar parity could make a whole series of necessary purchases (those related to oil and gas, among others) excessively expensive and have a negative impact.
Deposits and interbank rates
Euribor, the exchange rate at which European banks lend to each other, falls even more rapidly:
In the EU, deposits have failed to take off hardly reflecting the rise of interest rates, but the situation with deposit remuneration in the US is even starker and more telling: “About 32 per cent of JPMorgan’s $1.9tn in US deposits do not earn any interest whereas Citizens pays no interest on around one-fifth of its deposits, resulting in a larger pool of cheaper funding for JPMorgan.” (Financial Times, 20-10-2024).
Evolution of corporate debt
Corporate debt issuance and purchases in January broke records once again, reaching 83.4 billion:
The contingent explanation is even correct, but insufficient: "The rush of new debt sales comes as spreads — the difference between the yield on corporate debt versus safer government bonds — are near multi-decade lows, spurring companies to raise funds cheaply while they can (…). The average US investment-grade spread sat at just 0.83 percentage points on Wednesday" (Financial Times, 09-01-2025). But beyond the fact that spreads are favorable to debt financing, it remains to answer why these spreads are low and the glaring fact of the continuing upward trend in the level of corporate debt.
At the same time, debt with a full credit rating is in danger of extinction:
"Instruments rated with the worst ratings continue to grow. The sum of B (considered highly speculative) and CCC or less (equivalent to a substantial risk of default) accounts for 12% of outstanding debt, almost four times more. (...) S&P has done the review. The 22 trillion euros it has under its supervision at the moment is 3.3% more than a year ago, but the part with which it can sleep more peacefully because it is at the opposite pole of default has lost 6.4 billion. That leaves the triple A at less than 700,000 million euros, which represents 3.2% of the total corporate debt monitored by the agency. (...) On the other side of the Atlantic are the only two companies with an AAA rating. They are Microsoft and Johnson & Johnson. But the United States has only 90 billion of the 700 billion in AAA debt in the world. Almost all the rest is owned by European banks." (Expansión, 20-11-2024).
Swelling and concentration of the stock markets
Despite the crashes and busts, the swelling of speculative capital in the stock markets continues to grow, a swelling that is based on and requires the prospect of lower interest rates. The swelling is developing in a very uneven fashion within the stock markets. The 10 largest companies in the S&P500 have a weight of almost 40% in total valuation (Financial Times, 18-01-2025), while “At Monday’s close, eight members — also including Nvidia, Amazon.com, Meta Platforms, Tesla and Alphabet — each made up more than 4.5% of the Nasdaq 100, with their total representation sitting near 52%.” (Bloomberg, 17-12-2024).
General contraction in the world industry
The reading of the PMI indices for manufacturing activity, which denote contraction below 50 and expansion above that threshold, are significant of the general situation: "Below, there are major industrial powers such as France – 41.9 points, with the lowest figure in four and a half years –, Germany – 42.5 –, Austria – 43.3 –, Italy – 46.2 – and the Netherlands – 48.6 –. (...) Meanwhile, in the last month of 2024, the PMI index in the United States stood at 49.4 points, three tenths less than in November, which means moving away from 50 points. (...) Manufacturing activity in the United Kingdom fell below 50 points for the third consecutive month (...) Activity in the factories of the Asian giant slowed down in December (...) In November, this magnitude recorded the best figure in five months, when it stood at 51.5 points. In December, it fell by one point." (Expansión, 03-01-2025).
Development of the real estate crisis in China
The real estate crisis of Chinese capitalism (overproduction of built housing) is far from being resolved and the hidden indebtedness of local governments, according to the IMF would have “swollen to a record 66 trillion yuan (about 8.5 trillion euros).” (El País, 09-11-2024).
The Chinese capitalist government is trying to reverse the situation: “The plan unveiled yesterday by Beijing has a scope of 10 trillion yuan (1.3 trillion euros) and aims to facilitate the refinancing of the ”hidden debt“ or off-balance sheet liabilities of local governments, which are heavily indebted as a result, in part, of the real estate crisis.” (Expansión, 09-11-2024).
Overproduction in Chinese oil refining
"Over a fifth of the country’s oil refining is handled by smaller, privately owned outfitters many of them housed in the eastern province of Shandong. These independents, dubbed teapots, have a reputation as wily operators used to navigating razor thin margins. (...) China is the world’s biggest crude importer and the teapots are a cornerstone of a market that has driven gains in global oil demand for over a decade. But Shandong went bankrupt late last year and more company failures are predicted. “This year, oversupply in China’s oil market will grow further,” said Mia Geng analyst at industry consultant FGE. “We could see more teapot shutdowns, both temporary and permanent.”“ (Bloomberg, 06-01-2025). This overproduction (or oversupply) of refined oil in China is an expression of an overproduction of a more general nature (see “The Internationalist Proletarian” n.13, March 2024, p.30 and “The Internationalist Proletarian” n.14, October 2024, p.14-15).
China: the production volcano
Relative overproduction of goods and capital has depressed industrial prices and consumer prices to almost 0%, resulting in a negative GDP deflator (Bloomberg, 09-12-2024):
This contained overproduction is the one that struggles to go out though exportation, generating a trade surplus that does not cease to grow (Bloomberg, 13-01-2025):
It is this pressure radiating from the VOLCANO OF PRODUCTION whose epicenter is in Asia that drives Western imperialism to apply tariffs and sanctions to build a wall to try to contain the AVALANCHE of commodities and slow down the technological development that threatens to leave them behind.
Faced with this situation, “European and US companies [are attempting] reindustrialization, with a combined total investment of $3.4 trillion (about 3.2 trillion euros at current exchange rates) over the next three years, according to a report by Capgemini Research Institute” but Chinese companies are also adapting to avoid being hunted down in a new version of the contingency with which the US and EU blockaded Japan in the 1990s: “Many Chinese companies that market their products in Europe are setting up plants in the region, contrary to their traditional operation of importing from China and taking advantage of low local costs” (Expansión, 13-05-2024).
The easy way-through of the individual packages
We will stop here at a very illustrative example of the trade war situation. The US announced the application of tariffs on Temu, Shein and Alibaba because: "Chinese platforms benefit from the fact that imports of goods under $800 are exempt from tariffs under the so-called de minimis exception. (...) Over the past 10 years, the number of shipments entering the US under the de minimis exemption has increased significantly, from approximately 140 million per year to more than 1 billion per year." (El País, 14-09-2024).
Shein responds confidently from the epicenter of the production volcano: “If new tariffs, new duties or new reporting obligations are imposed, these are issues that our model allows us to address and still offer good value for money to customers (...) The reason we can offer such good value for money is that we have innovated the way we make clothes, with an on-demand production model through technology.” (La Vanguardia, 24-10-2024).
Will the US have any real capacity to deal with such a volume of packages? In the EU, albeit with a lower starting price threshold, they would like to but don't think they can: "The EU executive has already proposed removing a value threshold of €150 below which packages are exempt from customs duties, (...) But that would only increase the workload of customs officials (...) Amsterdam's Schiphol airport and the port of Rotterdam handle 3.5 million packages a day, or 40 per second. 'There is no way to check everything', acknowledges an EU diplomat." (Expansión, 05-12-2024).
While the US are trying hard to bell the cat, its own companies are being forced to apply the same method: “Amazon wants to stand up to growing competition from rivals Temu and Shein by mimicking their business models with a new direct discount section from China. (...) fly products to US shoppers from warehouses in China (...) products at very low cost within 9 to 11 days.” (Expansión, 28-06-2024).
And if some US companies have record profits like that of Meta which “(...) soared 66% in the first nine months of the year, to achieve a net result of 41 billion 522 million dollars (38 billion 250 million euros), thanks to the good performance of the digital advertising market” it is precisely because of the advertising spending of these Chinese platforms: “Meta has benefited from a significant increase in the advertising budget of Chinese e-commerce giants Temu and Shein” (Expansión, 31-10-2024).
To finish this illustration of the trade war within the anarchy of market production, all that remains is the infighting between Chinese companies settled in a US court: “Shein (...) denounced on Monday its rival Temu (...) before the United States District Court for Columbia, the company indicates that its opponent has incurred in a series of crimes ranging from theft of trade secrets to trademark counterfeiting and copyright infringement. 'Temu loses an average of $30 for every order placed in the US', the company claims (...) 'This relentless pursuit of low prices is fundamental to its business model and competitive strategy, but these are achieved at any cost' writes Shein about Temu. Both firms offer everything from summer dresses for eight euros to 48-cent bracelets (...) Temu explains: 'Shein has buried itself in lawsuits for intellectual property infringement, and has the insolence to fabricate accusations against others for the same offenses for which they are repeatedly sued'.” (El País, 22-08-2024).
Strikes and counter-strikes in the trade war
Beyond this avalanche of hundreds of millions of low-cost goods, in the last period, both the US and the EU have imposed tariffs on Chinese cars (the US has increased them fourfold from 25% to 100%), in addition to increasing US sanctions on semiconductors produced by TSMC, NVIDIA chips, ASML machinery, etc. and extending sanctions to companies such as Tencent and CATL.
Faced with tariffs on Chinese cars, false Chinese socialism vociferated, “The US tramples on the market economy” (in case anyone still believes China is socialist!) and then laments “that the US calls its product exports ‘free trade’ but labels China's export of commodities with comparative advantages as ‘industrial overcapacity’” (Expansión, 15-05-2024).
In any case, Chinese capitalist imperialism has gone from passively suffering tariffs and sanctions to gradually starting to put its own measures in motion:
- “Beijing has decided to retaliate in trade against the EU starting with the imposition of tariffs of between 30.6% to 39% on a number of European brands.” (Expansión, 09-10-2024).
- “According to Chinese state media, regulator investigates Nvidia for ‘alleged violation of the Anti-Monopoly Law’” (Expansión, 10-12-2024).
- “China yesterday banned the export of dual-use civilian and military goods to 28 US defense contractor companies to ‘safeguard national security and interests.’ In December, China already announced it would restrict exports to the US of gallium, germanium, antimony and graphite.” (Expansión, 03-01-2025).
Meetings between representatives of the US and China have not stopped throughout the period, despite the trade and tariff war between the two capitalist powers. Examples are the visits of the US Secretary of State in July 2024 or the US National Security Advisor in August 2024 or the reception of a retinue of US businessmen by the President of China in March 2024: “In a meeting with a score of US businessmen, including Evan Greenberg of Chubb, Stephen Schwarzman of Blackstone and Cristiano Amon of Qualcomm, at the Great Hall of the People in Beijing, Xi insisted that his country remains committed to reforms” (Expansión, 28-03-2024).
The crisis of OVERPRODUCTION only aggravates the situation of CONFLICT between imperialist bandits, between hostile brothers: “as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share in it at all, is decided by STRENGTH and CUNNING, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist's interests and those of the capitalist class as a whole, then comes to the surface, just as previously the identity of these interests operated in practice through competition.” (Capital, Book III, Chapter XV, K. Marx).