By Joe Montero

Donald Trump’s trade war is ultimately directed at China. This is understood by almost everyone. Many realise that this is happening because corporate America fears China will challenge its economic supremacy. Losing this supremacy would stop its geopolitical ambitions. The strategy for maintaining United States global dominance is economic war, based on the mistaken belief that it can succeed.

China will be affected by it. But not enough to be decisive. Having become the biggest economy with the biggest share of global GDP on the planet, China has other trade options. Trade with the United States is only a small part of China’s total international trade, and dependence on capital from the United States is fading.

In fact, the overzealous use of this weapon has already alienated much of the world and given impetus to the rise of BRICS, an emerging alternative to the American dominated trading and financial system. Trade war will push more countries to join BRICS.

The impact of Donald Trump’s escalation of trade war will mostly impact on the Western nations. The cost of imports will rise, and the exports of mostly allies of the United States, will mean a hit on their global trade and their economies.

It will rebound on the United States, in the forms of its own increased prices, companies closing, and a steep rise in unemployment. The imposition of a tariff on imports is nothing more than a consumption tax because it will be passed on to the consumer.

Besides the China issue, the other important rationale for this trade war is that it will serve to reduce the United States’ trade deficit with the rest of the worlds and restore the strength of the American Dollar. But this fails to consider that the United States is not primarily a trader in goods, but an exporter of capital through the creation of credit.

Here is where the deficit problem emerges from. The United States was once able to draw a surplus because it could lend money and get a big return, and its economy was built around this. this was possible because the United States went through a period where it was the unchallenged power. This is no longer possible.

When on the ascendancy, the dominant power could issue credit and, on the conditions, it wishes to impose. The capacity to do this is fading. Most of the world will not accept this order anymore. Nor does it have the capacity to pay. A big part of the problem is that American money lenders have increasingly relied of further creation of debt to service loans. This is the main source of profit. This does not generate the value to cover the debt and the flow back to the United States falls. This has reached a point where The United Sates can no longer pay its own debt.

An effect of this has been de-industrialisation and the importation of much of what Americans consume. Americans no longer make things as they once did. This has led to an unhealthy trade deficit.

Trump and the section of Wall Street behind him hope that shifting the burden onto other countries will fire up the American economy again. It won’t, because the world is no longer dependent on American trade. The ship of dependency has sailed. Trade wear will mean taking a wrecking ball to the American economy.

This leaves Washington’s Western allies with a serious problem. They are the ones with the greatest dependence on the American economy, and therefore, a softer touch to wear the burden of paying the cost. Australia is in there amongst them. We can expect rising costs, falling returns on exports, business failures and rising unemployment. We can expect further devaluation of the Australian Dollar as big-time investors dump it for the Greenback. Hr bulk of the big investors in Australia are from Wall Street.

To one degree or another, this is the scenario faced by other allies such as the larger European Economies, Canada, Japan, and South Korea.

Trump’s tariff war will rebound on the collective West and ensure its further decline, as the fortunes of the East rise. But the moguls behind Trump, and those behind his domestic political rivals, are focused on the short-term of passing the bill to their friends. The purpose is to secure the means to reduce the trade deficit. It will add to the trillions to of dollars be squeezed out of working families and small businesses through cuts in government spending to secure funds to be handed over to the Wall Street money lenders and other friends.

This is their idea of progress. It might have worked when the United States was the undisputed dominating force. This is no longer the case. Most of the world will no longer wear the burden. Now is up to the closest allies of American power to decide whether they are prepared to wear the burden.

Australia faces choosing how to respond. We are already facing the threat of a 25 percent tax on steel and aluminium. Escape from this threat is possible. Foreign policy and trade can be re-aligned. Only this can improve relationships with the rest of the world. It makes sense to turn to Asia, which has the world’s fastest growing economies. But positive relationships don’t have to be confined to this part of the world.

Only then will Australia’s future be secured.