AYABONGA CAWE: Where will weaponised supply chains take us?

Beijing’s retaliatory response to US president Donald Trump’s “Liberation Day” tariffs on Chinese imports, and further export controls by both sides, paint ominous strokes on what might soon be the bloody canvas that is the global trading system.

While the dilemma may seem to flow from the unilateral actions of the US, it is the chronic oversupply in key product markets that makes episodic trade fallouts inevitable. The Americans have suggested that their national security concerns arise from product-level practices foreign producers engage in.

These “distorting” nonmarket practices — as suggested in a recent White House release on processed critical minerals — include “price manipulation, overcapacity and arbitrary export restrictions”. In the case of overcapacity, numerous investigations by the SA trade regulator have shown that unfair pricing and import volume pressures extend to other product markets as well — steel, tyres, glass and polymers.

Overproduction is not a solely Chinese phenomenon. Nor is it only prevalent in goods where scale economies make inventory pile-ups inevitable. American and European subsidies create similar gluts in key agricultural product markets, speculatively inflating land values and creating rapid production growth, while household and industrial demand battles to keep up.

Elsewhere, fisheries subsidies have yielded considerable overfishing of rapidly depleting marine stock, gluts in shipbuilding industry and numerous other ecological sustainability risks. European and some South American nations have seen their levels of industrial subsidy support more than double from where they were two decades ago, according to the OECD. Meanwhile the value of production covered by these has seen a nearly fourfold rise.

The upfront capital costs associated with a minimum viable-level production run for key capital goods manufacturing plants require, in some cases, a scale of production that no one nation-state can fully absorb in demand. The degree of specialisation associated with production under capitalism, involving as it does a deepening use of machinery and technology, and the deployment of scientific advances to expand productivity, leads to a “mountain of increasingly unsaleable goods”, as Belgian economist Ernest Mandel observed.

As productivity is enhanced this occurs without regard to the distribution of spending power to actually buy the stuff that is produced, or other limits occasioned by “geographic” barriers, buyer power in global value chains or consumer preference.

While China indicated in a recent white paper that it is open to discussions on industrial subsidies and their impact on chronic overcapacity, Beijing has suggested that such discussions ought to respect “the economic systems and development paradigms of [World Trade Organisation] member states”.

Will the monopoly profits or policy rents arising from tariffs be reinvested in manufacturing productivity enhancement?

However, it feels that the use of unilateral measures, ostensibly against overcapacity, creates a self-fulfilling prophecy. Further, the Chinese suggest that market equilibrium (where supply neatly meets demand) is a “transient and relative state”, whereas the disequilibrium characterised by overcapacity is “pervasive and dynamic”. Notwithstanding this ambiguous statement, it seems the Chinese do recognise overcapacity, whether episodic or chronic. 

Recent reports from the Chinese National Development & Reform Commission, Beijing’s planning super-ministry, refer to commitments to regulate crude steel output by reducing output in steel, and the orderly development of the new energy vehicle, lithium-ion battery and solar industries.

It seems in America to be an age-old political economy question regarding the welfare and distributional implications of tariffs as a form of monopolistic quasi-rents benefiting specific groups within that economic system. Will the monopoly profits or policy rents arising from tariffs be reinvested in manufacturing productivity enhancement?

Or, as the record of deepening financialisation and shareholder value maximisation in that nation shows, will they be spent on generous dividends, share buybacks or the repatriation of profit? 

Making sense of come duze diplomacy is to recognise in this particular phase of the global trading system that a competitive struggle over where to transfer slack or excess capacity or capital is under way.

It is a battle that has weaponised supply chains, and it is concerning that economic history tells us that while it may focus on the ports, it has more often than not ended in the garrisons. 

• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.