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International Socialism, November 1977


Notes of the Month


Trade Wars


From International Socialism (1st series), No.103, November 1977, pp.3-4.
Transcribed & marked up by Einde O’Callaghan for ETOL.


The international capitalist economy is drifting towards a revival of protectionism on a scale unmatched since the 1930s. The main impetus behind this drift is provided by important sections of American capital. The main target is Japan.

After the last meeting of the International Monetary Fund, ‘one international official, asked to sum up the week’s main events, put it in one short phrase: Jap-bashing’ (Sunday Times, 2 October 1977).

The complaint levelled against Japanese capitalists by the rest of the Western bloc is that they are unloading vast quantities of their goods (often at subsidised prices) on the stagnant world market while doing nothing to revive their own domestic economy or to make it easier for European and American companies to export to Japan.

American steel producers are retaliating by filing a series of complaints against Japanese importers for dumping steel products on the US market. But the drive to protectionism goes much further. Other American industries are involved – textiles and television, for example. Dumping cases have also been filed against European companies, while similar pressures are being felt in Europe. In Britain’s case the most obvious examples are. the growing share of the car market taken by Japanese products, and the resulting demands for import controls.

In part, the situation arises from the ageing of large sections of American and European industry. Japan’s steel plants are the most advanced in the world. In 1955 it took over 69 man-hours to produce a tonne of steel in Japan; in 1974 it took just under nine. Japanese labour costs per unit of steel output are 35-40 per cent of America’s and half of West Germany’s or Britain’s. (Economist, 12 February 1977). According to a recent report by the US Council of Wage and Price Stability,

‘Japanese steelmakers could export profitably to the US, absorb the transport costs and existing US duties and still under cut US steel-makers in their home market by about 5 per cent’ (Financial Times, 1 October 1977).

There are more fundamental causes, however, than the obsolescence of sections of Western capital. As a result of the recession, world markets have shrunk.


‘In the Western world demand for steel is falling when by the rules of the game it should be rising. No device employed by the companies or governments has been capable of restoring international steel demand to the levels that ruled before the 1974-75 international trading recession.’ (Financial Times, 10 October 1977).

Industries like steel have been hit by the stagnation of investment in new plant and equipment that has affected all the advanced capitalist countries since the recession. Previous recessions were rapidly followed by a recovery in investment spending which in turn fuelled a new boom. However, two years after the world economy began to revive in late 1975, business investment remains sluggish.

The result is that investment decisions taken before the recession on the assumption that the world economy would continue to grow rapidly have built up in some industries greater capacity than there is demand for their products.

The Japanese capitalism is particularly affected by this situation: massive capital investments in modern plant have been hit by huge increases in raw material prices (Japan is very dependent on imported energy) and stagnant domestic demand. Japan has about 140 million tons of steel-making capacity, of which about 65 per cent is being used. Most of industry is producing at about 75 per cent of capacity. The result has been an export boom, as Japanese capitalists try to gain as big a return as possible on their investments by selling huge quantities of their products in Europe and North America.

The problems of overcapacity and lack of markets are likely to become worse. The steel industry illustrates why this is so. British Steel, has, with state backing, drawn up plans for expansion and modernisation based on a target of exporting 20 per cent of its capacity. But the markets it might have hoped to win in the Third World are vanishing. Countries like Brazil, India, South Africa, South Korea and Spain are emerging as major steel producers, not only providing for their own domestic market, but also exporting to the Third World and even to Europe. Other European producers, like Italy and France, are faced with the same problem.

The spread of industrial capacity to a number of Third World countries is intensifying international competition. The much lower labour costs in these countries (trade unions are a dispensable luxury in Brazil or South Africa) gives them an edge which is attractive to some multinational companies.


Already some firms which are losing out in the battle against exports at home are moving. Zenith corporation, the main American TV producer, mounted a strident campaign against Japanese dumping of colour TV sets in the US, which led in May to an ‘orderly marketing arrangement’ limiting Japanese exports of colour TV sets to the US to 1.75 million sets a year for the next three years. Zenith then announced last month that it was cutting its workforce of 18,000 by a quarter and moving a large chunk of its colour assembly operations to Mexico andTaiwan, two countries with lower labour costs than the US which are not affected by the ‘orderly marketing arrangement.’

The drift to protectionism is likely to continue, since it is fuelled by fundamental problems faced by international capitalism. Fukuda, the Japanese prime minister, reminded the London summit in May that protectionism had played a large part in the slump during the 1930s. However, there are limits to which protectionism can go. The advanced capitalist economies are so closely integrated that any attempt by an individual country to use import controls on a large scale is very unlikely. Japanese companies affected by protectionism will build plants in the countries concerned, as Hitachi is planning to in Britain.

However, as a report by the General Agreement on Tariffs and Trade (GATT), the international body which polices free trade, pointed out, protectionism will make economies more stagnant and more inefficient:

‘The (trade) restrictions act directly on the production process, tying resources to relatively less productive uses and thus restricting the expansion of the more dynamic industries.

‘At the same time, increasing protectionism generates economic uncertainty by placing the system of agreed trade rules in doubt. Such uncertainty is inhibiting investment at a time when it is crucial both as a stimulus to aggregate demand and for effecting structural adjustments’ (quoted in Financial Times, 13 September 1977).

Politically, the growth of protectionism will have important effects. The more inefficient sections of capital will demand that the state impose restrictions on foreign imports. They will try to persuade their workers that the real enemy is their foreign competitor, and that bad wages and conditions, cuts in manning, etc., are justified in the ‘national interest’.

These employers will be joined by sections of the trade union bureaucracy, only too pleased to deflect rank-and-file anger into ‘Jap-bashing’. The American trade unions are among the noisiest advocates of import controls. In Britain the slogan attracts the reformist left – trade union leaders like Alan Fisher, Tribune MPs, the Communist Party – because it fits their vision of a state capitalist Britain. It will be up to revolutionaries to argue that the enemy is not one or other national capital but the system itself.

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