How the old imperialist powers still siphon off the wealth of the world

Part 6 of China in the age of American decrepitude

For most of the twentieth century, the United States was the dominant world imperialist power. Its power was based on its vast industrial, financial, and trade supremacy, through which, in the course of two world wars, it established its overwhelming military supremacy as well.

It has now lost that industrial supremacy  to China.  However, the United States has not yet lost all its advantages.  It remains the world’s greatest military power – which is of considerable economic significance. It also retains immense financial power, and remains the world’s single largest national market.  (The US market is slightly smaller than the European Union, the combined national markets of 27 nations in Europe – but the European Union is beset with internal contradictions.) These residual advantages of its historical industrial supremacy are the key to the US economy today.

Former steel plant in Bethlehem, Pennsylvania, now coverted into a resort. The United States has lost its industrial supremacy to China, but remains the world’s foremost financial and military power

The US is still able to leverage its position as the world’s most lucrative market to its advantage in various ways.

  • It can impose tariffs on imported goods. Its trading partners can and do retaliate in kind, of course, but the greater weight of the US market works to its advantage. As John Smith points out in Imperialism in the twenty-first century, (p20), tariffs charged in 2013 by the US government on its apparel imports from Bangladesh alone exceeded the total wages received by the workers who made these goods. Tariffs force foreign sellers to accept prices lower than the market average in order that, loaded with the tariff, their goods can compete with domestic sellers, who receive a higher than average price. In this way they transfer value to the protected market.

  • The US and other advanced capitalist industrial powers also appropriate wealth of the more technologically backward economies through unequal exchange on the world market. Che Guevara highlighted this, in his efforts to create more equitable trading relations between Cuba and the technologically advanced nations of the Soviet Union and eastern Europe. Basing himself on Marx, Guevara argued that the value of commodities is determined by the necessary labour time embodied in them. Therefore, when a backward country trades with a more advanced one, the advanced country gains an advantage similar to that enjoyed by the innovative capitalist, like our first toothbrush-manufacturer in the previous post, who is the first to introduce a labour-saving technology into a production process: the market price for the commodity is higher than the quantity of labour materialised in it through the production process of the innovative capitalist, but lower than that of the technically backward capitalists. Thus there is a transfer of value from the backward country to the advanced country, even when they are exchanging equivalents.

    This remains a major channel through which value is expropriated from the semicolonial countries by the imperialist powers. However, in relation to China, it dwindles as China catches up with and even, in some industries, outstrips US industry in technological advancement.
Harvesting cereals by hand. Unequal exchange transfers value from countries with backward technology to the technologically advanced industrial countries
  • The US dollar also continues to enjoy advantages as a currency that were established in the days of its industrial supremacy. The US dollar has been the de facto world currency since the end of the Second World War, when it finally displaced the British Pound Sterling from this role. A large proportion of international borrowing is conducted in dollars, even when the US is not involved, and much of world trade is also invoiced in dollars. One study found that, for example, South Korea paid for 82% of its imports in dollars, despite only 16% of its imports coming from America, while today Colombia invoices 98% of its exports in dollars. For these reasons, among others, most countries need to hold large dollar reserves – to pay for imports, service their loans etc.

    Today the dollar accounts for more than 60% of global foreign exchange reserves – which has the effect of an interest-free loan to the United States (or more commonly, a low-interest loan, when these reserves are held in the form of short-term US Treasury notes).

This is what has enabled the United States to have huge trade deficits, year after year, without accumulating a crippling foreign debt, as would any other country in the world. In 2020, for instance, the value of imports to the US of goods and services was 32% higher than exports; the US trade deficit has been at about that level for twenty years. These advantages were famously described in the 1960s as an “exorbitant privilege” by then French finance minister, Valéry Giscard d’Estaing.

  • This status as the world’s currency also enables the United States to project its political power over its financial partners. In 2014, for example, US courts fined the French bank BNP Paribas $8.9 billion for undertaking transactions for clients in Sudan, Iran and Cuba, countries on which the US had imposed economic sanctions. Such sanctions are not part of French law, but since the transactions were in US dollars, they had to be routed through New York, and thus fell under US jurisdiction.

    And then there is the indispensable commodity, oil and its derivatives – the commodity most traded internationally. Until recently, the entire world trade in oil was conducted in US dollars; the vast bulk of that trade still is. This means that if, say, Japan wants to buy oil from Saudi Arabia, it first has to buy US dollars. Thus the United States accrues a benefit from every purchase of oil between any countries in the world.

    The US is not shy about protecting the dollar’s ‘exorbitant privilege’ by military means. The euro, the common currency of the European Union, was created in the 1990s in part to challenge the dollar’s privileges: Europe, too, wanted an interest-free loan at the expense of the rest of the world. In November 2000 Iraq, which has the world’s second-largest oil reserves, switched to selling oil in Euros. The second US-led invasion of Iraq followed soon after – with noticeably less enthusiastic support from the US allies in Europe than the first invasion in 1990 – and the new Iraqi government installed by the invasion reverted to the oil trade in US dollars. Iran, which since 2016 has sold oil only in euros, and Venezuela, which has also sought ways to evade the dollar in oil sales, have both faced relentless hostility and military threats from the US. 1
  • The US exploits the semi-colonial world through usury. John Smith reports in Imperialism in the twenty-first century, (p303) that according to the IMF, total corporate debt of non-financial firms in the “emerging markets” stood at US$4 trillion in 2004; by 2014 it had skyrocketed to $18 trillion, that is, equivalent to 73% of their GDP, and by 2015 it had reached $23.7 trillion, or 90% of their GDP. Chinese non-financial companies alone accounted for more than half of this figure, Smith says, “their $12.5 trillion debt to banks and bondholders costs them an estimated $812 billion in annual interest payments.”

    Meanwhile, in more recent years, Reuters reports that “Emerging market firms have flocked to bond markets to cash in on low interest rates and have raised a record amount of money to fund expansion plans as they look beyond the coronavirus pandemic,” while the Financial Times warned in January 2020, just before the pandemic-triggered recession hit, that “The developing world’s rapidly swelling corporate debt market is an accident waiting to happen.”

    The crisis currently engulfing China’s second-largest property-development company Evergrande, gives us a glimpse of things that usually remain hidden. Evergrande has recently defaulted on an interest payment of $83 million on a 5-year bond worth $US2 billion at the time it was issued. This bond is denominated in US dollars, and is mainly held by institutional and foreign investors. The company has accumulated a staggering total of $300 billion of debts. According to the Financial Express, “Evergrande… which is staring at bankruptcy, hit the world’s biggest fortunes, with the richest people losing billions of dollars. The world’s top 10 richest people, such as Elon Musk, Jeff Bezos, Bill Gates, Mark Zuckerberg, Warren Buffett, and others lost over $26 billion [as Evergrande’s share price has dropped]. Tesla Inc.’s Elon Musk, the world’s richest billionaire, saw his net worth falling by $7.2 billion to $198 billion, according to the Bloomberg Billionaires Index. Inc. founder Jeff Bezos lost $5.6 billion, with a net worth of $194 billion.”

    The Financial Express appears to have compiled this information from secondary sources – and so its accuracy may be questionable. But one thing that all this shows is that capital exports from the US to China are by no means confined to productive industry, but also seek the higher returns possible in real estate speculation. We only hear about this because of Evergrande’s troubles – but we can be sure that such interest payments on corporate bonds are far from unique. According to a survey by S&P Global Ratings, China’s corporate sector accounts for 31% of global corporate debt.
China Evergrande shelves stake sale, Kaisa clattered by downgrade | Reuters
The payments crisis wracking China’s Evergrande property development group gives us a glimpse of the extent of lending by US and other foreign capitalists in China
  • A more visible form of the transfer of value to the US (and other imperialist countries) is through foreign direct investment (FDI). At least, the investment is visible, though the volume of profits transferred remains rather well concealed. Where they are reported at all, they are under-reported (Smith op cit p76-79).

    Prior to the 1990s, FDI was commonly driven by corporations in imperialist countries seeking access to each other’s markets, such as Japanese and European car manufacturers setting up assembly plants in the United States, or access to natural resources, such as Rio Tinto operating an iron ore mine in Brazil.

    From about the beginning of the new millennium, there was a sharp rise in investment in ‘developing economies,’ especially in Asia, seeking in the first instance not markets, nor raw materials, but cheap labour. China relaxed restrictions on inward FDI in 1991, and a gigantic exporting platform was built seemingly overnight. While the actual flow of profits is concealed, their growth can be estimated from trade records of trans-national corporations buying from their foreign subsidiaries. Imports to the US from US-owned trans-national corporations from their subsidiaries in China leaped from $3 billion in 1992 to $63 billion in 2005. (Smith p80)
  • Alongside of FDI, and in fact rapidly displacing it, is arm’s-length outsourcing of production to independent capitalists, through labour-only contracts of the kind Apple uses to contract its production work to Foxconn. In those same years 1992 to 2005, imports to the US from ‘independent’ suppliers in China rose from $22 billion to $180 billion, that is, nearly three times the volume of the in-house FDI imports (Smith p80). 

    Smith poses the ‘mysteries of outsourcing’ in this way: “A TNC [trans-national corporation] can, and often does, convert a direct in-house relation with a subsidiary into an arm’s-length relation with an independent supplier simply by signing some legal documents, erecting new signage, opening up a new bank account – without making any changes to the work regimes or to the labor processes, or to the prices of inputs, or to the profits realised on the sale of the output. The actual process of production and value creation/extraction would then be identical in every respect. Nothing would change except titles of ownership. Yet surface appearances would show a profound change: a visible flow of repatriated profits from subsidiary to HQ would vanish without trace… in the arm’s-length relationship all of the lead firm’s profits appear to rise as a result of its own value-added activities in the countries where the commodities are consumed, while their suppliers and the super-exploited workers employed by them make no contribution whatsoever.” (p69)

    The mystery is worth pondering. I think Smith is correct to point to the fundamental similarity of the exploitative relationship between FDI and ‘arms-length’ outsourcing. And to locate the mystery of the vanishing value in the relations between imperialist and exploited countries, and what he calls ‘global labor arbitrage’ – substituting the cheap labour in exploited countries for higher-paid labour in the old imperialist countries. Yet I think he fails to unravel the mystery completely.

    I would formulate the question in this way: What is it that induces Foxconn to agree to an extortionate contract such as it has with Apple and other US giants, a contract which robs it of the lion’s share of the surplus value produced in its own factories? Why would it find this arrangement more advantageous than producing its own computers, phones, etc and placing them on the world market under its own name?

    I think the answer to that question is a mixture of access to technology (the ‘Apple design’), a small share in the advantages of the Apple brand name, and relief from the expenses and risks of marketing the product. None of these advantages would be available to Foxconn if it were selling its own commodities. And at the bottom of each of them lies one or another form of monopoly.

    The last of these is relatively simple to understand: since the Foxconn-made phones are produced under contract, they belong to Apple. They are not sold to Apple on an international market – the ‘sale’ of the phones to Apple conducted on Chinese soil in a special bonded customs zone is in reality just payment of the labour contract. Foxconn can neither negotiate the price nor sell to other buyers. But this ‘sale’ allows Apple to take advantage of the tax haven in Ireland on the ‘exported’ goods, and also allows the Chinese government to tax as ‘imported’ goods those phones brought back from the bonded zone and sold to Chinese customers. Winners all round! The remaining phones then get airfreighted to the US for sale on the US and world markets as US products.
  • Brand name advantage is a particularly important element in this particular situation – Apple is reputed to be the most valuable brand in the world. What advantages does a brand confer?

    If a brand can establish itself in the market as the mark of quality, the seller can command brand-name rents on the price – that is, it can command higher than the average market price, reaping an extra share of surplus value at the expense of sellers of similar goods without recognised brand names, who are forced to accept prices below the average. This applies most obviously to luxury brands, such as the brazenly inflated prices commanded by fashion labels Gucci, Armani etc. But it also applies to items of popular consumption. At my supermarket, CocaCola sells at double the price of identical products that lack the band-name advantages. The power of the brand grows with size and breadth of distribution: brand name rents are the exclusive privilege of big monopolies. Advertising plays a major part in establishing both the popular recognition of the brand and the mystique surrounding its name. In Foxcomm’s case, access to the Apple design is the indispensable means to the benefits of the brand.

    Obviously, it is Apple, and not Foxcomm, that collects the brand name rents on an iPhone, and that rent is not a small component of the ‘value added’ after the phone leaves the factory. But rents on the price are not the only advantages of a brand name – brand recognition brings higher sales, due to buyers opting for the familiar, even where it is not necessarily associated with quality. Foxcomm does benefit from Apple’s brand recognition in this respect – it can rely on Apple taking its entire output, year after year. The advantages of that arrangement, compared to the difficulties Foxconn would face if it were to market its own products on the world market in competition with Apple and all the other big brands, are obvious.
The Apple brand is recognised as one of the ‘most valuable brands’ in the world – meaning that it can command the highest brand-name rents
  • Country of origin labelling increasingly becomes a form of brand naming. Given the complex supply chains of almost all commodities, the very idea of a single ‘country of origin’ is all but meaningless. Yet the label persists, as a kind of national brand name for those who can’t afford their own. The Covid pandemic that ravaged Italy, and required scapegoats, threw a spotlight on ‘Chinese outsourcing’ that was happening on Italian soil – where upwards of forty thousand low-paid Chinese workers in an under-the-table economy outside Prato, near Florence, assemble top-end handbags with the Gucci and Prada labels, as well as cheap clothing. A little piece of Shanghai transplanted to Italy, complete with low wages, cramped and illegal housing in the factory itself, and poor or non-existent safety standards – all in order to gain the advantage of the coveted ‘Made in Italy’ label.

    If the monopoly brand name is the cornerstone of Apple’s profits, the patent and copyright system performs the corresponding role for the pharmaceuticals and software industries respectively.

    Patents were originally a form of royal patronage which granted a state-sanctioned monopoly to manufacturers favoured by the king – no new invention or ‘intellectual labour’ was necessary. Such monopolies were obstacles to capitalist development, and so in the period of free capitalist competition they were challenged, and reduced in scope. Patents became a means of forcing disclosure of technical secrets and inventions, in the interests of the manufacturers as a whole. In return for revealing some new productive technique, the innovator was granted by the state the exclusive right to exploit that technique for a limited period of time.

    Today, the patent and copyright system resembles the royal patronage of the past more than it does the system that existed in the epoch of free competition. The pharmaceutical industry is often wheeled out as the prime justification for patents: in the making of drugs the actual cost of production – in the narrowest sense – is very low, while the cost of developing and testing new drugs can be very expensive and protracted, and often fruitless. Therefore a period of protection is needed for those who invest in this expensive process, before they face the competition from those who invested nothing in the costs of development, but just copied the formulations of those who did.  (A similar argument is sometimes raised in defence of state subsidies to the oil monopolies for offshore exploration, since the costs of exploring new oil reserves are much higher and more risky than the actual costs of extraction.)

    Lenin noted over a century ago that in the age on imperialism, “the process of technical invention and improvement becomes socialised.” (Imperialism, p16)  In modern capitalism, inventions and technical advances are not made by backyard inventors and individual innovators, but by teams of technicians assigned to that task, employed by both corporations and public institutions such as universities. The pharmaceutical companies have turned patent rights, already obsolete by reason of the socialisation of technical invention, into a licence to print money. This has been well documented in Ben Goldacre’s book Bad Pharma among others. The scandal that erupted in 2015 when young entrepreneur Matin Shkreli acquired the rights to the drug Daraprim, which had been in use for more than 60 years, and promptly raised the price from $13.50 per tablet to $750, is only the tip of the iceberg. While much of the drug production still takes place in factories in imperialist countries, this production is also being outsourced. Janssen, Merck, Johnson and Johnson, Roche and other pharmaceutical giants operate plants in China; Merck also has plants in Korea and India.

    An analogous situation exists with computer software. Once designed, software costs virtually nothing to produce and reproduce; the ability to draw an income from it depends entirely on  state-enforced copyright protocols. International trade agreements since the 1990s contain detailed provisions for the protection of “intellectual property,” especially monopoly patents, software copyright, and even trademarks! I know that the Microsoft Windows logo is pretty cool, but really, how much intellectual labour does it actually contain? (And at the very same time, copyright-protected incomes for individual artists, writers and musicians dwindle towards zero.) Patents and copyrights become one more form of paper values which can be bundled up and sold off to investors. This is not the ‘information age’ or the ‘post-industrial society’ coming into being, but a rancid little corner of the age of imperialism.
Such Salinger Peters - Software
The price we pay for copyright software is determined not so much by the ‘intellectual labour’ embodied in it, but by monopoly rents

So, to summarise: the channels through which value created by living labour in the semi-colonial countries is siphoned off to the imperialist powers, and the US in particular, include tariffs, unequal exchange, the dollar’s currency privileges, usury, foreign direct investment, arm’s-length outsourcing of production to low-wage countries, and brand-name, patent, and copyright rents.

John Smith’s Imperialism in the twenty-first century is the best overall account of these processes that I’m aware of. Smith concentrates his attention, correctly, on the growth of the relatively recent form, arm’s-length outsourcing to low-wage countries. But he errs in seeing this development as an entrenchment of the dominance of US, Japanese and European capitalists over the manufacturing process (see p202). It may well represent an intensification of the exploitative relationship, but this form of exploitation is indicative of the increasingly parasitic character of US capital, and parasitism does not imply dominance. The blood-sucking tick does not dominate the beast whose blood it sucks.

And due to this error, Smith fails to grasp the full significance of China’s rise. Extortionate it may be, but this form of exploitation appears to be the form most favourable to China’s capitalists, enabling them to copy and acquire advanced technology, to train the skilled technicians needed to apply that technology, and from there, to rapidly develop industries hitched directly to the Chinese powerhouse – its vast domestic market.

Imperialism in the Twenty-First Century: Globalization, Super-Exploitation,  and Capitalism's Final Crisis: Smith, John: 9781583675779: Books
John Smith’s Imperialism in the Twenty-first Century is a comprehensive account of the channels through which wealth flows to the imperialist centres.

All of these channels of exploitation are forms of monopoly super-profits that were established through the industrial supremacy that the United States gained, by accident of geography and history, in the early twentieth century – and which were reinforced by its financial and military supremacy gained a short time later in the course of two world wars. The fact that they persist after the US has lost this industrial supremacy, is a yawning contradiction. The imperialist privileges which underpin the US economy no longer correspond to material reality. The United States today finds itself in a very similar position to that confronting British imperialism in the early twentieth century, which Trotsky described so eloquently in Europe and America.

How much longer can the US dollar remain the world currency, in a world where China exports goods to almost double the value of US exports? How much longer will the US be able to benefit from unequal exchange, when its own industry increasingly falls behind, not just in volume of output but in technological advancement? How much longer will US brands be able to command brand-name rents, when the industrial superiority on which those brands rest no longer exists? How much longer will it be able to impose copyright and patent laws that favour the US software and pharmaceutical monopolies on the rest of the world?

The answer to all these questions is: until inter-imperialist war resolves these contradictions. As Lenin pointed out a hundred years ago, the growth of monopoly does not negate capitalist competition; it makes that competition more violent and convulsive. In the age of imperialism, there is no regular ‘business cycle,’ no ‘market mechanisms,’ no ‘competitive pressures’, which can resolve these conflicts without the resort to violent means.

War was how these matters were settled between the US, on the one hand, and Germany, the UK, and Japan successively, on the other, in the first half of the twentieth century. It was through World War 2 that the dollar displaced the pound sterling as the world currency, US supremacy in Europe was cemented, Japan’s challenge to its dominance in Asia was crushed, and many of today’s brand names achieved their world dominance. That is how it will be between the US and China. Unless, that is, the working class can resolve the bigger contradiction – between the overwhelmingly social means of production and private appropriation – which Lenin described a century ago.


  1. The journalist who continued to write about the implications of the challenges to the dollar in oil trading most was Robert Fisk. Since part of what he wrote about included secret meetings, it is difficult to know if and at what point he crossed the line into conspiracism, as this article claims. The facts of Iraq’s euro sales and the subsequent invasion and reversion to the dollar are indisputable – chains of causation are possibly not so clear.)

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