Trade Wars: Integrated Circuits of State Capitalisms?
Peadar O‘Grady argues that state intervention in the running of capitalism is not confined to state-run regimes such as China, and that the objective, East and West, is to secure greater returns for their respective capitals.
“Tariff” is a word that few could have defined even a decade ago, but it is the word on everyone’s lips now with the large, sweeping tariffs announced by the Trump administration. The subsequent crash in the stock markets was a definite vote of no confidence by the rich. A tariff is now understood by most as a tax on imported goods levied by a state’s government. The World Trade Organisation, formerly known as the General Agreement on Tariffs and Trade–founded in 1947 and renamed in 1995–seemed to imply that obstacles to trade, particularly tariffs, were gradually being removed and that a new age of free trade had begun. The WTO is now eerily quiet as a global trade crisis unfolds.
Trump often cites history to argue that tariffs are neither new nor incompatible with economic growth. Indeed, tariffs and other state-led measures, such as export controls, subsidies and state control of selected industries, have a long history in the development of capitalism. The justification that Trump has pleaded is that his tariffs will bring in money which can be used to cut taxes but also serve to encourage manufacturers to base their operations in the US rather than abroad: so called ‘onshoring’. Like much in global politics, the US empire is often found blaming other countries for situations it had a key part in creating.
A key recent example is the US Tech industry’s reliance on Taiwanese advanced semiconductor chip production, on which all modern electronics and AI are heavily dependent. This dependence was not caused by cheating East Asian economies, nor the strong dollar as Trump claims, but by the active outsourcing, or offshoring, of manufacturing of chips to East Asia from the late 1960s, largely to take advantage of low wages. As these countries were using state-led developmental models to advance their industries from simpler to more complex manufacturing, this meant offshoring to countries who were broadly using state capitalist methods. US foreign policy and the action of US firms, like Texas Instruments and Intel, were actively engaged in the setting up of this multinational semiconductor chip supply chain: Chip design in the US, chip-making machine tools made in the Netherlands and later, chip manufacturing in Taiwan.
So successful has this supply chain been, that few other supply chains have been able to gain the experience necessary to compete at the most advanced level. The Majority of advanced chips are now made in Taiwan, which lies on a geopolitical fault line of competing claims by China and the US. The vulnerability of many industries to interrupted production of chips was demonstrated during Covid and the Ukraine war. The threat of geopolitical, seismic fault lines hangs in the air.
State Capitalism Past and Present
On the left, discussions of state capitalism have tended to focus on whether using a progressive state intervention in the economy, to accelerate the accumulation of means of production and skilled labour, can actually advance the development of the surplus production necessary for a socialist society. Socialist supporters of this kind of state control of the economy argue that this helps to avoid the typically capitalist dynamics of exploitation, the alienation of labour and the oppressive and expansionist imperial trends of the highest forms of capitalism.
Soviet Russia’s use of state ownership of the means of production across the board is probably the most classic and extensive example of this. The early claims were that, under workers’ control, the state would eventually wither away. However, the failure of the revolution to spread internationally meant a turn to economic nationalism and the loss of workers’ control under the subsequent Stalinist regimes. The integration of the Soviet economy into the global capitalist economy, not least through military competition, meant this led in the direction of an increasingly centralised, hierarchical and authoritarian state. This has very little to do with socialism in which workers control the means of production in the development of a classless society. The imposition of the state capitalist model on Eastern Europe after WWII also emphasised the top-down rather than bottom-up approach to the so-called workers’ states.
The modern version of this argument centres on China: whether the use of foreign capital under the influence of the Chinese Communist Party (CCP) represents a variation of capitalism or socialism. The reality of China’s state capitalism, particularly state-Owned Enterprises, state-led investment through state banks, state-controlled unions and CCP cells operating within foreign firms, all exist alongside fully capitalist foreign enterprises like Tesla or Apple, as well as corruption and cronyism of self-enriching Chinese bureaucrats and billionaires. It also has given rise to a confusing fusion of hybrid forms, where for example Local Authorities often own private firms and many private firms are heavily reliant on public contracts for their business.
While the hybrid nature of China’s economy is clear, its path to a classless society is certainly even further off. Xi Jinping is ‘president for life’ and the state presides over widespread class, anti immigrant (mainly internal) and ethnic oppression. What is more important and relevant now, however, is not the comparison of China to the Soviet Union but the more general history of the state in capitalism, in particular in its Keynesian and hybrid forms within western capitalism, both in the EU and the US even in Neoliberal states formally opposing state intervention. The history of capitalist development is littered with degrees of state intervention and the success of China’s phenomenal economic growth in the past 40 years means that there is pressure to copy its methods.
Management Committee
Early in the development of modern capitalism the use of State intervention is more the norm than the exception. As Marx put it in The Communist Manifesto: “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie (Capitalist Class).” Economics has always been political. The first undisputed world leader of capitalist development, Britain, used the licensing of Corporations in their overseas expansion, providing State economic and military support to expand markets and access to raw materials. The British East India Company, modeled on the Dutch version, saw a Limited Company with its own army under imperial protection.
State industrial policies meant taking strategic decisions in government economic policy such as taxation, tariffs and subsidies to direct the development of trade in the interests of the British Empire. It also involved, in some situations, taking under state control (‘nationalising’) strategic industries such as Steel, Coal and Railways. After WWII, during the long capitalist boom, Britain nationalised its Health and Education sectors and the reformist Labour Party’s policy was to extend this to all elements of ‘Production, Distribution and Exchange’ within the British economy. It was considered that this central planning served the interest of capital through providing a more skilled and healthy working class and through politically staving off social revolt from below as workers demanded improved welfare- the so-called Welfare State.
The economic collapse due to falling profit rates in the 1970s with the Nixon shock removing the gold standard in 1971 and the Dollar becoming the de facto international reserve currency, ushered in the rise of neoliberalism and the surrender of reformist Labour-type parties particularly after the collapse of the Soviet Union in 1989. This meant a moving away from State led intervention, with deregulation and a reliance on the markets to regulate themselves, or rather to allow the key economic decisions on prices and trade to be made by businesses. Governments retreated to responsibility for inflation and employment in increasingly indirect ways, such as control of interest rates and currency values.
Is State Capitalism Returning?
Under pressure from falling profit rates, capitalist investors have increasingly looked to financial speculation, particularly in property derivatives, culminating in the great Crash of 2008. US capitalists became increasingly concerned by the historic economic success of China. While China’s economic growth is slowing, it is still roughly twice that of the US and the relative rise of China continues. China has overtaken the US in manufacturing and in GDP measured in purchasing power.
The US has also been weakened by the failure of the half-hearted state interventionist methods it has employed recently. The Chip Act of 2024, which focused on Industrial Policy (formerly a dirty word among US Neoliberals) and on Big Tech’s need for a secure supply of advanced semiconductor chips to restrain the ability of Chinese companies to engage in advanced development of AI systems, was exposed in January this year. The Chinese Tech firm, DeepSeek’s AI model overtook in terms of price and ingenuity other US AI systems, despite its restricted access to advanced chips. Unsurprisingly, the following market crash in Tech stocks severely affected the competing AI firms but particularly affected the chip design company Nvidia. Its graphics processing unit (GPU) chips were thought to be required in far greater numbers before DeepSeek developed their AI models on much lower programming power and hence fewer chips. China on the other hand has had the equivalent of a Chips Act level of investment every year since the ‘Made in China 2025’ policy was launched by Xi in 2015 to upgrade China to a more high-tech manufacturer in, for example, robotics, AI, batteries, EVs and of course in advanced semiconductor chip manufacturing.
However, China’s state capitalism, hybrid in form and deeply integrated into the modern circuits of capitalist trade, whatever its own internal contradictions, is not easily replicable for the US or other states. Serious deterioration in their public systems has seeped into their social systems. A notable feature of the Trump administration has been its determination to further undermine the administrators, researchers and policy makers vital to state-led projects: its focus on the bullying tactics of applying tariffs without negotiation is more a feature of infrastructural weakness than economic strength.
If the Trump administration fails to negotiate reductions (and even this will require some administrative skill and experience), then it is likely that there could be some considerable reorganisation of international supply chains and markets in which the US may well lose out and hasten their decline. Even if successful, it is not at all certain that the US can develop the needed infrastructure and supply chains to support onshoring of high-tech manufacturing.
The failure of neoliberalism to halt the long decline of profits is not something China is immune from but the US fear is of being overtaken, not the failure of its system. As the rich get much, much richer, the only question for them is whether they are based in China or in the US and what this means for military or imperial hegemony. The renewed drive to militarisation is part of this intense rivalry, highlighting that one core form of state intervention is funding and controlling the ‘bodies of armed men’ that enforce the class rule of capitalism. Of course, the drive to militarisation and arms production also has the added benefit for capitalists of reinvigorating their manufacturing industries of capitalism.
Globally, the limits of capitalism as a state led system of coordinating trade are being revealed and are undergoing a severe crisis. Questions of economic competence, environmental safety, workers’ rights and opposition to oppressive forms of dividing and controlling populations are more important than ever. The crude intervention by Trump in the workings of the economy stands exposed. Technical advances in production, the material base for a healthy quality of life is already there. These and the massive advances in social media undermine centralised decision-making. The potential for systems of distributed decision making in production and consumption that respects human life and the value and diversity in our environments has never been greater. We don’t need more state capitalism– China, nor the western iteration of state capitalism as embodied by the US. We need a world run not on the dictates of bullying rival capitals, whether in China or the US, but on the needs of our populations. That means, during the acute disruption from Trump’s regime, supporting the resistance to capitalism in all its forms, in the US, in China and here in Ireland.
