Straws In The Wind: July 2023
The United States ruling class finds itself in a world where it has given up on more sophisticated and subtle foreign policies at exactly the time that such sophistication and subtlety is required. Obama showed his ability at subtlety with the Iran nuclear deal which was a much better deal for the US than for Iran. He also showed it with the start of an opening up to Cuba that promised to undermine Cuban socialism through the steady extension of capitalism and the creation of an independent bourgeoisie within that country. He showed it again by limiting the US weapons being provided to Ukraine, and pulling his punches when Russia acted to defend Syria. He even managed to get NATO and the European countries to lead the Libya regime change operation. He hid his naked aggression behind the secretive drone program, boasting that he had become quite good at killing as he massively expanded the drone program and covert operations in general. He hid the imperialist fist within a velvet glove and behind his own ethnicity.
Trump was not so sophisticated or subtle, although he did the world a great service by stopping the war mongering lunatic Hillary Clinton from coming to power. Through this he did benefit Russia, by delaying the inevitable Ukrainian war by five years, but the rest of the “Russia, Russia, Russia” collusion narrative is utter propagandist nonsense. Trump threw out the Iran nuclear deal and even assassinated the Iranian second in command, he reversed the Cuba opening policies and started to arrogantly steal Syria’s natural resources. Biden has shown that he is much more of a war-mongering Clintonite than a sophisticated and subtle Obama. The US ruling class has decided to take the velvet gloves off and play hardball when it is both weak and its courtier political class is severely diminished in insight and capabilities.
Also at the time that it needs to make significant sacrifices to help rebuild the bases of US economic power on which its own wealth and power depends, it has become more and more a pure rentier unwilling to make any sacrifices for the good of the US nation. Instead, it tries to kneecap Chinese technological development rather than to significantly support its own. The result will be an accelerating decline over the next decade.
Iran Making New Friends In Latin America
The sanctions upon Iran have not produced regime change after more than four decades which included the US-supported Iraqi invasion of Iran in the 1980s. Iran has weathered the storm and is now ready to awaken from its sanction-induced slumber. Its alliance with fellow-sanctioned Russia is rapidly deepening, and its relationship with China developing well. In addition, its influence over Iraq has greatly expanded due to the mayhem and failure of the US invasion and occupation and it is now on friendly terms with Pakistan. The attempts to destroy Syria have also brought that nation much more into the orbit of Iran, and the US retreat from Afghanistan has removed that nation as an enemy base on its border. With the détente with Saudi Arabia and other Gulf nations, Iran is the safest from external aggression that it has been since the Iranian revolution. Its development of advanced long-range missiles, and the arming of Hezbollah with thousands of short-range missiles, also provide a significant checkmate against any planned Israeli aggression.
With the perception of US power significantly diminished after its failure to destroy Syria, its pathetic retreat from Afghanistan, its failure to subjugate Iraq into a comprador, and its ongoing failure to destroy Russia, Iran can reach out to the rest of the world to overcome US sanctions. It has formally joined the Shanghai Cooperation Organization (joining China, India, Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan and Uzbekistan). With the probability of the observer nations of Afghanistan, Belarus and Mongolia and the partner nations of Armenia, Azerbaijan, Cambodia, Nepal, Turkey and Sri Lanka becoming full members a vast region within which Iran resides will become open to both trade and peaceful relations. This will be expanded even more if the dialogue partners of Egypt, Qatar and Saudi Arabia move toward full membership. With the ability to trade outside the US$, this vast grouping provides a sanctions-free space for Iran. The next pivotal moment may be when or if Iran, Turkey, Russia and Iraq can work to remove the remaining US presence in the region outside of Israel. This will be heavily dependent on Turkey’s ongoing balancing act between East and West, with the need for it to get off the fence just a matter of time.
Latin America provides another area in which Iran can develop new friends, and deepen current friendships, not just with its fellow sanctioned nations of Cuba, Nicaragua and Venezuela. Iran has formally applied to join the BRICS (Brazil, Russia, India, China and South Africa – representing one quarter of the global economy) group. Relations with Brazil have already greatly improved with the return of Lula to the Brazilian presidency, and both nations are working to deepen their trading relations. Iran has also signed a memorandum on defence and security with the Bolivian government that recently overcame a US-backed right-wing coup. It seems that the Bolivian leadership has learnt its lesson that the military can be either a tool of the US and domestic economic elites as it has been so many times in Latin America, or a defender of the popular revolution as it has been in Venezuela. The training and arming of its military by Iran instead of the US will transform the domestic Bolivian situation, while providing a market for Iranian military hardware that has proven itself in the Ukrainian conflict. Iran and Bolivia also have two of the largest lithium deposits in the world, a metal central to the production of electric batteries.
Iran is rising, and through its actions the US has absolutely no cards left to play short of an outright war. Even this possibility will be severely constrained with Iran’s neighbouring nations completely against such a war. Without staging posts in Pakistan, the “Stans”, the Gulf Cooperation Council nations, Iraq, Syria, and Turkey how would such an action even be carried out? Iran, by developing its own military industrial complex also provides a very significant deterrent given the large losses that would be inflicted on the attacking forces (e.g. US naval fleets and Israel). Such an act of naked aggression would also destroy US legitimacy in the rest of the world and most probably lead to the destruction of its forces in Iraq and Syria, as well as cause significant domestic political and economic (e.g. a huge jump in the price of oil) issues. It may even trigger a new OPEC oil embargo of the aggressor nations. The 2020s are most definitely not 2003. We can expect the impotent anger of the US ruling class to intensify as the Iranian economy continues to grow and it becomes another “bad example” of successful development outside of Western Imperialism.
https://new.thecradle.co/articles/iran-in-the-sco-gateway-or-gatekeeper-to-west-asia
https://new.thecradle.co/articles/iran-unveils-abu-mahdi-cruise-missile
https://new.thecradle.co/articles/iran-brazil-ready-to-launch-direct-shipping-route-official
https://new.thecradle.co/articles/iran-in-americas-backyard-raisis-defiant-latin-america-tour
Global Car Industry Turning Even More Chinese
In China, the decline of the Western automotive industry accelerates with even Tesla struggling to hold on to something more than a niche position. As EVs have taken a bigger and bigger share of the Chinese personal automotive market (35% in the latest month), and they remain dominated by Chinese brands and domestic Tesla production, foreign brand market share has crumbled. In 2023, for the first time ever Chinese brands will take more than half of the Chinese personal automotive market. The next 2-3 years will see ongoing rapid growth in the EV market share, and therefore rapid gains in Chinese brand market share.
The air of desperation and defeat pervade the Western manufacturers. At the end of 2021, BYD increased its stake in its joint venture with Mercedes to 90% and is now pushing out excellent luxury EVs that will take market share from Western luxury manufacturers, including Mercedes! VW have cried “uncle” on their complete lack of a competitive EV technology base and have now aligned themselves with Xpeng and SAIC (which produces the MG brand) in a desperate attempt to claw back lost ground. Given the development period required for new vehicles, VW nay have lost most of its Chinese market share before these new partnerships produce any significant benefits. Toyota’s joint venture with GAC is cutting jobs, at the very time when GAC itself is rapidly gaining EV market share; the Chinese companies are outgrowing their Western partners.
At the same time, the Chinese market share of Tesla is falling. Its Chinese sales increased in the second quarter, but the increase in those sales was less than the growth in the Chinese market. In Q4 2022, Tesla had a disastrous quarter with its Chinese market share falling to 6.49% (from 7.23% in Q3 2022 and 9.81% in Q1 2022) even after its first round of Chinese price cuts. This is what triggered the second round of China price cuts in January 2023. They produced a bump in market share in the first quarter of 2023, to 10.25%, but this rapidly diminished in Q2 to 8.74% even though Tesla Shanghai had spare capacity. The EV registration numbers for July paint a very bad picture for Tesla, as it may not even get above a 5% market share for the first month of the quarter (compare to 7.81% in January and 7.58% in April); even with increased Tesla sales incentives in July.
In the past couple of months, a number of direct competitors to the Tesla Model Y have become available, including the Denza N7, the Xpeng G6 and the Nio ES6, and these may be impacting Model Y sales. If this is the case, and without any new China models on the horizon for at least 2 years (with only a “refresh” of the ageing Model 3 later this year and probably the Model Y next year), Tesla may shrink to at best a niche brand in China. The upcoming Denza N8 also threatens to challenge the ageing and expensive Model X, and the facelifted Xpeng P7 challenges the ageing expensive Model S. During the second half of 2023 we will see if Tesla can withstand a full out assault on its best-selling Model Y and its high profit margin Model X and S. Even if it manages to maintain its level of sales at about the current level, its market share will fall significantly as the Chinese market continues expands in the second half of this year. With the profitability of the sales of the Model 3 and Model Y near break-even, Tesla has little room for more price cuts.
The destruction of the Western automotive manufacturers in China will greatly weaken the West, as the automotive sector is such a central manufacturing sector that affects so many others. In addition, the desperate attempts at survival by Western manufacturers by increasingly moving production to China (producing increasing exports from China to Europe) will only help drive the deindustrialization of countries such as Germany and Japan. With up to 50% of VW Group, Mercedes and BMW profits coming from Chinese sales, and the European EV market subject to increasing penetration from Tesla and the Chinese brands, the outlook for Germany looks dim; as it does for Japan. Chinese brands are also expanding in Asia, the Middle East and Latin America pushing out European and Japanese brands in those countries.
General Motors may become increasingly dependent on the earnings from its 44% stake in SAIC-GM-Wuling, although that manufacturer’s position in the Chinese market is also diminishing currently (as against SAIC itself). The highly protected US market (China tariffs and the IRA) may serve as a last safe redoubt for the US manufacturers (including a Tesla that makes the vast majority of its profits in the US market), while the European and Japanese manufacturers whither away. The geo-economic and geopolitical impact of such a change over just a few years cannot be underestimated, it would severely weaken the West while significantly bolstering. China.
India dreams of becoming an EV powerhouse, but its highly distrustful position with respect to foreign and especially Chinese manufacturers may be its downfall. It recently turned down a BYD JV investment, just as it has done the same to a Great Wall proposed investment previously. A possible Tesla investment is also open to question. The Chinese car industry gained knowledge and experience through its years of joint ventures with foreign car manufacturers, before being able to overcome them with the help of the switch from ICE cars to EVs. Without such joint ventures, India will be locked out of that required learning and development experience. Once again, the Indian elites have made decisions which greatly handicap any move to rapid industrialization; as the many times smaller Vietnam overtakes it in the volume of manufacturing exports. India is not in the passing lane, it is continuously being passed by one nation after another.
https://cnevpost.com/2021/12/24/byd-to-increase-stake-in-its-jv-with-daimler-to-90/
https://cnevpost.com/2023/07/25/toyota-jv-with-gac-cuts-about-1000-jobs/
https://cnevpost.com/2023/07/04/denza-launches-n7-brand-gains-momentum/
https://electrek.co/2023/06/12/xpeng-g6-competitor-tesla-model-y-china-orders/
https://insideevs.com/news/669114/new-nio-es6-small-electric-suv-enters-market/
https://cnevpost.com/2023/07/28/byd-denza-to-launch-n8-aug-5/
The US Cannot Stop China Developing, At Best It May Stop Its Own Intellectual Demise
It does appear to me that the US ruling class and their political puppets think that they are living in the year 2003 rather than 2023, as they think that China is only capable of copying technologies and not capable of developing their own technologies. In the article below, some section of the US decision makers may be slowly waking up to this reality.
https://nationalinterest.org/blog/techland/why-america-losing-tech-war-china-206664
In the leading paragraph the authors state the obvious that seems not to be so obvious to so much of the US elite:
It is simply too late to try to suppress China. The United States must either spend seriously on research and development, along with industrial policy, or it will lose the race for twenty-first-century technological supremacy.
But what they propose simply cannot be done by the US ruling class without them having to give up some of the colossal wealth that they have amassed over the past four decades of neoliberalism and offshoring. It would require a massive reorientation of resources from rentier profits and profiteering military expenditures toward a multi-decade project of rebuilding US manufacturing and paying off the massive debts that have been taken on to fund the losing wars in Afghanistan and Iraq, together with the massive tax cuts for the rich of the past decades. The US would need to return to the days of the 1950s and 1960s, with high regressive taxes (at the cost of the US ruling class and their courtiers), good wages to reward productivity (at the cost of corporate profitability), a much cheaper cost of living (at the expense of oligopolistic and rentier corporations and private equity), and a state active in the economic space; the industrial capitalism that Michael Hudson has outlined.
This would require a huge sacrifice by the US ruling class that they are not willing to make. Instead there will be continual attempts at such things as the “Green New Deal” which will be rapidly cut down to a much smaller size, and little real attempt to rebuild America’s crumbling infrastructure and deskilled and de-educated workforce. Adding to this is the curse of post-modernism/post-materialism that has infected the US (and Canadian) academy and now threatens the natural sciences and basic education. The desperate attempts of over-produced elites to out compete each other for the small number of remunerative positions in a sea of precarious positions through the displays and internalization of the meta-physical mumbo-jumbo that masquerades as “progressive” thought in the academy points to a decaying intellectual centre. A whole generation or more of US (and Canadian) intellectuals and professionals stands to become Educated But Ignorant (EBI), utterly unable to grasp basic reality and adequately carry out the tasks assigned to them.
It is notable that the very “progressive” education being pushed by such intellectuals, which removes the “authoritarian” style of early education, is that which Gramsci argued against (see the Prison Notebooks section on education). He understood the need for young children to painfully learn the basic skills required to develop a competent base from which competency, creativity and critical thinking can be developed. The process of learning these basic skills also helps produce the ability to focus over extended periods of time, a skill fundamental to higher levels of education. That the “progressive” style of education, together with the materially unbound nature of much of the social sciences, is invading elite schools points to massive blowback from the Western project to foster a non-historical materialist critical theory; the US (and Canadian and some European) elites are being intellectually dumbed down. Below Gabriel Rockhill describes the insidiousness of the non-critical “critical” theory and its invasion of the Western academy:
As Rockhill notes:
The Frankfurt School would thus be better described, at that time [the 1940s and early 1950s], as the Washington School: the majority of its intellectuals were doing research, analysis and propaganda for the American government.
Even after its move back to Germany, the Frankfurt School was funded by the US High Commissioner of Germany, and Horkheimer had aligned himself with the centre-right anti-communist Christian Democratic Union. Adorno described the Soviet Union as “fascist”. The Frankfurt School “diluted Marx’s revolutionary theory into a speculative tradition of critique, in the discursive and abstract sense of the term, which included idealist liberals and reactionaries”. Both the Frankfurt School and the French School had ties to the US-front the Congress of Cultural Freedom (CCF) set up to finance a non-communist “left”, and the Frankfurt School acceptance within the US was aided by CIA-funded and aligned journals. Marcuse, who took a more overt political position, as well as his student Angela Davis, have been very much sidelined in the academy. The Western project worked wonderfully in creating a non-communist “left”, but also helped unmoor social theory from materialism – i.e. an acceptance of an objective social and physical reality. With the fall of the Soviet Union and the supposed “End of History” such critical theory became completely unmoored and leapt into the realms of the meta-physical, rejecting empiricism. “Inter-sectional” analysis quickly removed class in favour of an amorphous identity based upon such things as ethnicity, gender, sexual-orientation, and disability. In such an analysis the lived experience of the rich elite serving lesbian Ellen can be equated to that of a working-class lesbian woman with no account taken of their vast differences in wealth; utterly removing class reality and any basis of class solidarity.
At the same time, US students turned away from the scientific subjects and toward the social sciences and professions (lawyers, financial analysts, communications specialists, MBAs). This was due to the usage of foreign post-docs to keep academic remuneration down, with US universities and businesses becoming more and more dependent on foreign students and immigrants for success in scientific and technical fields. At the same time, the offshoring of manufacturing removed many skilled workers and the paths to gain such skills (e.g. tool and die specialists).
With the explosion of anti-capitalist anger after the GFC and big bank bailouts, highlighted by the Occupy Wall Street movement, this highly divisive critical theory was given full reign by the media, the academy (dominated by bourgeois governing boards) and the corporate world as a way of performing “progressive” actions while leaving underlying political-economic realities untouched. The anti-modernist, anti-empiricist materially unbounded critical theory then invaded the very basis of hegemonic culture creation in the elite schools, colleges, and universities. The result is an intensifying struggle between the many who support academic excellence and the intellectual clerics who support anything but. My own experience teaching graduate students in Canada, some of which already had other graduate degrees, is instructive. There is still a core of excellence, but it is surrounded by a wide swath of students who have not been taught the basic skills of structuring arguments and even basic grammar. It was illuminating that a number of foreign students proved themselves to be excellent in essay writing.
Given the utter destruction of the basic skills required to “Rebuild America” any such rejuvenation will require decades of extensive changes to US society, including the removal of a whole swathe of academics and other intellectuals and a massive sharing of the burden of such changes by the US ruling class. China has the Communist Party of China to drive what is right for the country over many, many decades. The US ruling class has both removed the foundations of a successful productive society and itself become utterly rentier aligned, leading to a continual failure to address the challenge from China. Instead it fights as if it were 2003, and not 2023, standing upon a crumbling base. Once China (and Russia in some areas) has technologically overtaken the West in significant areas (e.g. automobile manufacturing, clean energy, microchips) the West’s ability to capture the value added produced by other societies for itself through the intellectual property, legal, financial and military dominance of global supply chains will disappear. These financial flows, together with US seigniorage, are the only things keeping the US afloat. Without them, the US Empire of bases becomes rapidly unaffordable and its dominance will quickly unravel. That is why the US ruling class is fighting so hard to kneecap Chinese technological development, even though it is fundamentally unable to do the very things required to stay ahead of the Chinese.
The failure of these kneecapping attempts, and the scale of the project required to stay ahead of the Chinese is somewhat, but not wholly, understood by the authors of the article:
Restrictions on technology exports to China at best are a stopgap. Eventually, China, which graduates more engineers each year than the rest of the world combined, will develop its own substitutes, as ASML, the world’s premier maker of chip lithography equipment, avers. Even as a stopgap, though, the controls are failing. They impose high costs on China in several ways but have not impeded the Fourth Industrial Revolution. On the contrary: the limited adoption of Fourth Industrial Revolution technologies by American industry is concentrated in firms that have major commitments to China.
Whatever its merits, the CHIPS Act is not a substitute for the kind of effort the United States made under the Apollo program, or during the late 1970s and early 1980s, when DARPA funded the invention of the digital economy. In 1983 the United States devoted 1.2 percent of GDP and 5 percent of the U.S. budget to federal R&D. Today we spend only 0.6 percent of GDP on federal R&D and barely 2 percent of the federal budget.
The National Interest article defines three possible outcomes to the technological struggle:
1. The United States and its allies make a concerted effort to leapfrog China and reclaim technological leadership in industry;
2. America and Europe adopt Chinese industrial technology and become followers, as China was a follower of developed markets a generation ago;
3. America continues to lose market share in industry and increases its import dependency, following the United Kingdom’s path of industrial decline.
As I have stated above, option #1 is not going to happen on any real scale. Option #2 is anathema to the US and Western elites and will be fought tooth and nail by the outright banning of Chinese technologies if required (e.g. Huawei routers and 5G products). So, we may very well have an extended period of option #3 (at least a decade) until the US and the West overall capitulate and move to option #2. In the meantime, the US ruling class will do everything in its power to stop the inevitable rise of China, except anything that involves its own significant sacrifices.
The article also covers the reality that China is also invading the rest of the world with its technologies and products, producing the strange phenomenon of the West sanctioning itself into a technological Trabant world. Prior to the Berlin Wall coming down, the Trabant was the height of East German automobile engineering sought after by citizens who would wait years to get their hands on this prized possession. As soon as the wall came down it was rapidly cast aside for the much more advanced VWs, Audis, BMWs and Mercedes. Now the latter are being cast aside for Chinese-built Teslas, BYDs, GAC Aions, Li Autos etc. Until the US government launched an all-out war against Huawei, Apple handsets were also increasingly being pushed aside. Within a decade it may be the turn of the Western chip industry and computer industry in general to be shoved into the shadows and forgotten.
The wonderful Trabant:
Great article, Roger, thank you for sharing. A couple of random thoughts:
i) The 'China copies; US innovates' narrative seems intimately connected with the rejection of the Gramscian construction of what a materially grounded education looks like. Copying is a fundamental part of learning any new skill and by reducing the opportunities of your population to 'copy' (e.g. by relocating productive capacity abroad) you ultimately hamstring their capacity to innovate.
ii) I think Peter Turchin's analysis of the current / impending crisis is that the coming nadir is already 'baked-in' to the system. (I think he described this in a talk he gave at an Oxford institute; it might appear in End Times too, I cannot remember). The choices we (well, western elites at any rate) make now will be most relevant to the next crisis that comes in 50 - 60 years time. Given that revolutions tend to come 'from above' (at least the ones that don't end in massive slaughters...) it is unclear to me which part of any Western executive state are the 'adults in the room'.
Impressive article and worthwhile deep-read. One thing I'd add to the American "capitalist crisis" is to ban corporate stock-buybacks; it is this practice that most contributes to the lack of funds invested in corporate R&D -- many consider it to be the equivalent of eating one's own "seed stock".