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(DV) Street: Bush, China, Two Deficits, and the Ongoing Decline of US Hegemony







Bush, China, Two Deficits, and the Ongoing Decline
of US Hegemony

by Paul Street
July 28, 2005

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How about that wild and wacky world capitalist system? The United States is clearly the world's "hegemonic" military power.  The U.S. government's capacity for "forward global force projection" is stupendous and its imperial "defense" budget" matches the combined military expenditures of all potential enemy states many times over. 

Things are a little different in the economic sphere, however, and all the money the U.S. is spending on militarism and empire is part of the problem for Uncle Sam.  

Since the United States -- once the "managerial-capitalist" mass production ("Fordist") king of the manufacturing world -- doesn't really make that much stuff anymore, it has now run up a yearly trade deficit of $700 billion. It has considerable trade deficits with just about everyone, including a $170 billion deficit with "Communist" China (Longworth 2005).  

One way in which this is a problem is that it translates into unemployment for many American workers.  Those workers lose their jobs to cheaper Chinese imports (many sold by the great "all-American" company Wal-Mart), whose prices are kept down by the low level of Chinese wages, which is enforced partly by officially "Communist" state-capitalist repression and by the fact that millions of Chinese peasants are being pushed off the land and into urban labor markets.  

According to standard economic theory, the trade deficit being experienced with such painful outcomes for U.S. workers is supposed to contain an internal corrective. Over the years, the iron "laws" of economics say, an American trade deficit leads to the possession of surplus U.S. dollars in foreign banks. That surplus is supposed to drive down the price of the dollar because "when there's too much of something, its price falls." And when the dollar's value relative to other currencies falls (as everyone who ever suffered through an introductory macroeconomics class knows), then the price of U.S. exports fall and the price of imports to the U.S. rise.  "We sell more and buy less" and, over time, the dreaded trade deficit fades (Longworth 2005 and Fallows 2005). 

But thanks in no part to the other American deficit, the $412 billion that the U.S. government spends over and above what it receives through taxes (a more than $600 billion departure from the federal government's $200 billion surplus in 2000), "free market" economic laws are being trumped by state-capitalist political-economic policy. 

On the Chinese side, the relevant government authorities refuse to permit their currency, the yuan, to fall in price relative to the dollar.  Given the weakness of their domestic market and the large number of proletarianized ex-peasants they need to employ, China depends on growth through exports to foreign markets. It relies especially on selling to the world's greatest consumer market the U.S., where tens of millions of people are up to their eyeballs in consumer debt.    

The United States' Messianic Militarist (Ralph Nader's description) and "Elite Force Aviator" (the name of a presidential action doll released after Dubya Bush's notorious "Mission Accomplished" May 1, 2003 landing on the USS Abraham Lincoln) President can plead all he wants with "Communist" China to adjust the yuan so that America can reduce its trade deficit.  But the Conqueror of Iraq's entreaties are to no avail because China is helping to finance Dubya's in-hock government. 

Bush has thrown the U.S. government deeply into the red by combining a massive trillion dollar tax cut for the rich with stupendous imperial "defense" expenditures sold to the populace on a shifting set of false pretenses that merged the imperial occupation of Iraq (a key Bush II project from day one) with something called "a war on terrorism."  Boldly linking his twin imperatives of Empire and Inequality, Bush has used fear and deception to cover the gaping disconnect between (a) his claim that we are all united in a war for our shared survival and (b) his stupendous giveaways to the privileged few. 

Along the way, he has been following the Reagan playbook by using the huge government deficit that results from this curious combination as a reason to slash yet further social programs intended for the protection and advancement of the nation's considerable number and share of disadvantaged people and communities. The massive expenditures and actions of the "right hand of the state" are pretext for the further slashing of the state's "left hand," to use the late French sociologist Pierre Bourdieu's excellent terminology. 

Of course, someone has to provide loans to cover the resulting deficit to keep the increasingly right-handed state going.  War, empire, corporate welfare, and mass incarceration at home and abroad cost a lot of money. Since Americans have a national saving rate below zero -- their key role in the contemporary world system is to buy stuff made in lower-wage zones of the planet -- there's not much loan money to tap at home.  As a result, according to Chicago Tribune correspondent R.C. Longworth, "no less than $399 billion, nearly 97 percent" of the federal deficit was financed by "foreigners" last year.

This is a big part of why the capitalist-road successors to Mao get away with telling the Conqueror of Baghdad to take his over-strong dollar and trade deficit and put them where the sun don't shine -- along with his undergraduate economics text from Yale. Uncle Sam needs "Red" China to send surplus dollars back to the U.S. Treasury, to purchase government bonds to keep the increasingly regressive and militarized U.S. state operating. If U.S. exports to China were to increase significantly, the White House knows, China would possess fewer surplus dollars to help Uncle Sam cover his massive debts. 

Meanwhile, the Chinese investment of billions of surplus U.S. dollars back into the U.S. counteracts the tendency of the dollar's price to fall relative to yuan. That price can fall only if the Chinese sit on their extra dollars and the Central Bank of China isn't sitting on the greenbacks it cycles back to the U.S. 

It's a Hell of "an unspoken deal" (Fallows 2005) for both state-capitalist sides.  Bush gets to fight imperial wars for "freedom" and "security" and to run related deficits without having to raise taxes on his aristocratic class brethren to pay for it all. The deficit helps him more easily slash domestic social programs and bankrupt what's left of the American welfare state -- a longstanding Republican objective. Meanwhile, competition from abroad keeps manufacturing wages and working-class bargaining power down in the U.S. And the "war on terrorism" provides a marvelous way to silence dissent and divert popular consciousness regarding the real nature of his harshly regressive policy agenda. 

For their part, the Chinese authorities get to keep the yuan weak and keep the vast American consumer market available for the realization of surplus value -- also appropriated by U.S.-based multinationals with direct investments in Chinese manufacturing -- wrenched from their super-exploited proletariat. They also get to avoid domestic social turbulence (ala Mao's cultural revolution) by maintaining regular employment for their dispossessed working-class. And a weak yuan helps keep Chinese wages low, which helps stimulate investment in that country's peasantry-absorbing export-manufacturing plants.   

China "needs [Bush's] America to industrialize. Bush's America needs China to "stave off financial collapse." (Longworth 2005).

The losers include American workers in manufacturing sectors vulnerable to Chinese competition. Some observers (of both Republican and Democratic affiliation) raise concerns about American policy sovereignty. They fear that China's ownership of a significant part of the federal debt will give it a say in the making of U.S. policy. 

Whatever the rationality of that fear, it still seems to matter if a national economy actually manufactures goods or not in this supposedly "post-industrial" age. Many working-class Americans especially pay a steep price for multinational corporations' decision to de-industrialize a once strong and high-wage manufacturing nation -- the U.S. -- and to invest in lower-wage zones of the world economy. 

At the same time, it is important to make the hardly original or novel observation that imperial militarism and economic power ultimately come to work at cross purposes for late-hegemonic states like the contemporary U.S.  Bush is exacerbating the long decline of American global economic power and (of much less concern to American elites) the unraveling of what's left of the American social contract by blindly and expensively pursuing his militarist agenda. 

According to some plausible Marxian analyses, the occupation of Iraq was largely an attempt by the Bush regime to use the last and only refuge of truly unchallenged American global hegemony -- its possession of a sheer preponderance of military force -- precisely as a tool for shoring up its long declining world economic power by putting Uncle Sam's boot on that great strategic economic (and military) prize in an age of global petro-capitalism: the Middle Eastern oil spigot (see David Harvey 2003). 

There is, of course, a venerable historical record of once hegemonic states losing their position because of over-investment in militarism and in foreign, overseas development, to the neglect of production base, economic vitality and social health in their own imperial homelands. (see McCormick 1990, for a useful summary of venerable "world-systems" analysis of how these and other self-defeating mechanisms tend to make single state hegemony in the world capitalist system transitory.)

Meanwhile, even as it deepens the decline of America's economic position, Bush's bungled imperial campaign in Iraq may go down in the history books as a more pathetic military debacle than the Vietnam War. In the earlier and (so far) much bigger bloodbath, Uncle Sam was up against a much more highly organized and formidable foe rooted in a left-nationalist revolutionary movement that received real support from existing anti-systemic states (the USSR and a then more Red China). Launched over significant protest from the rest of the advanced capitalist world, without the elementary allied-state consent and cooperation that a truly hegemonic (in the Antonio Gramscian sense of more than purely coercive "agreement") state should have no trouble attaining, Bush's expensive and murderous occupation of Iraq has been stymied by resistance groups (so-called "insurgents") who cannot even remotely be compared to the revolutionary forces who gave Uncle Sam a black eye in an imperial Southeast Asian war (Arrighi 2005), that also inflicted considerable damage on the health of U.S. public finances and economy at an earlier stage in the decline of US power. 

Paul Street is a writer and activist in Chicago, IL. His next book is Segregated Schools: Race, Class, and Educational Apartheid in Post-Civil Rights America (New York, NY: Routledge, 2005).  He can be reached at:

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Selected Sources

R.C. Longworth, "Buyer's Market," Chicago Tribune, 10 July 2005, section 2, p.1

James Fallows, "Countdown to a Meltdown," Atlantic Monthly (July-August, 2005)

Giovanni Arrighi, "Hegemony Unraveling," New Left Review (March-April, 2005)

Thomas McCormick, America's Half Century: United States Foreign Policy in the Cold War (Baltimore, MD: Johns Hopkins, 1990)

David Harvey, The New Imperialism (New York, NY: Oxford University Press, 2003

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