Originally published in Socialism Today, magazine of the Socialist Party (CWI England & Wales).
This year is the thirtieth birthday of the World Trade Organisation (WTO). It is also the year China opened a WTO case against the US, on the grounds that the ‘green manufacturing’ subsidies of President Joe Biden’s Inflation Reduction Act (IRA) break global trade rules. No-one expects the case to be resolved, not least because for the last five years the US has obstructed any new appointments to the WTO judges panel, effectively blocking the body’s ability to settle disputes.
The increasingly moribund WTO is just one symptom of the end of the era of ‘globalisation’ and the increasing trend for the US – still the strongest power on the planet but in relative decline – to move from its ‘free trade’ mantra to putting up barriers in order to defend its position against its rivals, above all China. This is the primary purpose of the IRA.
When the WTO was founded, replacing the General Agreement on Tariffs and Trade (GATT), US imperialism bestrode the globe. This was the immediate aftermath of the collapse of the Stalinist regimes in Russia and Eastern Europe. Even though those regimes bore no resemblance to genuine socialism, they were nonetheless based on a distorted form of a planned economy, and acted as a counterweight to the capitalist West. After they imploded there was briefly a ‘unipolar’ world, completely dominated by US imperialism. The WTO was part of global capitalism’s ‘rules-based order’ which aimed to encourage the liberalisation of global trade while mediating disputes between countries; all – of course – ultimately in the interests of US imperialism. In reality the WTO oversaw unrestrained access for US capital to world markets under the banner of ‘globalisation’.
Thirty years on, and the world has changed. When China joined the WTO in 2001 its economy at market exchange rates was barely one-tenth the size of the USA’s. Now it has grown to almost half. Rather than being just an assembly plant for US imperialism it is an increasingly powerful rival. It was in response to this reality that in 2022 Biden successfully got three major Acts signed into law: the Bipartisan Infrastructure Law, the CHIPs Act, and the largest – the IRA – which focuses on a transition to clean energy. The total estimated cost was over $1.5 trillion.
Not about going green
If the central purpose of the IRA had been a green transition, it would clearly have failed. Instead of moving away from fossil fuels, the US has developed as a net exporter of oil and gas, mainly as a result of the development of shale. US oil production hit a record high in 2023 and the profits of the oil and gas industry have tripled while Biden has been in office.
However, despite the ‘green gloss’ Biden gave it, the IRA’s primary goal is in fact to boost US capitalism, particularly its clean energy sector, against its international rivals. The IRA gives tax credits for business investment in renewables, and a tax rebate (currently $7,500) to consumers for purchases of electric cars, solar panels and more. Only firms conducting a large share of their activities in North America can benefit. This has acted to pull Foreign Direct Investment (FDI) into the US.
However, the IRA’s effectiveness on a number of its key goals has been very limited. For example, it aims to aid the development of the domestic solar panel industry. According to The Economist, 83 new ‘green’ manufacturing plants were announced by the end of the 2023, including solar panel factories. However, there are already reports of some of these being cancelled, such as CubicPV, a Bill Gates-backed manufacturer of solar panels, which in February 2024 scrapped plans to build a 10GW US factory announced in December 2022, citing a “dramatic collapse” in the price of solar panels.
China now produces nearly three times more panels than current global demand. As a result, prices have halved in the course of the last year. This means that, even with the 50% tariff that Biden has put on imported Chinese solar panels, US production finds it hard to compete. Of course, the tariffs themselves are a demonstration that Biden’s goal is not primarily a shift to green energy production – which would be helped by solar panels being as cheap as possible – but protecting US industry against Chinese competition.
Similarly, the IRA has also provided subsidies for the development of new or expanded lithium-ion battery factories, which are essential for electric cars. In the pre-election period Biden has hiked up tariffs on Chinese electric vehicle imports from 25% to 100%. However, the result will not be large numbers of American consumers switching to buying American-assembled electric cars – because most can’t afford them. At this stage the production costs means that the cars remain unaffordable for all but a small minority, even with a tax rebate. In the first quarter of 2024, the percentage of new cars sold in the US that were fully electric fell, to 7.3%. Those that are being sold are not making profits for the corporations. Ford, for example, claims that it lost $4.7 billion on electric cars in 2023 or just under $65,000 per vehicle.
The production of both solar panels and electric vehicles is only a small component of a green transition. Central is a transition to energy production from renewable sources. After all an electric car is only green if the electricity that powers it is. There has been a large increase in solar farms in the US, and to a lesser extent of wind farms. Nonetheless, in 2022 only around 13% of US energy was produced from renewable sources, whereas 19% still came from coal. Globally, the situation is far worse. In 1985 fossil-fuel fired plants generated 64% of electricity globally; in 2022 they generated 61%. Partly this is the relative decline of nuclear power, but above all it is the huge growth in electricity demand which has meant that expanding renewables has supplemented, rather than replaced, fossil fuels.
Profit is primary
Fundamentally capitalism is a system based on the blind drive for profit, and investment is never decided by environmental considerations but by where the greatest profits can be made. Despite the fall in the price of solar panels, renewable energy remains less profitable than fossil fuels. At this stage there is no mechanism to store renewable energy, and output obviously varies with the weather, not demand. This makes it an unreliable source of profit. Since the commodity produced – electricity – must compete at a priced determined by the fossil fuel competition, the expected profits are not high.
At the same time, the creation of new solar or wind farms is very capital intensive; it requires large fixed investments up front, in the hope of future profits. Unlike the oil giants, which have been making huge profits for prolonged periods of time, renewable companies are usually newer and reliant on borrowing from finance capitalists to invest in new capital expenditure. Higher interest rates make this a less viable proposition for many. But in any case investors go where they can get the best return, and for most far greater profits can be made elsewhere.
The value of US stocks grew by 14% in the first six months of 2024, the biggest increase since the late 1990s dot-com bubble. This is another speculative bubble, which will burst at a certain stage. The value of the shares of the ‘magnificent seven’ US tech companies has soared as a result of predictions of huge profits from Artificial Intelligence. They are where the fattest and fastest bucks are being made, so are pulling in far more investment than the areas being subsidised by IRA, regardless of its speculative character. The reality is that there is no lack of cash held by US corporations. The savings of the ‘magnificent Seven’ US tech giants are estimated to have exceeded $300 billion in 2023, but they make greater profits by sitting on their cash piles than by investing in them in clean energy, even with IRA ‘incentives’.
None of this is to suggest that the IRA has not had some impact on speeding up the development of clean energy in the US. It is, however, glacially slow compared to what is needed. Even according to the US Department of Energy, a grid expansion of more than two thirds would be required to move to a carbon free system, and the current rate of grid expansion is a tiny fraction of that. In 2023 the US added just 251 miles of high-voltage transmission lines. Clearly the IRA will not lead to a successful green transition in the US, never mind internationally. The climate crisis is a problem that can only be solved globally. Yet the US has only pledged a token and puny $5 billion over the last two years to the Green Climate Fund to help developing economies transition.
Putting the world on ‘rations’
This does not mean that the three ‘Bidenomics’ Acts have had no effect. At their launch they were predicted to generate $300 billion in new investments and create 2.9 million new jobs. The reality has so far fallen far short of that. Nonetheless, US manufacturing employment is reported to have increased by 700,000 between 2021 and March 2024. Factory building has contributed almost one third of business investment growth since the pandemic. FDI into the US has increased from $4 trillion in 2017 to $5.3 trillion in 2022. In particular, the world’s third and fourth economic powers – Germany and Japan – have increased their investment into the US by more than 50% since 2017. International investment in the US semiconductor industry has increased by 66% since 2017. Global capitalism has faced numerous shocks over the last four years – including a pandemic and wars. Nonetheless, US imperialism’s attempts to protect its own economy at the expense of its competitors is among the biggest ‘disruptors’ to global capitalism today, not least because it is pushing other countries to take similar protectionist measures.
The IMF estimates that in 2023 there were 2,500 new ‘industrial policies’ introduced worldwide, 71% of which it considered to be “trade distorting”. This compares to virtually none a decade before. It also claims that, in 74% of cases, a subsidy for a given product in one major economy will be followed by a subsidy for the same product in another major economy within 12 months. Last year the world’s governments imposed trade sanctions more than four times as often as they did in the 1990s, according to the Global Sanctions Database. The EU, for example, has recently threatened to increase tariffs on Chinese electric vehicles to up to 48%.
All of these are indications of the increasingly ‘multi-polar’ character of the world, and the growing tensions between the major economic blocks. Nonetheless, the huge integration that took place in the world economy over recent decades has not been undone. In the period after the collapse of Stalinism up until the 2008-2009 Great Recession world trade grew dramatically from 39% as a percentage of GDP in 1990 to 61% by 2008, with two-thirds of the profits growth (to 2013) being captured by Western companies. Since then it has not regained the pre-2008 peak but has still remained at a higher level than the early 2000s, or any previous period of history. In 2023 the US’s trade deficit with China was around $280 billion. That was a decrease – of around 11% – from the near record high the year before, but is nonetheless an indication of the continued interdependence of the US and Chinese economies.
Yet the capitalists of the major powers are compelled to increasingly go down the road of tariffs and other protectionist measures in order to try and protect their national markets. Doing so will not lead to a catastrophic collapse in global trade in the short term, but it is adding to the obstacles to it, and – as a result – adding to the multiple problems facing global capitalism.
Even for the US, still the richest country, any positive consequences of protectionist measures are likely to be very limited, especially for the working class. Given the high level of automation at the manufacturing plants being built, new jobs being created are likely be relatively small scale. At the same time the increased tariffs raise the price of goods for the US working class, at a time when the global inflation surge has already led to a 20% increase in prices. Nonetheless, Bidenomics has acted to pull a bigger share of global manufacturing investment into the US than would otherwise have been the case, so that they can access the still vital US market. In that sense it really is defending in the interests of US capitalism by putting the rest of the world on rations.
A socialist green transition
The US capitalist class is divided on many issues, including the IRA, reflecting their different material interests. It is no surprise, for example, that the oil and gas executives are among the biggest corporate donors to Donald Trump’s 2024 election campaign. Other sections are concerned about the objective limits to developing domestic manufacturing, which will generally produce commodities too expensive to compete against China in the global market.
There are also real worries about the size of the US state debt, currently at 120% of GDP, and forecast by the IMF to reach 140% by 2032. The IMF’s fear of future ‘systemic risks’ as a result of US debt is based on reality, but nonetheless the US’s continuing financial dominance at this stage – with the dollar still the global reserve currency – gives it far more room to manoeuvre than, for example, British capitalism.
A British capitalist government proposing measures on the scale of Bidenomics would face a ‘Truss-style’ attack by the markets. So, while other major economies are compelled to follow where the US has led, they have far more limited capacities to do so. In the case of the incoming pro-capitalist New Labour government, it’s Green Prosperity Plan has been downgraded to £5 billion a year; a tiny sum compared to the $369 billion pledged for green investment in the IRA.
What conclusions to draw for the working class in the US, Britain and globally? Capitalism is not capable of carrying out a green transition, but its moves in that direction will further increase the conflict between different sections of the capitalist class – within countries and globally – with some making greater profits and others losing out. At every stage the capitalists will attempt to make the working class pay the costs of any green measures taken. There will be mass resistance to this, however. The US working class has already re-entered the scene of history on a bigger scale than at any time since Stalinism collapsed. This year the United Auto Workers union has followed up the concessions won from the big US car manufacturers in last year’s strike wave with successful unionising drives in foreign-owned car plants in the South – Volkswagen in Tennessee and Daimler Trucks in South Carolina.
At the same time, the crisis of capitalism – its complete impasse within the framework of private ownership of the means of production and the nation state – shown above all by its inability to act effectively on climate change, is raising the need for socialism ever more sharply. Bidenomics is another illustration of how only planning, under the democratic control of the working class, will make it possible to develop production to a higher stage, organising it on a global basis to satisfy social needs and halt and reverse climate change, rather than being driven by the greed for profit.
