What are the limits to economic warfare?


Laurie Meadows
3 March 2022 (updated 17 March 2022 NZDT)

President Biden gave his 'State of the Union address' on March 1st 2022. It was largely about improving the social conditions of the people of the United States, as you would expect. United States is a big and powerful country, but the US economic policy is not just domestic. It also impacts the rest of the world, for good or bad.

A diverse and competitive domestic economy with a thriving middle class

The speech, which is largely for domestic campaign purposes, promises more money for veterans, help for the 23 million people recovering from drug addiction, help for children's mental health, subsidies for childcare for working mothers, improved police accountability, tax the rich, build out and repair of roads, airports and other infrastructure in disrepair, allow 'least cost' pharmaceuticals, provide continuing Covid-19 measures for free, and so on. You can read the details here.

American society, like all developed Western societies, provides for it's people's basic level comfort and security. But the trend toward needing more and more state aid will accelerate. This is due to an aging population, the diabetes epidemic, huge increases in anxiety and stress (especially in the young), and the costs of coping with heat, fires, floods, soil degradation, and ever rising food prices.

Constant increases in transfer payments means a need for more government income. And the limits of printing Government IOU's has been reached, because the money paid out in interest on Government debt will soon reach totally unpayable levels. Debt has to be reined in.

Government income therefore requires taxpaying corporates, and a middle class that is 'doing well'. These are the taxpayers and their numbers have to keep increasing. Joe Biden proposes a 15% tax on all corporate profits, and global cooperation to set this as a minimum tax in all countries, to prevent companies basing themselves overseas in low or zero-tax special zones.

He believes these proposals will fund his social programs and reduce the deficit at the same time.


From exploitation of cheap labor to a living wage for all

The President highlighted the fact that American agriculture, in particular, relies on cheap migrant labor. These people, mostly Mexican, slog their guts out in the fields harvesting everything that can't be mechanically harvested - sugar beet, strawberries, vegetable of all kinds. No American will do this 'stoop labor' for the low wages paid. Mr. Biden's policy is to give these people citizenship. At the same time, he wants to raise the minimum wage. And strengthen unions.

The principle appears to be 'rights are indivisible'. That is, there cannot be a 'superior' right for American workers to receive a living wage for their labor,  but an 'inferior' right for a Mexican laborer, so let's make them citizens and solve the problem.


Lowering the cost of living for Americans


If he succeeds in turning illegal migrants into citizens, labor costs will rise, and the price of fruit and vegetables will rise as a result.

We already know the cost of fertilizer will rise. The cost of oil will remain high (unless there is a recession).

The pandemic has caused the cost of shipping to rise, which means the cost of all consumer goods will rise.
"See what’s happening with ocean carriers moving goods in and out of America.  During the pandemic, about half a dozen or less foreign-owned companies raised prices by as much as 1,000 percent and made record profits."
President Biden is talking about shipping costs and the cost of container hire. These have followed the laws of supply and demand, and at a time of high demand and limited supply. Why the limited supply of goods? Because truly vast amounts of Western consumer goods are made in China and Vietnam. China's policy of massive lockdowns to control covid meant closed factories, staff shortages, and consequently, shipping delays and supply shortages. Can these bottlenecks and shipping costs be avoided?

Re-shoring American industry

The 'problem' for the USA is not so much lack of overseas goods and not enough ships - it is lack of domestic manufacture. China's factories are highly automated, but their overall cost structure is lower. They pay lower hourly wages, and the costs of dealing with factory wastes is evaded, to the detriment to the environment. (The West is hardly innocent in this regard, but controls are now tighter.) How can American businesses produce consumer goods cheaper than the highly automated, low labor cost Chinese factories?

The President argues that American business can compete by first, lowering costs, and second, by decreasing the manipulative power that comes from industries being controlled by only a few big corporations.
"Lowering your costs also meant demanding more competition. I’m a capitalist, but capitalism without competition is not capitalism. Capitalism without competition is exploitation. It drives up prices".
He doesn't explain how companies can 'lower costs'. I'm skeptical much can be done, because the fundamental drive of a business is to keep costs - including labor - as low as possible. Energy costs can't easily be lowered in the short run, although solar panels on industrial roofs may lower costs in the medium to long run. As for market dominance by a few big corporates, well, you can scrutinize them for price gouging if you like, but they employ the brightest lawyers there are, so I doubt much will be discovered there.

In the face of these facts, what is the Presidents plan? There seem to be 3 main elements.

1.  Subsidize both foreign and local investment in new factories in USA.

"to compete for the jobs of the future, we also need to level the playing field with China and other competitors.  That’s why it’s so important to pass the bipartisan Innovation Act sitting in Congress that will make record investments in emerging technologies and American manufacturing.

We used to invest almost 2 percent of our GDP in research and development.  We don’t now.  Can’t — China is. <...> 20 miles east of Columbus, Ohio, you’ll find<...>the ground on which America’s future will be built. That’s where Intel, the American company that helped build Silicon Valley, is going to build a $20 billion semiconductor “mega site.”  Up to eight state-of-the-art factories in one place. Ten thousand new jobs. And in those factories, the average job — about $135 — $135,000 a year.

Some of the most sophisticated manufacturing in the world to make computer chips the size of a fingertip that power the world and everyday lives, from smartphones, technology that — the Internet — technology that’s yet to be invented<...>Intel’s CEO <...>told me they’re ready to increase their investment from $20 billion to $100 billion.
That would be the biggest investment in manufacturing in American history. 

Companies are choosing to build new factories here when just a few years ago, they would have gone overseas.  That’s what is happening.

Ford is investing $11 billion in electric vehicles, creating 11,000 jobs across the country.

GM is making the largest investment in its history — $7 billion to build electric vehicles, creating 4,000 jobs in Michigan.

All told, 369,000 new manufacturing jobs were created in America last year alone."
Many of these jobs are in high tech industries - industries where China (including Taiwan) excel. Most jobs in Western countries (60% or so) are in the low paid service industries. (And some of these are being automated out of existence.)

The effect of building state-of-the-art modern manufacturies is to promote technical education in general, and science, engineering and math in particular. These are areas where America lags badly.

The most important effects are to ensure critical components such as computer chips are always available locally, and to have a range of good quality products available for export. America exports more than 1 trillion dollars of goods and services every year. Goods and services are biggest export by far, with travel and air transport dominating. In fact America runs a pretty decent surplus in the balance of trade in this area.

Another major export category is agriculture, dominated by soya beans and wheat (USA is the world's second largest wheat exporter). Supply of civilian aircraft and engines, cars and car parts also make up a very large chunk of the US export income.


2. Reduce the value of the dollar

A low dollar makes US exports cheaper to buy. It makes imported goods more expensive, which helps to steer consumers to local manufacturers - presuming they are fairly competitive on price and quality.

A low dollar makes fuel imports more expensive, which in turn acts as a subsidy to a move to electric cars and more fuel efficient cars.

A low dollar makes US government payments on debt easier to bear. But makes price inflation higher.

The US status as a reserve currency needs to be reduced. It is inevitable anyway, and a low dollar will help.


3. Own both businesses and important overseas resources necessary for American industry

This has been American policy since the days it arranged a coup against the Guatemalan Government as a favor to the United Fruit Company.

Dwight D. Eisenhower was elected U.S. president in 1952, promising to take a harder line against communism; the links that his staff members John Foster Dulles and Allen Dulles had to the UFC also predisposed them to act against the Guatemalan government. Additionally, the U.S. federal government drew exaggerated conclusions about the extent of communist influence among Árbenz's advisers. Eisenhower authorized the CIA to carry out Operation PBSuccess in August 1953. The CIA armed, funded, and trained a force of 480 men led by Carlos Castillo Armas.

The coup was preceded by U.S. efforts to criticize and isolate Guatemala internationally.

Castillo Armas' force invaded Guatemala on 18 June 1954, backed by a heavy campaign of psychological warfare. This included a radio station which broadcast anti-government propaganda and a version of military events favorable to the rebellion, claiming to be genuine news, as well as air bombings of Guatemala City and a naval blockade. The invasion force fared poorly militarily, and most of its offensives were defeated. However, psychological warfare and the fear of a U.S. invasion intimidated the Guatemalan army, which eventually refused to fight. Árbenz briefly and unsuccessfully attempted to arm civilians to resist the invasion, before resigning on 27 June. Castillo Armas became president ten days later, following negotiations in San Salvador.

Described as the definitive deathblow to democracy in Guatemala, the coup was widely criticized internationally, and strengthened the long-lasting anti-U.S. sentiment in Latin America. Attempting to justify the coup, the CIA launched Operation PBHistory, which sought evidence of Soviet influence in Guatemala among documents from the Árbenz era; the effort was a failure.

Castillo Armas quickly assumed dictatorial powers, banning opposition parties, imprisoning and torturing political opponents, and reversing the social reforms of the revolution. Nearly four decades of civil war followed, as leftist guerrillas fought the series of U.S.-backed authoritarian regimes whose brutalities include a genocide of the Maya peoples.
Wikipedia

Russia has vast reserves of minerals, including gold, palladium, titanium, nickel, silver, iron ore, rare earths, diamonds, coal and more. It is also one of the largest oil and natural gas producers in the world. This makes Russia a primary target of American politcal-corporate greed.

4. Eliminate foreign competition

USA's largest competitor for wheat sales is Russia. Brazil is the largest competitor for Soya bean sales. China consumes almost 60% of the world's soyabean exports, and it's demand is growing. France and Germany are very important competitors for US aircraft sales. Germany is the major competitor for US automobiles and auto parts. The USA is the dominant manufactured food exporter in the world by a good margin from European countries (Russia is about 9th largest). At the moment USA competes with Russia for the sale of natural gas to Europe. If USA business is to dominate, something must be done about European and Russian competition.



Implementing the Biden economic plan

America has largely gone as far as it can with eliminating free trade (it has unilaterally crippled the World Trade Organisation). It can fiddle with tariffs to a certain extent, but not much. It has found China and other countries have outbid it for many of the mineral resources in Africa. China has bought up a very large chunk of Iran's oil production (at a hefty discount, due to the US trade embargo), and other Gulf countries hold tight to their sovereign oil resources. Yemen's untapped mineral and oil resources have not been able to be fully seized by any foreign country so far. Iraq oil deals are a quagmire of corruption. The USA is illegally occupying (and exploiting) Syria's oil reserves, including the Al Tanf prospect, but I doubt they will be able to hold them very much longer. So much for resources.

So what's left?

Lowering the value of the dollar and eliminating foreign competition. All in all, Europe is the greatest competitor for US exports. Russia is the biggest competitor for wheat exports, and increasingly, for arms sales. It would be very useful to increase the production costs for both, and reduce the market share of Russia

Ideally, America would break Russia up in order to assign it a subservient role as exporter of minerals, with the USA as majority shareholder of the production companies.

At the same time, the value of the dollar should be pushed down. This seems like an improbably big task. But the Americans have a long standing plan, their '30,000 foot' medium term view.

The plan is as cunning as it is immoral.

For at least 10 years now there has been a campaign by the West to demonize Russia, sometimes in the most grotesque and cynical ways. The Russian state has been personalized as 'Putin', and a media invented uncomplimentary avatar projected onto the western public psyche. The campaign has been at least xenophobic, if not racist. The Western propaganda campaign will probably prove to be the most massive multi-country propaganda campaign in history.

Why do this?

Simple. To make immorality seem permissible.

The plan is use NATO's eastward expansion to the point the existence of the Russian State is threatened, to corner it, with no place to retreat except the sea. Then, when Russia acts to remove the threat, the pre-propagandized public mind will not object to the virtual close down of all export activity of the Russian State. And if the Russian State collapses as a result, start feasting on Russia's most succulent businesses.

"Question: Was Russia lured into the conflict? Is it possible the West provoked Russia so it would get stuck in a quagmire?

Sergey Lavrov: I can’t rule out that somebody wanted to bog Russia down with this artificial conflict designed by the West. American political experts say it would allow the US to fully focus on countering China. This cynical and totally neocolonial approach is very characteristic of our Western partners.

This may be true, after all, but we were adamant in our attempts to avoid more bloodshed in Ukraine and prevent the country from becoming a foothold for future attacks against the Russian Federation. Our decisions were based on the situation on the ground regardless of the plans of the West.
And the situation was concerning, mainly because the West was doing everything in its power to make the situation more dangerous to Russia." - Sergei Lavrov 2 March 2022.


Here's how the American Government plan works:

The USA set out to deliberately corner Russia into having to annex Crimea - if Russia didn't, the USA would have missiles directly on Russia's border AND lock Russia out of the Black Sea. Knowing that Russia would have to annex Crimea to prevent this, the USA could demonize Russia, and introduce sanctions against it. In the next stage, USA would create a pretext to unilaterally withdraw from the Intermediate Nuclear Force Treaty, bring Ukraine into NATO and place multiple nuclear tipped missiles on Russia's border.

Once again, the USA was fully aware that Russia simply could not allow that - these missiles would reach Moscow in 10 minutes; and future improved versions of the missiles even faster.

No doubt USA was aware that the Easternmost oblasts (provinces) of Luhansk and Donesk might try to break away to protect their cultural rights, and in particular the right to use the Russian language (which Ukraine had vowed to suppress). It didn't matter to the US plan either way, as there was still ample Ukrainian 'borderland' to place missiles on.

Russia's only options would be either to try to persuade Ukraine to agree to a mutual security agreement or invade Ukraine and occupy it, perhaps permanently. At that point, the trap would be sprung.

Russia would be placed under a full trade embargo, cut off from the international settlement system, all ability to ship goods would be crippled, essential components of industry cut off. Russia would experience run away inflation, job losses, international pariah status, barred from sporting organisations, it's media would be shut down by claims of disinformation, Russians wouldn't be able to travel. In short, it would be finished. Soon people would riot on the streets. Americas pre-trained 'leaders' would emerge. Clashes between the more liberal West and the highly conservative East of Russia would break out.

Whether things stabilised or not, internal divisions and indebtedness would weaken Russia enough to force it to 'sell the family silver' at bargain prices. To the West.

How would the US dollar be affected? USA is well aware Russia and China have moved to create an alternative bank settlement system, outside Swift. USA is also aware that other countries will join the new system because they are afraid they could fall victim to the treatment meted out to Russia. Over time, the net result would be a fall in the use of the US dollar, and so a gradual fall in value.

The usefulness of the US dollar as a central bank reserve currency would fall, further eroding the value of the dollar.


How it's going


The USA, which has Government staff links to Ukraine - and therefore a biase towards it - stood behind the February 2014 coup in Ukraine. The neo nazi snipers who shot police and protesters alike were '80% ' responsible for the 'success' of the coup. The comprador President who emerged took some of these neonazi elements into Government, and also embedded them in the military.

USA called for contracts to build a base in Crimea before the date of Russia's lease of the navy base there expired. As expected, Russia saw this as an existential threat, and on March 18th 2014 was forced to annex Crimea and keep access to the Black Sea. World outrage and the first tranche of trade restrictions followed. So far, so good.

In April 2014 the eastern oblasts of Lughansk and Donesk broke away, declaring themselves republics. A vicious intra-Ukrainian war broke out, with many civilians killed and wounded, mostly by Ukrainian Government fire on civilian areas. The would-be republics asked the Russian President to recognise their status, but he refused, finally convincing them to go for a treaty that allowed limited autonomy within Ukraine.

In the meantime, the USA ramped up pressure with a revolving door of 'advisors' and 'trainers' coming to Ukraine. The US started to set up bases and expand airfields to take large aircraft, such as nuclear bombers. But Russia managed to shepherd an agreement through the Security Council of the UN, an agreement which would end the violence, establish Ukraine as a Federation, and allow the rebel Oblasts their unique identities. The agreement, Minsk 2, was modeled in part on the Kosovo settlement.

It would not have interfered with Mr. Biden's plans, but for a single clause that would fatally sink all America's carefully thought out machinations:
'10. Pullout of all foreign armed formations, military equipment, and also mercenaries from the territory of Ukraine under OSCE supervision. Disarmament of all illegal groups.'
So the USA held out the false hope that Ukraine might be able to join NATO. And advised Ukraine not to fulfill the UN Security Council's Minsk Agreement.

Ukraine dodged it's obligations for 8 long years, with Russia constantly trying to persuade it to comply. France and Germany, supposedly co-mediators, did nothing to push Ukraine's implementation along. USA, not a mediator, held all the influence on Ukraine. USA duplicitously hinted at NATO membership for Ukraine and a 'military solution' to the breakaway republics, knowing the inevitable consequences.

So here we are. The reckless shelling on civilians populations intensified in recent days, NATO provided Ukraine with huge quantities of urban warfare weapons, USA junked any prospect of a security treaty with Russia, clearing the way for nukes on the border. The trigger was pulled.

President of Russia Vladimir Putin: "We are meeting in a complicated period as our Armed Forces are conducting a special military operation in Ukraine and Donbass.

I would like to remind you that at the beginning, on the morning of February 24, I publicly announced the reasons for and the main goal of Russia’s actions.

It is to help our people in Donbass, who have been subjected to real genocide for nearly eight years in the most barbarous ways, that is, through blockade, large-scale punitive operations, terrorist attacks and constant artillery raids.

Their only guilt was that they demanded basic human rights: to live according to their forefathers’ laws and traditions, to speak their native language, and to bring up their children as they want.

During these years, the Kiev authorities have ignored and sabotaged the implementation of the Minsk Package of Measures for a peaceful settlement of the crisis and ultimately late last year openly refused to implement it.

They also started to implement plans to join NATO. Moreover, the Kiev authorities also announced their intention to have nuclear weapons and delivery vehicles. This was a real threat. With foreign technical support, the pro-Nazi Kiev regime would have obtained weapons of mass destruction in the foreseeable future and, of course, would have targeted them against Russia.

Our numerous warnings that such developments posed a direct threat to the security of Russia were rejected with open and cynical arrogance by Ukraine and its US and NATO patrons.

In other words, all our diplomatic efforts were fully in vain. We have been left with no peaceful alternative to settle the problems that developed through no fault of ours. In this situation, we were forced to begin this special military operation.

The movement of Russian forces against Kiev and other Ukrainian cities is not connected with a desire to occupy that country. This is not our goal, as I pointed out openly in my statement on February 24.

...encouraged by the United States and other Western countries, Ukraine was purposefully preparing for a scenario of force, a massacre and an ethnic cleansing in Donbass. A massive onslaught on Donbass and later Crimea was just a matter of time. However, our Armed Forces have shattered these plans."



Russia saw the black thunder clouds building ever larger. Russia learned Ukraine was on the way to building it's own nuclear weapons, with US help. Which direction would they face?

Mindful of USA's detonation of nuclear weapons on civilian centers in Japan, mindful of its untrustworthyness, mindful of the price the USSR paid in appeasing Hitler, mindful that Hitler attacked without declaring war, mindful that there could be no security unless Ukraine was de-militarised and the Government de-nazified, Russia had to act in it's self defense, and act fast.

Russia recognised the two Oblasts as Republics. It signed a mutual security treaty. The new Republics asked Ukraine to remove their military formations from their territory. Ukraine ignored them. The Republics asked Russia for military assistance, as per their freshly inked Treaty. Russia invaded Ukraine.

At the time of first writing (3 March 2022), the objectives to free the territories of the two republics from Ukrainian military are well under way. The objective of pressuring Ukraine Government to hand over war criminals and to agree not to allow military formations (Minsk 2, clause 10) has yet to be achieved.

Mr. Biden has achieved his objective of the most sweeping embargoes the world has ever seen. He has achieved the racist and xenophobic demonisation of all Russians.

He has limited Russia's ability to do business.

He has struck a heavy hammer blow to the cost structure of European businesses, and German businesses in particular.

He has allowed armed neozi groups in Europe - with German complicity.

He has voted in the UN against Russia's annual motion to condemn xenophonia and nazism everywhere. Only 2 countries in the world sank this low.

He has rudely destroyed diplomatic relations with Russia.

Most importantly of all, he has, with malice aforethought, caused the death of at least 500 Russian soldiers, as well as decent Ukrainian soldiers. Deaths that he alone had the power to avoid - simply by insisting Ukraine sign the Minsk 2 peace agreement.

He took from these people the greatest human right of all - the right to life itself.

Peace in Eurasia was not in his economic plan for America.


 

Laurie Meadows articles on Security