As US power falters, it’s network of alliances is in flux. Multipolarity is already here, argues economist George Kerevan, and it is upturning all the certainties of the old order.
The second half of 2023 is characterised by three new developments. First, the intensification of economic rivalry between America and its ostensible Western allies – a rivalry that could have profound implications for Europe and the Russo-Ukraine war. Second, an accelerating downturn in global trade caused by the turn away from neoliberalism. And third, the sustained jump in global oil prices due to Saudi Arabia rejecting US demands to increase production.
US vs Europe
The present conjuncture is frequently defined as one dominated by Chinese-US economic and military competition. However, this picture ignores the economic rivalry between the US and the other Western imperialisms of Japan, UK, France, Germany and Canada. This rivalry is increasing in the current conjuncture.
Taking share values as a proxy for surplus value, US equities account for 70% of the world total as measured by the MSCI World Index (as of September 2023). The next five imperialisms – Japan, France, Canada and Germany – have a total share value representing only 20%of the MSCI, which is the most widely followed international stock index.
The top ten companies quoted on the MSCI are all American. In other words, the ten most valuable US corporations collectively are bigger in value than the market capitalisations of the entire stock markets of Japan, UK, France, Canada and Germany combined. That is a truly staggering difference and represents a generational weakening of Western capitalism outside the US during the era known as “neoliberalism”.
This gigantic gap in capital accumulation between the US and its closest nominal political allies has, if anything, increased rapidly in the period since the 2008 banking crash. It has gone into hyperdrive during the current year. In the second quarter of 2023, US companies announced a staggering $100 billion in new plant construction. Why?
The US economy is growing faster in GDP terms than its main Western rivals, especially since the end of the Covid pandemic. US growth in the third quarter was a blistering 3%. This was not supposed to happen after the US Federal Reserve hiked interest rates. All this is just another way of saying the US is investing more. That higher rate of investment is underpinned by three factors.
First, higher corporate dividends amplified by the Trump-era tax cuts. These profits derive from buoyant consumer spending. It turns out that – unlike Europe – most US mortgage debt is fixed-interest so Federal interest rate rises mean heehaw. Also, Biden is still pumping out legacy Covid payments to the tune of $20bn a month. US savers have happily splurged their loot accumulated during the Great Lockdown while European and Japanese consumers continue to sit on their cash, doubtless discouraged by high energy prices and taxes.
Second, US corporations are so flush with cash that they have embarked on huge share “buy-backs”. These stuff existing shareholders with extra cash while simultaneously boosting share prices, adding even more to personal wealth. This creates a massive pool of fresh investment funds. Without getting too technical, this processes essentially recycles and concentrates global surplus value and pumps it into fresh US capital accumulation at the expense of its ostensible Western allies.
Third, the advent of Artificial Intelligence (AI) has triggered a massive new speculative investment wave in US high-tech companies based on a projected jump in possible profits. Investment follows above average profits or, at least, the prospect of above average profits. AI has provided that incentive. since the launch of ChatGPT, the share value of the US tech sector has jumped 40 per cent, reversing last year’s catastrophic fall. Put another way, the prospect of profits from AI has added $2 trillion to US High-tech market cap, providing all that extra for fresh investment in the sector.
In Europe, the economic situation is radically different. For the past year, Germany has been stuck in an economic downturn, precipitated by a brutal surge in energy costs caused by abandoning cheap Russian gas. A joint forecast this month by the country’s leading economic think-tank predicts GDP will shrink by 0.6%this year. However, there are some signs of a class struggle response. Numbers released in August show that German wages rose at a record annual pace of 6.6% in the second quarter of 2023, the highest rate of increase since such records began in 2008.
As for the UK, a recent forecast from S&P Global Market Intelligence suggests there will be a decline of 0.2% in GDP in both the final quarter of 2023 and January to March 2024. Other forecasters have also suggested a recession is coming. Capital Economics deputy chief economist Ruth Gregory says: “Higher interest rates will trigger a mild recession involving a 0.5% fall in GDP in the coming quarters.”
In Japan, recent government reforms have helped rally the stock market by 26 per cent. However, one US dollar invested in Japan’s main stock index, Topix, back in 1989 would now, 34 years later, be worth only 80 cents. But if that dollar had been invested in the main US index, its value would have multiplied more than 12 times over. Japanese capitalism remains in the doldrums.
What happens in 2024 depends very much on the outcome of the US presidential election. A Trump return to the White House could see an intensification of trade sanctions against Europe, and US disengagement in some form from the Ukraine conflict (leaving Europe diplomatically and militarily isolated). The UK would be ground down between the two sides.
Global Trade Woes
Global trade volumes are falling at their fastest annual rate since the outbreak of Covid, according to the latest data. But trade was supposed to bounce back after the pandemic, not falter and start to drop again. In fact, trade volumes were 3.2 per cent down in July compared to the same month in 2022. There was also a 2.4 per cent contraction registered in June, suggesting this is no statistical fluke.
This drop in export volumes is global. China, the world’s largest exporter, registered a 1.5% annual drop, the eurozone countries (led by Germany) a 2.5% fall, and even America a 0.6% contraction. A new survey of purchasing managers shows this downward trend was continued through August and September in at least Europe, the UK and America.
What is causing this sudden contraction in trade? The explanation being put forward by bourgeois economists is rising interest rates. Much trade is conducted on credit so higher interest rates increase the cost of financing the gap between importing and final sale. Hence importers reduce their exposure. Doubtless that is part of the explanation.
However, there are other elements involved. The major imperialisms – particularly America and China – have imposed trade barriers in order to protect their domestic markets, especially in high-tech. Essentially, we are moving away from the era of neoliberal free trade. Under Biden, the US is pouring subsidies into persuading local and other Western manufacturers to shift production to the States, thereby cutting out China. Sanctions against Russia have also disrupted free trade. And Europe is busily slapping restrictions on the import of Chinese EVs and solar panels, citing dumping.
Another factor involved is the slowing of economic growth outside of the US. In particular, the Chinese economy has seen a marked slow-down this year, as its over-heated construction sector falters. Lower Chinese growth impacts on Beijing’s imports of raw materials from Africa and luxury goods from Europe. In July, China registered record youth unemployment, as a result of the slowdown. The following month, officials announced they would stop publishing the unemployment figures.
It is possible that contracting global trade is merely an episode. More likely, it is a trend that will worsen before it gets better. And in today’s world of heightened inter-imperialist rivalry, trade wars have a nasty habit of turning into hot wars.
Oil And the New Imperialism
Following Moscow’s invasion of Ukraine in February 2022, world oil prices soared, hitting more than $120 a barrel in June last year. But they fell back to $70 in May this year, as the US pumped more shale oil and released strategic reserves. However, that was then and now is now. The so-called Opec Plus countries, led by Saudi Arabia, have since started to cut production despite entreaties from the Biden White House. Restricted production has boosted oil and gas prices back up. Brent crude is now hovering around $90 or more.
America and Europe have effectively lost political control of global and gas output and prices. Petroleum production decisions are now back in the hands of the so-called Opec Plus countries (which includes Russia) with a helping hand from China. Pivotal in this is a move by Saudi Arabia to exit the American political orbit. We are now in a multipolar world, particularly in energy matters.
Back in 2016, the new leader of Saudi Arabia – Crown Prince Mohammad Bin Salman, aka MBS – failed in his bid to bankrupt the American shale gas industry by pumping more oil. America had reversed decades of dependence on oil imported from the Arab world by expanding domestic production using “fracking”.
So, in September 2016 MBS sought a de facto political alliance with Moscow, creating Opec Plus. The aim was to create enough leverage over oil and gas production to control world prices independently of Washington. But no effective oil cartel was possible without the involvement of Shiite Iran, Sunni Saudi Arabia’s arch-rival. Result: in recent years MBS has moved to defuse the toxic Saudi-Iran proxy war in Yemen. Even before the Ukraine war, a new axis was being formed between Saudi, Iran and Russia.
The Biden administration’s true reason for cutting fossil fuel use in the short term has as much to do with reducing dependence on Saudi as with saving the planet. But there is a wee problem – US shale gas reserves will be depleted in the period after 2030. Unless Washington transitions to green energy, it will be dependent again on Opec Plus oil and petrochemical supplies. Opec Plus is the only possible supplier of extra output in the medium to long term.
However, the more the US has put pressure on MBS, the more Saudi has resisted. This October, Saudi and Russia actually agreed to further output restrictions. This could keep the price of oil and gas permanently high. This is a further sign of the loss of US hegemony and the break-up of the neoliberal order.
The new inter-imperialist rivalry is no longer restricted simply to the confrontation between a US-led Western alliance, on the one hand, and China and Russia on the other. Imperialism is a system of global economic competition that erodes and reforms all (temporary) political alliances. It is now clear that there are emerging, sharp contradictions between US capitalism and its erstwhile allies – UK, EU and Japan. There is also a clear break coming with Saudi Arabia.
The long failure to eliminate the capitalist-imperialist system could have dire consequences. The clear danger for an impatient left is to take sides with one camp or another rather than trying to eliminate the whole system once and for all.