Sociology

Xenophobia is on the rise. Globalization is dead. War is looming. To

many, these troubles trace to Donald Trump’s unexpected victory and

will end when Trump and his Republican allies are voted out. But will

the “good old days” return? Yes and No.

Sure, the endorsement of hostilities towards minorities and

immigrants, the misogyny and indecency associated with a particular

president will recede when that president is gone. But the rage

among the working class, credited with electing Trump, will remain.

contexts.org40

GLOBAL CAPITALISM IN THE AGE OF

by ho-fung hung

41S U M M E R 2 0 1 8 c o n t e x t sContexts, Vol. 17, Issue 3, pp. 40-45. ISSN 1536-5042, electronic ISSN 1537-6052. ©2018 American Sociological Association. http://contexts.sagepub.com. DOI 10.1177/1536504218792525.

Trump’s conviction that America should be de-globalized through

tariffs and withdrawal from trade deals is shared by progressive

Democrats like Bernie Sanders and Elizabeth Warren. Trump’s

assertive stance on China and Russia is hailed by foreign policy

hands across the aisle, too. In many ways, Trump is a catalyst,

accelerating but not starting trends in U.S. and global capital-

ism that have been rising for some time. We cannot tackle

the crises of our times without contemplating these trends in

broader context.

Plenty of people on the left and the right agree with the

judgment that “America is in decline” underlying the “Make

America Great Again” slogan. While left-leaning intellectuals

posit inevitable decline and suggest the U.S. facilitate a peace-

ful transition to a post-American world order (see, for example,

the recent book The Shadows of the American Century), leaders

on the right blame America’s decline on the corrupt elite and

support a leader who will stand firm against foreign powers.

The Trump campaign successfully linked decline discourse to job

insecurity and falling living standards among the working class

in the nation’s industrial heartland, thus securing votes. And the

Trump administration’s early foreign policy approach has been

characterized by attempts to de-globalize the U.S. economy and

displays of dominance among world powers including China

and Russia. Where did these policy shifts originate? What will

they bring for the U.S. and the balance of global power? And

will they last after Trump?

misplaced anger at globalization The idea that trade globalization has killed off high-paying,

stable factory jobs by incentivizing manufacturing offshoring

partially explains why working-class families in the rustbelt

have been attracted to Trump’s “MAGA” slogan and free

42 contexts.org

trade-busting rhetoric. It is also why left-wing politicians like

Bernie Sanders have hailed Trump’s withdrawal from interna-

tional trade deals.

Some studies, including Daron Acemoglu and colleagues’

2015 Journal of Labor Economics study, confirm that free trade

in general and trade with China in particular bring significant

manufacturing job losses in the U.S. But comparative analyses

show that this de-industrialization effect of globalization is

not universal. Whether globalization jeopardizes employment

of the working class depends, the OECD reported in 2012,

on the state’s industrial and employment policy. In particular,

studies published by IZA Institute of Labor Economics and the

University of Goettingen have found that globalization actually

helps stabilize manufacturing employment in Germany. In the

U.S., what makes globalization “bad for workers” is instead

traced to policies weakening organized labor since the Reagan

administration.

The 1970s were the peak of organized labor’s power

under American capitalism. Union power generated a crisis of

capitalist profits and brought about a long rise in wages that

precipitated a wage-price spiral. Scholars from the OECD and

U.S. Chamber of Commerce had known since the 1960s that

union power was a root cause of high inflation, and even recent

cross-national quantitative analysis verifies that inflation in rich

capitalist democracies has been driven primarily by the power

of organized labor in 1960-2009 (see my 2016 American Socio-

logical Review piece with Daniel Thompson). The stagflationary

crisis of the 1970s was more a crisis of capital than a crisis of

wage earners, whose wage increase was indexed to inflation

under union contracts. Inflation devalued the debts owned by

many working families while eating up creditors’ interest income

and badly damaging financial capital. As such, on the right, the

‘70s-era battle cry for a “war on inflation” was actually a call for

reining in organized labor. New Right leader Barry Goldwater,

advised in his 1964 presidential campaign by famed economist

Milton Friedman, postulated in a 1970 speech that “higher and

higher union wage hikes” had led to “union privilege distorting

a nation’s economy” and could be blamed as the “root cause

of the present price inflation.”

As the nation moved into the 1980s, Paul Volcker’s Federal

Reserve, backed by Reagan, finally tamed inflation through a

radical tightening of the money supply. A recent investigation

into Fed minutes by Michael A. McCarthy for Jacobin finds

that bringing down employment and the bargaining power

of organized labor as a way to terminate the wage-price spiral

was a conscious consideration behind the Fed’s aggressive credit

tightening campaign. But monetary contraction is only one of

the many means the Reagan administration leveraged to restore

capital’s power over labor. In 1981, Reagan spearheaded the

crackdown on unions by firing 11,000 striking air traffic control-

lers and outlawing their unions (McCartin’s 2011 Collision Course

is a great read on the topic). The federal government began to

deregulate employment relations, and leaders brought liberaliz-

ing world trade onto the agenda as a way to bring in competition

from low wage countries’ labor. These were all tactical moves

within the grand strategy to disempower organized labor.

Dismantling union power as a remedy for high inflation

was sanitized and depoliticized, called just a “technocratic

move” by central bankers optimizing the operation of the free

market by adjusting monetary supply under Milton Friedman’s

theory (which had guided the Fed’s aggressive tightening under

Volcker). From the 1980s on, inflation remained low in the

U.S., even in times of great monetary and fiscal expansion. Still,

weak inflation is a manifestation of weak

labor and weak wage growth. Chronic low

inflation would go on to encourage lax

monetary and fiscal policies in the 2000s.

As the political strength of capital com-

bined with labor weakness, the flood of

easy money no longer fueled wage growth

but financial and real estate bubbles, bring-

ing an era of job insecurity, rising income

inequality, financial volatility, and unsustainable household debt,

particularly after the bursting bubbles in 2008 (see Conrad Jac-

ober’s entries on consumerism, financialization, and household

debt in The American Middle Class: An Economic Encyclopedia

of Progress and Poverty).

So if a sense of insecurity and falling living standards helped

elect Trump, it cannot be blamed on globalization, but on the

long effort to disempower organized labor. Mediated by this

disempowerment, globalization has accelerated the exodus

of manufacturing jobs to low-wage countries, rather than

expanding, as in Germany, export-oriented manufacturing,

industrial upgrading, and worker retraining. Even if the Trump

administration’s de-globalization policy proves to be more than

just empty rhetoric, it is unlikely to elevate the living standards

of the working class.

If a sense of insecurity and falling living standards helped elect Trump, it can be blamed on the long effort to disempower organized labor.

43S U M M E R 2 0 1 8 c o n t e x t s

fragmentation of global capitalism If Trump’s efforts to de-globalize the American economy will

not improve the standing of the working class, what will it do?

One possibility is almost a cliché: with the U.S. retreating from

globalization, other countries, most notably China, will come to

lead globalization. That is, globalization will go on without the

U.S. But the reality is that expansion of global free trade since

the 1980s has been largely driven by American consumerism.

Globalization will be hard to move forward without American

consumerism and markets open to the world. It will be a long

time before any other major economies

could take the place of the U.S. in leading

globalization.

For decades, the U.S. has been run-

ning the largest trade deficit with the

world, while many other major economies

like Germany, China, and Japan have been

running trade surpluses. Opening its own markets for foreign

manufactured exports in exchange for its trade partners’ open-

ness to American capital, the U.S. birthed the global supply

chain network, the bedrock of globalization over some 30 years.

Export-oriented economies imported raw materials and compo-

nents from around the world, turned them into final consumer

products, and sent those products to the U.S. for consumption

(“the consumer of last resort” in the global economy). Lowering

tariffs on imports from other economies was among America’s

main tools for drawing other countries into global free trade. As

the figure above shows, in 2016, the three largest economies

behind the U.S.— China, Japan, and Germany—all participated

in the global economy as net-exporters or “surplus economies,”

meaning their productive capacity outmatched consumption.

Economist Michael Pettis, in The Great Rebalancing, argues

convincingly that these imbalances between production and

consumption are rooted in these nations’ deep-seated insti-

tutional structures, biased toward saving and investment over

consumption and bolstered by heavy value-added taxes.

The gigantic American trade deficit is likewise rooted in the

historical-institutional setting of our nation’s political economy.

The U.S. is unique among advanced capitalist economies, politi-

cal sociologist Monica Prasad writes in The Land of Too Much,

in that its tax system promotes consumption and represses sav-

ings by foregoing federal-level sales tax and offering myriad tax

deductions for specific kinds of consumption. This unique fiscal

The U.S. is unique among advanced capitalist economies in that its tax system promotes consumption and represses savings.

Currency composition of allocated official foreign exchange reserves around the world as of 2017 Q4.

Source: IMF

USD

EUR

JPY

GBP

others

CAD

AUD

CNY

CHF

-800 -600 -400 -200 0 200 400

United States

United Kingdom

India

Turkey

Philippines

France

Egypt, Arab Rep.

Pakistan

Algeria

Canada

Japan

Saudi Arabia

Italy

Singapore

Russian Federation

Netherlands

Ireland

Korea, Rep.

Germany

China

Balance of trade in goods of top 10 surplus and deficit countries as of 2016 (in billion current USD)

Source: World Bank

44 contexts.org

structure originated in the late-19th century, when Midwestern

farmers and others experienced an agricultural productivity

boom that fomented an overproduction crisis; the Federal gov-

ernment then instituted consumption encouraging policies to

alleviate the price strain in agricultural markets.

Even as the American fiscal system promotes consumer-

ism, the status of the U.S. dollar as the top global reserve and

international transaction currency since the 1950s allows—and

demands—that the U.S. run large account deficits with other

countries. The dollar’s dominance remains unchallenged today;

even the euro ranks a distant second, as seen in the pie chart

on p. 43.

This global dollar standard and the demand for U.S. dollars

throughout the world economy give the U.S. the exclusive privi-

lege to borrow internationally in its own currency at low interest

rates. Yet to maintain the dollar’s grip of the world economy,

America has to supply the world with sufficient liquidity. This

has meant a massive monetary outflow—essentially, chronic

and enormous U.S. deficits are not only tolerated but desirable.

The U.S. has become the leader of globalization by con-

suming beyond its means over several decades; if the world is

to continue advancing globalization without the U.S., other

economies will need to boost their consumption. Consumption

has been rising in China, but increases in production capacity

always outpace it, so China and other major economies would

have to painfully rebalance their economies, converting export-

led growth to consumption-based growth with fundamental and

politically difficult redistributive reform. Otherwise, the world’s

economy will be left with a lot of large exporting countries and

not enough importers. Because the circuit of global trade would

simply fall apart in such a scenario, we can expect that a de-

globalized U.S. will result in a more fragmented global economy.

intensifying inter-imperial rivalry For more than three decades, an integrating global econ-

omy has held both new and old great powers together and

contained their mutual animosity. One plausible consequence

of a fracturing global economy is the intensification of conflicts

among world powers. Consider that, when globalization was

advancing in full force in the first decade of the 21st century,

the U.S. was at war in Afghanistan and Iraq. Many believed the

U.S. was transforming itself into a universal global empire in the

absence of competing empires after the collapse of the Soviet

Union. International politics monographs and articles with the

words “empire” or “imperialism” in their titles rose markedly

in the early 2000s. A unitary empire only needs to defend the

universal order against the rebels in the provinces or “barbar-

ians” at the empire’s fringe.

But just as the U.S. was preoccupied in its imperial adven-

ture in West Asia, regional powers, most notably Russia and

China, started to tighten their grips on their respective spheres

of influence, checking American power. Vladimir Putin’s Russia

bullied and annexed territories from former Soviet republics that

embraced the West like Georgia and Ukraine. China militarized

international shipping lanes in the South China Sea despite com-

peting territorial claims from its neighbors (many of whom have

been American allies). Further, China’s recently announced “Belt

and Road Initiative” manifests Beijing’s intention of expanding

its sphere of influence deep into Central Eurasia and the Indian

Ocean.

In the last 15 years, the rapid integration of the global

economy and the perceived urgency of recovery from 2008’s

global financial crisis have prevented the George W. Bush and

Barack Obama administrations from taking

hardline approaches to bellicose powers.

The inauguration of the G-20 Summit in

2008, in particular, aimed at inviting rising

powers into a new multilateral order gov-

erning the global economy, despite signs that America’s military

and foreign policy establishment had begun to grow impatient

with challenges from Russia and China.

In the age of Trump, the American response to Russia

and China is unchecked by globalism. The U.S. Department

of Defense stipulated in the January 2018 National Defense

Strategy that its priority would shift from the War on Terror to

countering China and Russia, two “revisionist” powers that

allegedly coerced neighboring countries and challenged Ameri-

can global primacy. The unilateralism in the George W. Bush

era prioritized military action against small “failed states” and

insurgents in the developing world, but this white paper pres-

ages preparation for war with large regional powers. We are

witnessing, in short, the emerging clash of three empires: the

U.S., China, and Russia.

This shift is hardly an aberrant move initiated by Trump, as it

clearly deviates from the isolationist rhetoric and alleged affinity

with Putin’s Russia of his campaign. In fact, in February 2018,

two senior foreign policy officials from the Obama era admitted

in Foreign Affairs that the longstanding conciliatory approach the

U.S. has taken toward China was wrong and expressed support

for the new administration’s more confrontational tendency.

And critics of the Trump White House’s relationship with Russia

We are witnessing the emerging clash of three empires: the U.S., China, and Russia.

45S U M M E R 2 0 1 8 c o n t e x t s

worry only that the president is too soft on Moscow, not that

he is too tough. The country’s rising assertiveness against China

and Russia reflects a changing, bipartisan consensus among

political elites.

China and Russia are not likely to dial back their regional and

global ambitions, as their expansionary drive is deeply rooted in

their domestic political economies. China’s ambition in projecting

its political and military powers overseas follows the classic path

of “spheres of influence” making as outlined in Vladimir Lenin’s

Imperialism, The Highest Stage of Capitalism (1917): domestic eco-

nomic crisis in capitalist countries will drive profit-seeking export

of capital, in turn drawing the home state to project power and

protect the circuit of capital accumulation overseas.

In contrast, the resurgence of Russia’s global imperial reach

in Eastern Europe and the Middle East, as shown in its successful

encroachment of Georgia and Ukraine and its effective protec-

tion of Syria’s Assad government, is driven less by economic

imperatives than by what Max Weber, quoted in his discussion

of imperialism in From Max Weber: Essays in Sociology, called

“sentiments of prestige” (the will to status and honor) and the

new tax bases of the state elite. Russia is a major gas and oil

exporter with few obvious economic interests in the Middle

East beyond arms sales; its flexing of muscle there is more a

nationalist, territorialist quest for a return to past glory as a seri-

ous contender to the U.S. global empire. Given the lackluster

Russian economy, only seeking nationalist glory can provide Putin

a source of legitimacy.

a new age of uncertainty Under Trump, the world is dangerous. But this is not

because Trump himself is a dangerous person. Rather, many

destabilizing long-term trends in global capitalism are accelerat-

ing and converging at this particular juncture of world history.

U.S. de-globalization will not end the plight of the working class

or the war on organized labor. Whether working class grievances

will be further exploited by White nationalism or channeled by

a new social-democratic and labor movement into progressive

reforms is uncertain.

Still, globalization cannot march on if the U.S. truly with-

draws from free trade. No alternative world power is ready to

take its place any time soon. The subsequent fragmentation of

the global economy will lay bare the intensifying inter-imperial

rivalry among the U.S., China, Russia, and their respective allies.

The questions we will need to ask and answer through action are

whether these interlocking trends will accelerate toward major

world conflict, whether the trends will continue beyond Trump,

and whether there are moderating forces that might effectively

temper inter-imperial conflict.

recommended readings Daron Acemoglu, David Autor, David Dorn, Gordon Hanson, and Brendan Price. 2015. “Import Competition and the Great U.S. Employment Sag of the 2000s,” Journal of Labor Economics 34(S1):141-198. A quantitative study showing how manufactur- ing offshoring and China’s imports drag down American manu- facturing employment.

Ho-fung Hung and Daniel Thompson. 2016. “Money Supply, Class Power, and Inflation: Monetarism Reassessed,” American Sociological Review 81(3):447-466. Shows how inflation rates in OECD countries from the 1960s to the 2000s were determined mostly by ups and downs of the power of organized labor vis-à- vis capital.

Maren Lurweg and Andreas Westermeier. 2010. “Jobs Gained and Lost through Trade: The Case of Germany,” Center for Euro- pean, Governance and Economic Development Research Discus- sion Papers 95, University of Goettingen, Department of Eco- nomics. Demonstrates that globalization does not lead to decline of manufacturing jobs in Germany, instead helping retain many of those jobs.

Michael Pettis. 2013. The Great Rebalancing Trade, Conflict, and the Perilous Road Ahead for the World Economy. Princeton, NJ: Princeton University Press. An analysis showing that the source of global economic imbalance and institutional root of undercon- sumption in export-oriented economies requires difficult reforms.

Monica Prasad. 2012. The Land of Too Much: American Abun- dance and the Paradox of Poverty. Cambridge, MA: Harvard University Press. A socio-historical analysis of how and why U.S. political economy uniquely favors consumption compared to most other advanced capitalist economies.

Ho-Fung Hung is a sociologist at Johns Hopkins University. He is the author of The

China Boom: Why China Will Not Rule the World. He is currently researching on the

political economy of U.S.-China relations since the end of the Cold War.