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Global capitalism is being hoisted by its own supply chains

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Born in Cape Town, Natale Labia lives in Milan, Italy, and writes on the economy and finance. Partner of private equity firm Lionhead Capital Partners. MBA from Università Bocconi. Supports Juventus.

In today’s globalised economy, the key is how capital is handled, not the approach to trade

Who is at least supposed to benefit from economic and trade policy? Much has been written on the extraordinary speech made earlier this month by the US Trade Representative Katherine Tai on the resetting of China-US trade relations.

However, what has perhaps been missed is just how seminal it is in the emergence of a new narrative on what trade and economic policy are actually meant to do.

For the past four decades, until Donald Trump was elected into office, US trade and economic policy had one objective in mind. This was the age of the Washington Consensus, the neoliberal agenda. Neoliberalism, as Philip Roth said, simply meant socialism for the wealthy and capitalism for everyone else. The prime objective was to keep one person happy: the great American consumer.

When Francis Fukuyama wrote the essay The End of History and the Last Man he was merely stating what was broadly accepted to be the obvious: human political thought had miraculously stumbled into some kind of Hegelian heaven. Political and economic perfection was liberal democracy supported by a capitalist economic system.

Of course, the vehicle for the inexorable growth of this doctrine was globalisation. In 2021, as the post-pandemic globalised supply chains creak and splutter, with ports blocked, fuel prices climbing, demand for coal outstripping supply and a global dearth of computer chips, it is worth reflecting on how exactly we got here.

In his seminal essay Unmade in America, published in Harper’s Magazine in 2002, Barry Lynn encapsulated all the arguments for and against globalisation succinctly. “Either you see globalisation as good because it spreads what is in America, such as a liberal approach to business, and McDonald’s. Or, you see globalisation as bad because it spreads what is in America, such as a liberal approach to business, and McDonald’s.”

It is mistaken to see Donald Trump as a self-appointed proxy who attempted to stop this force of globalisation in its tracks. Rather, he was the product of the reaction against globalisation and the prevailing wisdom shifting from the former to the latter.

Listening to Tai, it is clear that the tide has truly turned. What we are witnessing is a Bidenisation of Trumpism, such are the unmistakable similarities between the two administrations on economic and trade policy. For the past half-century the focus has been benefiting capitalist consumers at the behest of all; now the focus is stated to be on citizens’ wellbeing at the behest of any capitalist agenda of consumption.

The speech represents another stake in the heart of neoliberalism. America no longer expects China to make any structural changes to fall into line with what it projects should be a global free trade Elysium because it, too, has given up. Tai made it clear that the US has left the era of Ricardian fantasy in which countries happily and successfully pursue their respective competitive advantages to the mutual benefit of all, without any of the messy side effects that might appear in the real political economy.

David Ricardo did, of course, live before supply chains were quite as extraordinary as they are today. It is one thing to prescribe the mutual benefits of trading Portuguese wine for English wool, quite another to surrender your entire manufacturing and employment base to Asia.

And yet, this response from the Biden administration that has arrived by way of Trumpian ballyhoo is likely to be mistaken, for two reasons. First, beggar-thy-neighbour policies have only ever had one type of effect: bad ones. No country has ever managed to consistently grow productivity in the long term by turning inwards.

Second, listening to Tai one thinks of horses running across fields with stable doors being hastily slammed. We find ourselves in a globalised economy in 2021 with unimaginable levels of interdependence and supply chain complexity. In fact, the key here is not the approach to trade, but how capital is handled.

When Minister Ebrahim Patel follows Biden’s (and ironically Trump’s) lead in pushing for “localisation” and local content requirements for everything from cement to steel, one shudders to imagine the political and moreover economic effects of these new orthodoxies of trade policy.

Confronting the mess of the post-pandemic economy, it is worth quoting Lynn once again. “For years Sovietologists have debated whether Lenin once said ‘A capitalist would sell rope to his own hangman’. Change rope to ‘supply chain’, and whether Lenin made the statement or not, it is still clearly true.” DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

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