“Carpet bombing” on global economy
Belarusian pundit on Caliber.Az

ANALYTICS  13 August 2023 - 13:22

In recent days, a number of news stories focused on problems in the world's largest economies — the United States and China. They were supplemented by news about the continuation by Washington and its allies of steps aimed de facto at reducing international economic ties. These trends are especially dangerous amid the current feverish rearmament of the world's largest countries, their increase in armies and the militarization of disputes. Losing trade and opportunities for cooperation, countries lose serious reasons that push them to search for compromises and non-forceful solutions.

Last week, one of the three leading international rating agencies - Fitch - lowered the US credit rating by one notch. From the highest AAA, it dropped to AA+ - due to the growth of the budget deficit and the national debt of this country, as well as the "deterioration in the quality of management" of the accumulated debt.

According to the agency, the standards of governance, including fiscal and debt policy in the US have been deteriorating for twenty years and there is no sign of a breakthrough in the coming years. Fiscal consolidation is not expected before the presidential elections in 2024. The problem of imbalance in the US state budget will also worsen, and its deficit may almost double within a year (from 3.7 per cent last year to 6.3 per cent of GDP this year) and continue to grow in the following years.

The agency's decision was not unexpected — it warned of its intention to lower the estimate, but officials in Washington were unhappy with such a "black mark" from Wall Street, and the finance minister called Fitch's position "unreasonable and based on outdated data." Financial analysts emphasize that distrust of the creditworthiness of the global hegemon has intensified due to chronic political squabbles regarding the national debt. Politicians barely have time to agree on raising the debt ceiling at the last moment before default. For example, in June, the American Parliament, a week before the Ministry of Finance ran out of legally allocated money to finance budget expenditures, agreed only to postpone the action of the debt ceiling. We decided to return to the issue after the presidential elections, which are still more than a year away!

There is no talk of debt reduction at all. Both American parties have curious positions on this issue. The Democrats are generally inclined to raise the debt ceiling and not to reduce the budget deficit. The Republicans propose to cut non-military expenditures, mainly social expenditures, which are already minimal in the United States.

In the meantime, as a result of the US government budget constantly failing to make ends meet, the overall level of US government debt could increase from the current 112.9 per cent to 118.4 per cent in 2025. Debt service took about 10 per cent of budget revenues last year, and by 2024 this figure is projected to rise to 15 per cent.

The current ratio of US government debt to GDP is already two and a half times higher than the respective averages among countries with similar rating levels. In other words, the real rating of the US, calculated on the basis of objective data, should have been much lower. But the unique structural hegemony of the US in world politics and economy ensures that financial markets retain confidence. In other words, Washington's global dominance is based more on trust than on material factors.

American hegemony is not built by current leaders but is the result of the efforts of previous generations. Richard Lachman, a recently deceased classic of American sociology, noted in his last books that the American establishment had ceased to fulfil its tasks in recent decades, becoming "first-class passengers on a sinking ship. Lachman noted that under President Reagan's leadership, not only the USSR was destroyed, but also the foundations of responsible leadership in the United States. The American model had hitherto worked on a balance of the power of capital, state intervention and the labour movement. But by the end of the Cold War, labour unions were first crushed and then state control over the big business was eliminated. As a result, power in the US at all levels ended up in the hands of an oligarchic elite representing large corporations that pushed their decisions through regardless of the consequences for the country and the population.

"Chain reaction" in the global economy

However, Washington's opponents also have problems. Alarming trends for the global economy have also emerged in China, which has long become a kind of "global factory". On August 7, it became clear that following the decline in the pace of industrial activity in China in July, the dynamics in the industrial sphere of key Asian countries - Japan, South Korea and Vietnam - continues to fall. Both processes are interrelated, as these countries actively trade with each other.

China's foreign trade volume totalled $482.9 billion last month, down nearly 13.6 per cent from July 2022. This is not the first month that China's foreign trade volume has been declining, but July's drop was the biggest since the coronavirus pandemic began in February 2020.

This is not only due to objective reasons of the worsening economic situation in the West, which leads to a decrease in trade with China, where, in fact, the necessary goods are most often produced. The new formal and informal restrictions imposed by the US and the EU on the supply of Chinese equipment, on the sale of high-tech equipment to China and on the transfer of high-tech to the Chinese, are also the reasons for that. Just recently, the US president authorized the US Treasury Department to ban US investments in China's high-tech industries. However, American restrictions have long been in effect not only with respect to American business but have become a global law imposed on the entire world.

As can be seen from the statistics published on August 7, American businesses followed the government's instructions and reduced cooperation with China. Imports from this country to the United States in the first five months of the year decreased by 24 per cent compared to the same period last year. As a result, China has even ceased to be the main trade partner of the United States, and it has been replaced by Mexico, which is allied to Washington and much more pliable.

On August 11, the Chinese authorities released data on the volume of foreign direct investment in China, which also fell again and amounted to $4.9 billion. This is the lowest volume in the history of investment accounting since 1998. The fall is extremely sharp - at the beginning of last year, the same figure was $101.3 billion.

Sanctions are fragmenting the global economy

Until the early 2010s, US sanctions against firms and individuals from major states that crossed Washington's path were really targeted. Sometimes they even forced them to adjust their behaviour. The EU sanctions were even more targeted. But in recent years, the collective West has begun to apply sanctions so massively that they already resemble real "carpet bombing". Instead of precise corrective action, sanctions radically change the conditions of economic activity for entire regions and countries, pushing the victims into a kind of parallel Western world. Forgetting Nietzsche's words: "What does not kill us makes us stronger.”

Western sanctions did not "kill" Russia and China, but forced them to engage in their own autonomous development. Let us take the example of China. As we wrote above, the West has succeeded in reducing its relations with this country, as a result of which the dynamics of foreign economic activity and investment in China have declined. But its gigantic size allows it to grow at the expense of its own resources and markets. As a result, China's GDP still grew by 5.5 per cent in the first half of the year. China also remains the world's main producer of goods. It accounts for 31 per cent of global industrial production (by comparison, the US is in second place with 17 per cent).

Something similar is happening to Russia as well. Despite the sanctions and the consequences of the invasion of Ukraine, there is no economic catastrophe. Of course, everything in Russia has gone up markedly in price and the situation is extremely difficult, but if the collective West continues to pressure Moscow and Beijing, it is guaranteed to tear up the world economy, and then perhaps force the Russians and Chinese to come much closer together and confront the West together.

The most promising business

Amid problems in most sectors of the world economy due to the severing of ties between countries, there is one industry that is booming. This is the military-industrial complex, everything related to war. True idyllic times have come for the industry, which has been starved for military orders. In contrast to the Cold War era, today in both the West and Russia there are neither peace activists nor anti-war activists - society is dominated by a discourse demanding general military mobilization. Against this background, no one dares to ask about money and business related to the war.

So, here one of the slogans of the Russian PMC "Wagner" comes to mind: "Our business is death, and business goes well". This company itself is a vivid example of this. While the naive citizens were told about patriotic PMCs, people close to the authorities were doing business. By the way, inside "Wagner" they openly talked about it, reminding employees that they only earn money and politics has nothing to do with it.

The Western military-industrial complex in this sense does not differ much from the Russian PMCs. It's just that the rhetoric is different there - under the loud words about the protection of "democracy," dexterous businessmen earn billions. Silencing the fact that the Ukrainians themselves could produce appropriate weapons for the defence of their country at the facilities of the former Soviet military-industrial complex in Ukraine if the Western partners did not interfere.

Instead, the West is ranting about its aid, which is deploying unprecedented militarization. Even in Germany, which for decades has vowed not to engage in wars, the official media proudly talk about the unprecedented "boom of the German arms industry," of which even the Rheinmetall concern recently became an example. After the outbreak of the Russian-Ukrainian war, the activities of this famous company, whose weapons the Germans used to raze half of Europe to the ground in both World Wars I and II, have once again become respected in German society!

Even neutral countries are trying to snatch their own share of benefits from the current situation. Earlier this week, a scandal occurred in Switzerland, after which Brigitte Beck, director general of the Swiss state military-industrial holding Ruag MRO Holding, resigned. The liberal Western media described everything in a tidy and noble manner - they said that in support of the freedom-loving Ukrainian people, she demanded that foreign countries that had previously bought Swiss weapons for self-defence be allowed to transfer these weapons to Kyiv. But the Swiss government defended the remnants of the country's neutral status and did not allow it.

But a closer examination of the position reveals that Swiss arms manufacturers are at least as concerned as Ukraine's freedom that they may lose their last opportunities to earn money in the current fabulously favourable environment for the military industry. If it becomes clear that Switzerland does not allow the transfer of equipment purchased for use in one country to another country and for other purposes, no one will buy Swiss.

Indeed, it is a shame for the Swiss, in a situation where even Iran and North Korea are making money from this war, not to take a bigger bite out of this business. Pyongyang, by the way, is making money on both sides - a couple of weeks ago its ammunition for Grad multiple-launch rocket systems MLRSs was accidentally discovered by the Ukrainian military. They were seized on a certain North Korean ship.

The military industry is becoming the most promising sector of the economy on both sides of the front, amid the regional slaughter already underway in Eastern Europe and on the threshold of a world catastrophe. And the clamour of patriotic pretence makes it possible to make fantastic deals.

So, the other day the Russian government transferred 100 per cent of the shares of the United Shipbuilding Corporation (USC) "to the management" (!) of VTB Bank. The Moscow media announced that "the state bank must solve the financial problems of the holding." It's hard to agree with literally every word. The bank is commercial (albeit with state shares). Most likely, the bank will not have to decide anything, orders for the coming years are guaranteed to all USC enterprises. But bankers close to power will earn. By the way, it is very convenient that they are being transferred for five years, while there will be a guaranteed market situation and fabulous profits from orders for war. Then the war may end, and superprofits will disappear with it, then the bank can return the not-so-profitable, or maybe even unprofitable concern to the state.

The strength and debility of superpowers

After all, both citizens of Western countries and Russians should take a closer look at those who tell them about the noble struggle for this and that. It may turn out that they are told by people with specific business interests. As early as 1961, US President Eisenhower warned against the emergence of a "military-industrial complex" (MIC) in the US, a powerful nexus of the armed forces and military-serving industry. As a result, the common interests of the military and arms manufacturers and their influence began to exert disproportionate pressure on the government itself, and this factor could prevail over the democratic opinion of citizens and even simple prudence. Similar processes have taken place in the rest of the world’s powers.

Eisenhower was an old general, but even he did not venture to make such a speech until the very end of his second term, when he had nothing to lose. Other politicians later urged caution on the MIC.

A decade ago, US Secretary of Defense Robert Gates, as he prepared to leave office, exhorted, "Does the number of warships we have and are building indicate that America is in danger because the US Navy is larger than the next most powerful 13 navies combined, 11 of which are our partners and allies? Is it a serious threat that by 2020 the US will have only 20 times as many advanced stealth fighters as China?" The calculations even today are roughly as Gates said, but times have changed and it is believed that weapons are not enough and Russia and China are about to take over the world by force. The whole world discusses only the tools to destroy the enemy - without thinking about non-military ways to resolve disputes.

In conclusion, it is worth remembering where this global disconnect began - with the reaction to a pandemic. The current world problems are an example of how the so-called superpowers, in spite of their boasts, have been unable to solve the elementary problems that have suddenly arisen before the world. And such undeniable problems that could have united the world, but as a result only sowed discord in it! The situation is further aggravated by the speed with which all processes are proceeding, as a result of which the world has no time to adapt to the new conditions, but the probability of a violent confrontation increases.

Caliber.Az