The intertwining of geo-politics and a new economic order

The heads of adaptation can be easily summarised yet the final meaning of these remains obscure. Much news is driven by the media flying kites triggered by politicians for advantage. No strategy of response can yet be regarded as fixed in stone. The system is in position-taking mode as the facts are analysed. More apocalyptic observers seem to think that Washington’s neo-mercantilism and radicalism will not merely break the system in order to build a new one (causing major disruption but ultimately something more effective) but that it could break the only system that they believe works – the neo-liberal globalised structures around which most transnational corporation and national economic strategies have been built. In a worst case scenario (people seeing their world implode tend to pessimism), there is talk of a possible crash in the US, something as bad as 2008 or worse rippling across the world. There is, in fact, little evidence for this at the moment. But let us look at some of the apparent consequences of American neo-mercantilism.

The robust approach of Washington to the Western alliance comprises two parts. The first is making it clear that there will be no more-free-riding on the American taxpayer or at the expense of the American debt burden. This means that other members of the Western alliance either have to accept the ideology of external threat and transfer scarce resources to their own militarisation or to ‘reconsider their position’ on threats and come to terms with apparent opponents like Russia in order to avoid such expenditures. The first is the preferred model of ‘liberal’ elites because they have nowhere else to go politically. Yet (in Europe rather than East Asia) these allies are faced with the fact that their economies are under pressure and their populations are discontented. Shifting funds from welfare and social cohesion and from possibly sacred cows like Net Zero will have political consequences. It is an open issue whether elites are capable of managing these tensions.

This situation could be made much worse by a peace deal forced on Ukraine by the US. For all the rhetoric, the Western European allies are in no position to sustain even a ‘peacekeeping force’ let alone much more of war in the East without full American backing as they try to reform their currently weak defence postures. Washington is making it clear that it wants peace on terms that are going to be seen by most Europeans as a defeat. Compounding this crisis of confidence, Europeans are having to confuse militarisation with their real concern – how to create non-inflationary growth. Dealing with deindustrialisation through militarisation becomes more problematic if the threat on which it depends starts to cease to be a threat or if Europe begins to need Eurasian cheap energy again and the sanctions regime crumbles. In addition, the funds for militarisation are still not in place. Militarisation is a project that may take many years to fulfil.

The second part is the commitment to ‘sphere of influence’ thinking and a return to the ‘realism’ that has been normal in international affairs historically but is often interspersed by surges of ‘ideology’. The ideology of liberal internationalism with its Green, diversity, human rights and other elements within a panoply of coalitional beliefs is crashing and burning as the US withdraws funds from the machine. Allies are not able to pick up the pieces in the same disciplined and effective way. The US really does not care what the world thinks of it in its three core zones of interest – North America from the Panama Canal to Greenland, the Middle East centred on Israel and ‘Space’ with its huge economic potential. Exactly what this means for the East Asian front line against China is unclear as yet but it is probable that this will be the fourth zone of interest involving a much more long term and complex negotiation with China.

Tariffs play their role here because this is where they are most obviously used to negotiate outcomes. We saw pressure on the Panama Canal result in a pro-American ‘private sector’ solution. We have seen pressure on Denmark over Greenland which is in no position to defend the territory and cannot expect Europe to go to war in its defence even if US troops landed there and Article 5 of NATO was invoked against one of its own members. Washington is insulting Canada almost daily although there seems to be more mutual respect in relation to Mexico. The Canadian response is to try to create a CANZUK alliance of the Old British White Empire and to draw close to the Europeans but this is like ‘water off a duck’s back’ to Washington. The reality is that the Starmer Government can co-operate on such projects to a certain extent but its entire strategic position – intelligence, nuclear, integrated arms sector – is far more dependent on Washington than most people appreciate. It is essentially a strategic colony.

Worse, the British economy is in seriously bad straits now. Growth is not returning. Interest payments on debts are far too high as are energy costs. National infrastructure is crumbling. In some desperation, a deeply unpopular but constitutionally secure Government is undertaking major fiscal attacks on the most vulnerable in society and unravelling its own State structures at the lower level while promising funds for a war in the East that may prove a futile waste of money. Worse, even the British military are indicating that the madcap Ukrainian strategies of the Government are not feasible with the resources devoted to the military. The Government has the difficult choice of cutting the welfare state to the bone in order to placate its right wing militarist and Net Zero factions or giving up on its whole Great Power schtick. All this is in the hope that growth will return sufficiently to give them another four or five years of power at the end of the decade.

Tariffs come into play here because the UK is highly dependent on selling into the US economy. It cannot easily break back into the European market without triggering a political crisis at home as the right populists dig deeper into Labour territory. Unimaginative European technocrats remain as ‘dog in the manger’ as they were before 2016. Britain is thus in serious danger of a) facing a tariff war on two fronts if tariffs became an issue between Europe and the US and b) risking its overall strategic position if it alienates Washington. Worse, what America will expect in return for free trade will be politically very difficult and will go far beyond the symbolic ‘chlorinated chicken’ issue. If there is a failure to stop US tariffs against the UK, then the risk is that large amounts of British industrial capacity will simply transfer to North America. This, after all, is one of the main aims of neo-mercantilism – halting the offshoring of American jobs. To make an exception for the UK requires more sentimental attachment than Trump and his team probably possess and the UK is not in a great bargaining position except as Airstrip One.

The reality is that Washington is now announcing win after win of re-shoring and of corporations domiciled overseas promising to invest in and build capacity in the US. Moreover, by abandoning Net Zero, the Trump Administration is strongly indicating that a key cost element for industry (energy) which has been the root cause of German de-industrialisation and a growing threat to British capacity will not be a problem for incomers. This is particularly important in relation to the energy-hungry new digital technologies which the UK needs to lead on or die. Only France appears to have invested sufficiently in energy through its nuclear programme to be able to hold out against this trend. This might help explain Macron’s aggression in challenging American hegemony in the arms sector and as the leading voice for European rearmament (which Germany has now followed as part of its re-industrialisation strategy).

So, to summarise a complex situation, exactly what Trump’s final tariff position will be remains uncertain precisely because tariffs are both an economic programme directed at domestic political concerns and a political programme directed at economic and geo-strategic advantage internationally. Where we seem to be heading is a risky gamble (which appears to be paying off) that production will be pulled back into the US on the back of low energy costs and of a skilled and productive work force with low welfare costs. The rest of the world will either have to compete on those terms or submit to Washington’s geostrategic demands in return for access to the market or find new and different socio-economic and political models as China and Russia have done or, of course, create some competitive advantage in some areas of high value where the US cannot compete and these are likely to be high energy users.

In other words, instead of a system in which the US was hegemon but was stretched to the limit and which benefited a growing trans-national middle class committed to ‘globalism’, Trump’s neo-mercantilism is directed only at the productive potential of America in an unequal society but one which is geared to working class employment and ‘absolute wealth’ with plenty of room for billionaires. The consequence is problematic for Europeans, Canadians and the British in particular (less so for naturally communitarian East Asians) because their stark choice is to reproduce the American model through integration of their markets over and against Washington (risking social cohesion and even potential civil strife) or to move towards other models which may go against all the instincts of current ruling elites. Elite and mass interests are likely to diverge. In the end, things may settle down and compromises emerge but the strategic position is changing. There is probably no going back.

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