By any rational measure you might assume that a dominant sentient species when faced with global threats would pull together, pool resources and information and search for a mutual solution to the problem. But the coronavirus pandemic has confirmed what the climate change crisis already told us: that capitalism, even in its “globalised” form, is fundamentally unsuited to producing a coordinated response to tackle anything. On the contrary Covid-19 has been weaponised (as the pundits of the capitalist press like to say) as part of an intensification of imperialist rivalry in the competitive struggle between the two leading imperialist contenders.

In an article on this confrontation back in 2018, we wrote:

A major crash wiping out trillions of dollars would lead to a very deep depression and it’s difficult to predict what the social consequences of this would be for capitalism. And with all other options exhausted, the prospect of global imperialist conflict will be all the closer. The current USA-China rivalry will be the axis around which any conflict will take place.

Although not exactly a crash in the conventional sense, Covid-19 has already delivered a similar shock to the global capitalist system. One big enough to drive it into recession. Precisely how this will pan out in the end is difficult to say at this stage but “the future” seems to have suddenly got a lot closer. Last week the Chinese Communist Party condemned the European Union for trying to start “a new cold war”. In fact this cold war really started some years back. What is now happening is that this “cold war” is hotting up as a consequence of the virus.

Since the 1980s the restructuring of manufacturing in the West and the transfer of Western capital (mostly via banks in Hong Kong) to the low wage factories set up in China were the major response to the crisis of capital accumulation which had plagued the world economy since the end of the post-war boom at the end of the 1960s. The Chinese Communist Party, ever seeking to bolster its legitimacy, was only too happy to partially open its economy to Western capital. “Socialism with Chinese characteristics” would really be state capitalism in alliance with Western capital. The situation seemed a win-win for both parties. Chinese growth rates were as rapid as any in the history of capitalism, whilst cheap Chinese commodities helped cushion the blow to the fall in income of workers in the West (which have declined or at best remained stagnant since 1979). Underlying it all however was the deregulated finance that the West went for to allow banks to fund all kinds of investments and speculation. The consequence was the increase in indebtedness of many of these workers as they took on loans and mortgages while banks stopped even checking to see if they could repay. The subsequent collapse of the sub-prime mortgage market sparked the financial contagion which led to the 2007-8 financial meltdown. This turned out to be both an economic and political turning point in international relations.

Whilst in the West the banks were deemed “too big to fail”, and so were bailed out, in China the recognition that external markets were failing led to a massive injection of capital to stimulate the internal market. Both policies saved the system but at a cost. In the West a decade of austerity actually made the position of the working class even worse whilst Chinese growth rates have never recovered to the levels of the early years of this millennium and China now accounts for more than half of the world's debt. In fact all that has been accumulated throughout the world are trillions of dollars in sovereign and personal debt. The system has limped on for the last 12 years in what Larry Summers has called “secular stagnation”. Or, as we have put it many times, they have stumbled into a new crisis without having fixed the last one.

The Impact of Covid-19

Which brings us to Covid-19. As we wrote in Reflections on the Coronavirus the economic picture has dramatically worsened. China’s growth rate had plunged to the lowest rate of increase in 27 years but the US is in no better shape.

China is economically on its knees. The latest data on the increase in GDP there gives a paltry 2.8%. The US is up to its ears in debt and deficit financing. It only survives by virtue of the supremacy of the dollar and the most powerful army in the world.

In the face of the virus all the major powers have been “slow to react”. The reason is not hard to divine. All of them are worried about the damage to already fragile economies that would result from taking effective health measures. Policy was all about protecting their wealth rather than our health. It is no accident that smaller states like Ethiopia, Taiwan or South Korea, who are not high up in the imperialist pecking order, were the most effective in dealing with the first signs of infection. It also helped some of them that they had already seen, in recent years, other flu and coronavirus epidemics. They already understood that if they did not act immediately on the health issue (containment) later action (mitigation) would be even more damaging to the economy.

For the two greatest rivals on the planet, China and the US the pandemic has however become a war of words. Trump spent weeks calling it “the China virus”, and his Secretary of State, Pompeo, still does. Both sides have their own conspiracy theories which accuse each other of manufacturing the virus in a lab before unleashing it on an unsuspecting world, despite the fact that not a shred of scientific evidence exists for these theories. Not that this will concern either side. It's all part of a wider battle which began back in 2012.

From Globalisation to World Power Struggle

Until then the Party had largely stuck to the stealthy policy of growth enunciated by Deng Xiaoping. One of his permanent axioms after 1978 was taoguang yanghui ("we should conceal our capabilities and avoid the limelight"). In 1990 he still maintained that China had to be cautious in international relations:

We do not fear anyone, but we should not give offence to anyone either. We should act in accordance with the Five Principles of Peaceful Coexistence and never deviate from them.

A couple years earlier Paul Kennedy in his The Rise and Fall of the Great Powers noted that Chinese defence spending had been falling for the 15 years before 1985 (at a time when the attempt to maintain the arms race with the US was bringing the USSR to collapse). He went on though to predict that it would not last. Quoting the Economist that

For [China’s] military men with the patience to see [economic] reforms through, there is a payoff … 10 -15 years down the line the civilian economy should have picked up enough steam to haul the military sector along more rapidly” he concluded that “It is only a matter of time.”

In fact the Economist prediction turned out to be pretty accurate. Since 2000 the official military budget of China has skyrocketed. Since 2008 it has tripled in size. Additionally the real expenditure is estimated to be much higher as some expenditures are hidden in the budgets of other departments.

However, there was at first no discernible shift in the policy of trying to promote soft power and influence across Asia and Africa. That began to change when the Obama Administration announced in November 2011 that the drawdown of troops from Afghanistan would allow the USA to “pivot to Asia”, something confirmed in the January 2012 US military budget. Later that year Xi Jinping came to power in China using the increasingly repeated slogan of the “great revival of the Chinese nation”.

Over the next few years his crackdowns on corruption and dissent helped him to consolidate power by removing rivals. In 2013 he had also become President of China whilst in 2017 he had become the most powerful Chinese leader since Mao Zedong by removing any limit on his term of office. At its 19th Congress last year the Chinese Communist Party (CCP) even wrote his name into the party constitution. Enshrining "Xi Jinping Thought", based on the “original aspirations” or chuxin of Mao, in that document means that any challenge to the President is now a threat to CCP rule.

At the same Congress, Xi outlined two grand objectives: from 2020-35, China will become a “fully modern” economy and society; this to be followed by a further 15 years to 2050, when China’s quest for national wealth and power will come to fruition as it assumes great power status. What all this really meant was that China was openly declaring a direct challenge to the US.

Well before Trump arrived on the scene relations were deteriorating. In 2015 Xi Jinping assured Obama that China would not militarise the artificial islands it was building in the South China Sea. Satellite photographs of Subi Island a year later showed an airstrip guarded by anti-aircraft and other weapons systems. On top of this open lie, the tolerance of Chinese industrial espionage or technology transfer demands, which were previously seen as a cost of investing in China, now became a much more negative factor for US bosses. Trump was thus able to portray the whole globalisation scenario as one where cheating China had “stolen US jobs”.

Obama and Hilary Clinton had also promoted the Trans-Pacific Partnership (TPP) with 10 other countries as a direct counter to Chinese influence in East Asia and beyond. Trump’s first act though was to pull the US out of the TPP (for no other reason than it was an Obama policy) thus gifting the lead in international cooperation in the region to the Chinese. China already had persuaded many US allies (including Britain) to sign up for its Asian Infrastructure Investment Bank and in 2017 formally launched, to great fanfare, its Belt and Road Initiative which threatens to turn Eurasia into China’s economic dominion.

Trump’s “America First” makes this even more feasible. Under Obama the US had played on its traditional strength as the leader of the “free world” which in the long run could marshal allies against a relatively isolated China. Trump, though, took to berating NATO partners for not paying their way, and threatened a trade war with Europe similar to the one he was touting on China. This did much to undermine US influence and some European states have even openly sought closer relations with China in recent years. The trade war Trump launched has not even achieved what he intended. Not only has China reduced its investment in the US from $45 billion in 2016 to a mere $5 billion in 2019 with all the impact that has on jobs, but US manufacturing in January 2020 had fallen into its worst slump in a decade. This is not helped by the fact that every Trump utterance increases financial panic so there is a flight to the dollar which only makes US exports more difficult to sell abroad. With Covid-19 entering the scene the 20 month trade war was put on hold in January.

But the hostility has, if anything, only intensified.

Xi’s China

Xi’s rule in China has been accompanied by an extension of the power of the state and the CCP. Increased surveillance of citizens, creating a new “Great Wall” around the internet to control its traffic and the massive gulag that is Xinjiang to clamp down on Uighur protest are well-known facts of existence in China. They were most forcibly brought to the world’s attention when the regime attempted to get its puppet rulers in Hong Kong to accept a new extradition law.

The attempted introduction of this law last year led to massive protests (initially involving nearly a quarter of the territory’s population). These protests did not come out of a clear blue sky. The “umbrella movement” of 2014 had occupied parts of the city for 77 days in 2014 in opposition to the first interference in Hong Kong’s electoral procedures. It failed, but in 2015 five Hong Kong booksellers were “disappeared” for some weeks. Their crime was to sell books banned in the CPR containing details about the private lives of leading CCP members like Mao and Xi. This was a violation of Hong Kong’s limited autonomy and thousands demonstrated against the detention of the booksellers in 2016. These were the precursors to last year’s massive demonstrations against the formalisation of such extraditions. To be sure there were also social grievances of many young people in Hong Kong in those demonstrations. In the course of them graffiti appeared which equated “Chinazi” with “AmeriKKKa” but in the end the issue was about preserving or even restoring what was left of Hong Kong’s special status under the “one country, two systems” idea. The Chief Executive Carrie Lam was forced to rescind the extradition law but the protests continued around 5 democratic demands and the waving of the stars and stripes, before petering out as the coronavirus pandemic struck. But the demand for independence for Hong Kong has featured more and more as the struggle has gone on.

For the CCP Hong Kong poses a special problem. Two thirds of inward investment to China comes via its banking sector. Attempts to replace it with Shanghai and even Macau, have been of limited success. However, despite all the protests and violence of 2019, investment via Hong Kong continued to rise. This seems to have emboldened the regime to go further and use a loophole in Hong Kong’s Basic Law to impose a new security law on the territory on 28 May. This will ban any incitement to independence and can be used against almost any form of dissidence. It has put Hong Kong and the issue of democracy on the front line of US-China imperialist relations. The US has not been slow to use “the democracy card” to regain some of the initiative it has so recently lost and stitch back together a “western alliance”. It has now openly sided with last year’s demonstrations in Hong Kong “in defence of the rule of law”. In this it has found welcome support in the declaration from legislators in 23 countries condemning China for undermining the original UK withdrawal agreement. More concretely, the British government has now offered the visa free entry for 12 months to British National (Overseas) Passport holders. This carries the possibility of citizenship applications further down the road to 2.8 million in Hong Kong. The US has now threatened to end Hong Kong’s special trade relations with the US although it is not clear who that will hit most – China or Hong Kong. China has not been slow to retaliate in this propaganda war with reference to the current turmoil over racist policing in the US by repeating “I can’t breathe”.

But it is not the only issue which has stirred the imperialist pot. The propaganda war over the origins of the Covid-19 virus has once again involved trade. The drive for an investigation into the origins of the pandemic has been spearheaded by Australia with the support of 61 other states. But it has led the Chinese to show that it is not just Trump who can use economic power for political ends. China has already stopped importing barley and meat products from Australia and the mining industry, who back the Morrison government, are already worrying about their exports.

Taiwan and Missiles

All of these, though, pale by comparison with what has been happening in the South China Sea. For the last month the Chinese People’s Liberation Army (PLA) has been conducting a live fire exercise involving a battle group of ships based round their original aircraft carrier, the Liaoning. Whilst it has been doing this, the US has deliberately sent its warships to carry out “freedom of navigation” voyages through the seas off China on seven different occasions. The latest of these on June 4 coincided with the anniversary of the Tiananmen Square massacre of 1989. The Arleigh Burke-class guided missile destroyer, USS Barry, not only carried out a "freedom of navigation" operation in the South China Sea, but even launched a missile during its own live fire exercise. According to the Chinese propaganda outlet The Global Times it was then chased away by PLA ships but it seems more likely that it just sailed through despite the provocation.

The Barry might have been responding to another issue in dispute – the status of Taiwan. Earlier the same day the PLA released pictures of an amphibious assault by tanks on a beach on the coast of China opposite Taiwan. It also followed the swearing in for her second term of office of the pro-independence Democratic Progressive Party’s Tsai Ing-Wen as president of Taiwan on 20 May. These manoeuvres come in the wake of threats by top PLA general Li Zuocheng that if negotiations with Taiwan on reunification ultimately fail then they will “resolutely smash” the independence movement. He went on to underline the recent hardening of China’s attitude,

Today’s China is not the previous frail old China … We do not promise to abandon the use of force, and reserve the option to take all necessary measures to stabilise and control the situation in the Taiwan Strait.

Part of this new confidence comes from the fact that China, not being a signatory of the Intermediate-range Nuclear Forces (INF) Treaty, has been able to build up its intermediate range missiles over the last few years. The Treaty bans the development of any missile (whether nuclear or conventional) with a range between 500 and 5,500 kilometres. The US pulled out of the Treaty last August, citing the development of a new Russian missile as the cause. However the move also allows it to address the “missile gap” that it perceives with the PLA which is estimated to have over 2,200 missiles at its disposal, most with a greater range than those of the US. This year it completed building 80 new ships to add to its fleet (equivalent to the entire British fleet).

Backing this up is China’s satellite capacity. According to one defence publication this gives it a sophisticated system for targeting its weapons.

Some of China’s satellites include several payloads that are almost certainly for military purposes, such as electro-optical sensors, synthetic aperture radar and electronic intelligence technology. The country also uses a constellation of Naval Ocean Surveillance System satellites providing persistent coverage of water surrounding China. These capabilities can also support targeting for China’s anti-ship ballistic missiles, and with sufficient numbers and integration, they could provide real-time target triangulation data to build up a robust picture of a target’s location to ultimately generate a targeting approach.

This is the beginning of a new arms race and represents a real escalation of the rivalry between China and the USA. In global terms, as we have pointed out many times, the US faces no real military challenge to its power. However, raw military power is not all, as Iraq and Afghanistan so clearly demonstrated. Furthermore in regional terms China, at least on paper, has the firepower to contest its own backyard. Its DF-17 missile is said to be able to penetrate any missile shield the US might like to deploy. This in itself is a shift in the balance of terror in the region. For decades the US has had some 400 military bases in the Pacific, more or less surrounding China. Now it has begun to think of stepping up its strategy. No longer constrained by the INF Treaty it plans to equip its marines with Tomahawk cruise missiles as well as develop new missiles to re-establish its dominance in the Western Pacific.

The struggle for control of the seas around China is now well and truly on and the artificial islands which China has been building to assert its sovereignty over greater swathes of the South China Sea could become the next theatre of war. The Chinese can argue that all they are doing is building up their defence. They (so far) have no missile programme aimed at the US mainland although there is now talk of it. The Reuters report underlines though the threat that China feels from the US military presence in the region.

In a statement to Reuters about the latest U.S. moves, Beijing urged Washington to “be cautious in word and deed,” to “stop moving chess pieces around” the region, and to “stop flexing its military muscles around China.”

A further significant underlying factor is the realisation by both China and the US that they both need to step up production of semi-conductors. China has been trying to boost production for some time without notable success and the US produces only 12% of the world’s chips. Taiwan and South Korea supply both in huge quantities and thus sit in the middle of the “tech cold war”. TSMC, the Taiwanese foundry company that actually makes the chips to others’ designs, has recently been lured to the US to build a small plant in Arizona. One of TSMC’s biggest customers is Huawei and the suggestion is that this is to give them some compensation for cutting out at least some supplies to Huawei. This is definitely an area to watch.

And whilst tech competition ups the ante in East Asia, the rivalry is not just confined to the Chinese littoral. It is global. Whilst China was attempting to woo the disaffected members of the EU, like Italy and Greece to its side, Pompeo was rushing to Israel to ensure that a Chinese firm did not win a significant contract which was then out to tender. The Israeli coalition government did not disappoint its paymaster.

Barbarism or Socialism

We are entering new territory. We cannot yet know the outcome of the current recession brought about by the coronavirus pandemic. What we do know is that across the world states will keep on absorbing debt in order to hold the entire capitalist structure together. What seems certain is that a new centralisation and consolidation of capital will take place. This will cost jobs and thus make it easier for the system to ramp up its attacks on the working class in terms of greater exploitation and greater job insecurity. And it will still not be enough to revive profitability. This crisis may lead to the depreciation of many capitalist values but it will not lead to the “creative destruction” described by the Austrian economist Schumpeter (in his backhanded compliment to Marx’s analysis that periodic economic crises were absolutely essential to capital accumulation). In Marx’s times those crises, and the cycles of accumulation which followed, were relatively short, but in the post-1914 world the amount of capital that is involved is so massive that nothing less than the cataclysm of a war can destroy enough capital to allow a new cycle of accumulation to begin.

We have been at the end of such a cycle ever since the post-war boom came to an end in the 1970s. And though many commentators now scratch their heads at the way Trump is undermining the world order by pulling out of this or that treaty or this or that institution (today the World Health Organisation) the US has in fact been undermining the world order it set up at Bretton Woods in 1945 ever since 1971. One of Trump’s heroes, Nixon, simply abandoned the deal that the dollar would be pegged to gold, and ushered in a new situation which meant that the US did not have to cover its dollars with the gold in Fort Knox, but could print them for a world which felt compelled to take them. Adam Tooze, the current doyen of capitalist commentators, spells out how we got here.

If our own world has a historic birthplace, it was not in 1945 but in the early 1970s with the advent of fiat money and floating exchange rates. The unpalatable truth is that our world was born not out of wise collective agreement but out of chaos, unleashed by America’s unilateral refusal any longer to underwrite the global monetary order.

For nearly half a century the US has built up all kinds of deficits with impunity and there has been no single power in a position to challenge it. Now a new and more aggressive China is increasingly doing so and this coronavirus crisis has upped the ante. There are many who are claiming that the crisis is going to lead to a different world, a more caring, greener capitalism. Tooze, though lacking a Marxist materialist analysis, disabuses them:

The crisis goes deep. It is not surprising that there should be calls for a new institutional design. But we should be careful what we wish for. If history is anything to go by, that new order will not emerge from an enlightened act of collective leadership. Ideas and leadership matter. But to think that they by themselves found international order is to put the cart before the horse. What will resolve the current tension is a power grab by a new stakeholder determined to have its way. And the central question of the current moment is whether the West is ready for that. If not, we should get comfortable with the new disorder.

No prizes for working out who the “new stakeholder” might be. We are approaching a historical crossroads and it seems in the last few months at an increasingly rapid rate. If the working class is not stirred into further collective action across the globe soon then as we wrote in March:

… the solution of the solutions (the second) will be a "beautiful" war that would destroy everything in order to rebuild everything, giving the capitalist system the economic space for a new cycle of accumulation.

This will not be a regional war like those in Syria, Afghanistan, Yemen, Libya or the Sahel but one with global reach gradually embroiling much of the planet. It would be a worldwide conflict that would annihiliate everything so that it could be rebuilt yet again, through the capitalist cycle of accumulation.

The consequences are too horrendous to contemplate, but it is their creeping barbarism or our potential to create socialism that remains the historic choice. For our part we will continue to argue within the working class around the world that the only war worth fighting is the class war to bring down this infernal system once and for all.

Jock