John Ross

Why the global inflationary tsunami is made in the United States and not Ukraine

An inflationary tsunami is passing through the world economy, creating economic disorder—in some cases acute political crisis—in every country it touches. This is gathering momentum as the U.S., which is leading other Global North economies, attempts to control inflation by rapidly raising interest rates—forcing the Global North economies into recession.

This article was produced by Globetrotter.

The Global South economies have been thereby struck by a quadruple whammy producing still more severe stagflation, rising inflation, and slowing growth than in the Global North. First, rising U.S. interest rates force up the dollar’s exchange rate against the currencies of developing countries, increasing import prices that are usually set in dollars, thereby worsening inflation for these developing countries. Second, the dollar’s climb against the currencies of developing countries increases the cost in their currencies of repaying international debts, which are dollar-priced. Third, to attempt to prevent a very sharp fall in their exchange rates, and to try to prevent capital from flowing out of their economies into the U.S., the Global South countries raise interest rates—pushing their economies toward recession. Fourth, the Global North’s recession lowers the demand for Global South exports, putting further downward pressure on their economies.

Politically, this situation creates crises for several right-wing regimes in the Global South, but also adds negative pressure on the policies of progressive left governments and leads to the threat of “color revolutions.”

U.S. Inflation

The U.S. claims that this global inflation, and the downward pressure on living standards it creates, is due to the Ukraine war—and that therefore, countries should blame and unite against Russia. But a brief look at the facts refutes this claim.

The Ukraine war started on February 24, 2022, but U.S. inflation had already been rising sharply for nearly two years before that. U.S. price rises were 0.1 percent in May 2020, but by January 2022, before the Ukraine war, prices had risen to 7.5 percent—U.S. inflation rose by 7.4 percent before the war. In August 2022, U.S. price rises were 8.3 percent, a rise of only 0.8 percent since the war began.

More than 90 percent of the U.S. price rises took place before the Ukraine war. Therefore, it is important to think critically when the U.S. blames Russia for the worldwide inflation and the resulting reduction in living standards. The huge U.S. inflationary wave, which spread globally with only a two-to-three-month delay, since the U.S. is the world’s largest economy, took place before the Ukraine war. As the Wall Street Journal editorial board noted: “This isn’t Putin’s inflation… This inflation was made in Washington.”

What Caused the U.S. Inflation?

It is easy to explain in technical economic terms why U.S. inflation soared—it was analyzed as it occurred by U.S. economists such as former Treasury Secretary Larry Summers. In May 2021 Summers warned: “We’re taking very substantial risks on the inflation side… The Fed’s idea used to be that it removed the punchbowl before the party got good… Now, the Fed’s doctrine is that it will only remove the punchbowl after it sees some people staggering around drunk… We are printing money, we are creating government bonds, [and] we are borrowing on unprecedented scales.”

The U.S. budget deficit rose to 26 percent of GDP and the annual increase in U.S. money supply reached 27 percent—both by far the highest in U.S. peacetime history. With a huge surge in demand taking place, and no major increase in supply, soaring U.S. inflation was inevitable.

What Was the Role of Inflation?

But more important than a technical explanation is understanding the social role of inflation. Inflation showed that demand was far higher than supply—putting upward pressure on prices of goods and services. So, with no increase in supply taking place, demand had to be cut back. The key social question was: Which U.S. spending would be cut?

Many U.S. reforms could be implemented by cutting demand and reallocating spending, thereby reducing inflationary pressures, while not reducing U.S. living standards—indeed, these reforms would improve U.S. economic efficiency and living standards. U.S. military expenditure is the highest in the world—more than the military spending by the next nine countries combined. This 3.7 percent of U.S. GDP spending could be reduced with no fall in U.S. living standards.

Equally, in 2020 U.S. expenditure on healthcare reached 19.7 percent of GDP—almost one-fifth of its economy. But the U.S. private healthcare system is very inefficient. The U.S. spends a higher proportion on health care as a share of its economy than any other economy in the world, but the U.S. life expectancy is only 77 years, compared to an average of 83 years in other high-income economies. The cost of private health care system in the U.S. comprises a higher proportion of the country’s economy for its citizens to live around six years less than comparable countries.

But reducing U.S. military expenditure, or rationalizing health care, would go against the vested interests of arms manufacturers and Big Pharma in the U.S., respectively. Reducing U.S. military spending would force a lessening of its aggressive overseas military policy. Rationalizing U.S. healthcare would entail a move toward a public healthcare system as more successfully used by other countries and would cut profits of big private healthcare corporations. The U.S. government’s vested interests in supporting arms manufacturers and Big Pharma means that no such actions will be taken.

But if no measures are taken against these vested interests, then the only alternative way to reduce spending is to cut working-class living standards. This is what happens during inflation. As John Maynard Keynes explained it is much easier to cut real wages by high inflation than by directly reducing money wages—it is a partially concealed cut and workers cannot negotiate with their employers over inflation levels.

The medium- and long-term inflation is destabilizing and must be controlled–normally in capitalism, this is achieved through recession. But short-term inflation is a powerful tool to reduce real wages which is what is happening.

The average U.S. money wages are increasing—in August they rose by 4.6 percent. But prices increased more rapidly—by 8.3 percent during the same period. U.S. real wages, therefore, fell, as they have every month since April 2021. In August 2022, U.S. real weekly earnings were 3.4 percent lower than a year previously.

But this inflation, which is cutting U.S. workers’ real earnings, spills out into the rest of the world creating a crisis in the Global South. U.S. inflation, therefore, attacks both U.S. workers and the rest of the world.

Author Bio: John Ross is a senior fellow at Chongyang Institute for Financial Studies, Renmin University of China. He is also a member of the international No Cold War campaign organizing committee. His writing on the Chinese and U.S. economies and geopolitics has been published widely online, and he is the author of two books published in China, Don’t Misunderstand China’s Economy and The Great Chess Game. His most recent book is China’s Great Road: Lessons for Marxist Theory and Socialist Practices (1804 Books, 2021). He was previously director of economic policy for the mayor of London.

Why sanctions are worsening the global food crisis and what can be done about it

“There is really no true solution to the problem of global food security without bringing back the agriculture production of Ukraine and the food and fertilizer production of Russia and Belarus into world markets despite the war.” These blunt words by UN Secretary-General António Guterres accurately describe the present global food crisis.

This article was produced by Globetrotter.

As the U.S. and the G7 (comprising Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) insist that cutting off food exports from Ukraine poses the biggest threat to world food security, rather than admitting the far more powerful negative effect of Western sanctions against Russia, their propaganda does immense damage to the world’s understanding and capability of avoiding a looming global food disaster.

The G7 and the Approaching Food Disaster

Looking at the world food supply situation, many experts see an imminent threat of “human catastrophe,” as World Bank President David Malpass put it. Andrew Bailey, the governor of the Bank of England, characterized his outlook on global food supply problems as “apocalyptic” when discussing increasing food prices. This rise has led to the unfolding of two issues simultaneously: creating the threat of hunger and famine in parts of the Global South, and hitting living standards in every country across the globe.

Even before rapid price rises surrounding the Ukraine war, more than 800 million people were suffering from chronic food insecurity—around 10 percent of the world’s population. U.S. Treasury Secretary Janet Yellen cited this fact while speaking to the participants of an April 2022 event, “Tackling Food Insecurity: The Challenge and Call to Action,” whose participants included the heads of international financial institutions such as the World Bank’s Malpass. Yellen also noted, “Early estimates suggest that at least 10 million more people could be pushed into poverty in Sub-Saharan Africa due to higher food prices alone.” The World Food Program (WFP) plans “to feed a record 140 million people this year,” and it reports that “at least 44 million people in 38 countries are teetering on the edge of famine,” an increase from 27 million in 2019.

In countries facing other problems, like climate change, food price increases have been catastrophic. For example, in Lebanon, “the cost of a basic food basket—the minimum food needs per family per month—[rose]… by 351 percent” in 2021 compared to 2020, according to the WFP.

In the Global North, famine is not a threat, but the populations of these countries face a sharp squeeze on their living standards as the global food crisis also raises the prices people in wealthy countries have to pay and budget for. In the United States, for example, the combination of high inflation and economic slowdown led to a 3.4 percent reduction in real average weekly earnings in the last year, as per data provided by the U.S. Bureau of Labor Statistics.

Fake Analysis by the G7 About the Reasons for the Food Crisis

Faced with this rapidly rising threat of the deepening food crisis, the G7 foreign ministers met from May 12 to May 14 to finally focus their attention on this pressing matter. They issued a statement on May 13 expressing “deep concern” about the growing food insecurity, while pointing out the next day that “the world is now facing a worsening state of food insecurity and malnutrition… at a time when 43 million people were already one step away from famine.”

But the G7 falsely claimed that the reason for this food crisis was primarily due to “Russia blocking the exit routes for Ukraine’s grain.” According to Canada’s foreign minister, Mélanie Joly: “We need to make sure that these cereals are sent to the world. If not, millions of people will be facing famine.”

Sanctions and the Global Food Crisis

This G7 statement deliberately misrepresented the present global food crisis. Instead of attempting to solve this crisis, the U.S. and the rest of the G7 used this opportunity to further their propaganda on the Ukraine war.

Certainly, Ukraine’s export restrictions make the global food problem worse. But it is not the main cause of the deteriorating situation. A much more powerful cause is Western sanctions imposed on Russia’s exports.

The first reason for this is that Russia is a far bigger exporter of essential food items and other products in comparison to Ukraine. Russia is the world’s largest wheat exporter, accounting for almost three times as much of world exports as Ukraine, 18 percent compared to 7 percent.

Second, and even more important, is the situation with fertilizers. Russia is the world’s largest fertilizer exporter, and Belarus, which is also facing Western sanctions, is also a major supplier—together they account for more than 20 percent of the global supply. Fertilizer prices were already rising before the Ukraine war due to high fuel prices—fertilizer production relies heavily on natural gas—but sanctions by the West, which prevent Russia from exporting fertilizers, have made the situation worse.

David Laborde, a senior research fellow at the International Food Policy Research Institute, pointed out that “the biggest threat the food system is facing is the disruption of the fertilizer trade.” This is because, he said: “Wheat will impact a few countries. The fertilizer issue can impact every farmer everywhere in the world, and cause declines in the production of all food, not just wheat.”

The threat to global fertilizer supply illustrates how energy products are an essential input into virtually all economic sectors. As Russia is one of the world’s largest exporters not only of food but also of energy, sanctions against the country have a knock-on inflationary effect across the entire world economy.

Response in the Global South

This world food supply situation worsened further after the G7 meeting when on May 14, India, the world’s second-largest wheat producer, announced that it was halting wheat exports due to crop losses caused by an intense heatwave. Already in April Indonesia had announced that it was ending palm oil exports—Indonesia accounts for 60 percent of the world supply.

India’s halt of wheat exports will be a further severe blow to countries in the Global South, where its exports are mostly focused. In 2021-2022, India exported 7 million metric tons of wheat, primarily to Asian Global South countries such as Sri Lanka, Indonesia, Yemen, Nepal, Malaysia, the Philippines, and Bangladesh. But India had earlier set a target of expanding wheat exports to 10 million tons in 2022-2023, including supplying 3 million tons of wheat to Egypt for the first time.

Ending Sanctions to Prevent Worsening of the Food Crisis

The unfolding situation makes clear that António Guterres’ words were indeed accurate—the world food crisis cannot be solved without both Ukraine’s exports and Russia’s exports of food and fertilizer. Without the latter, humanity does indeed face a “catastrophe”—billions of people will have to lower their living standards, and hundreds of millions of people in the Global South will face great hardship like hunger or worse. Almost every Global South country rightly refused to support the unilateral U.S. sanctions against Russia. This refusal needs to be extended to the whole world to prevent further devastation.

Author Bio: John Ross is a senior fellow at Chongyang Institute for Financial Studies, Renmin University of China. He is also a member of the international No Cold War campaign organizing committee. His writing on the Chinese and U.S. economies and geopolitics has been published widely online, and he is the author of two books published in China, Don’t Misunderstand China’s Economy and The Great Chess Game. His most recent book is China’s Great Road: Lessons for Marxist Theory and Socialist Practices (1804 Books, 2021). He was previously director of economic policy for the mayor of London
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The world's biggest trading bloc does not include the United States

This story was produced by Globetrotter.

On November 15, 15 Asian and Pacific countries signed an agreement known as the Regional Comprehensive Economic Partnership (RCEP) that unites 30 percent of the global population and 30 percent of global gross domestic product (GDP). The entire trade area, which runs from New Zealand to Japan and across the length of China, brings together a range of industries, from mining to high tech, and 2.2 billion consumers. Around 90 percent of tariffs will be cut, and customs procedures will be simplified.

It is significant that China is at the heart of this agreement. From 2005 to 2015, many of these countries had negotiated the Trans-Pacific Partnership (TPP), which was a process driven by the United States to isolate China from the Pacific Rim countries. U.S. President Donald Trump withdrew his country from the TPP, which mothballed it; he favored a more direct "trade war" against China. Meanwhile, at a summit in 2011, finance ministers from across Asia welcomed a proposal from China and Japan to begin negotiating the RCEP, a far larger agreement that was opposed by the United States. Now, it is the RCEP that has been signed, while the TPP languishes without the participation of the United States. There is so far no evidence that the new U.S. government led by Joe Biden would try to revive the TPP.

India had joined the RCEP negotiation process in 2011 but withdrew in 2019. The public view is that India's government responded to domestic manufacturers, particularly the generic pharmaceutical industry, but it is more likely that India decided not to antagonize Washington. There are more reasonable concerns about the problems of unemployment generation in certain countries as a consequence of trade liberalization.

Major U.S. allies such as Australia, Japan, and New Zealand are party to the RCEP. Both Australia and Japan are members of the U.S.-led Quadrilateral Security Dialogue (or Quad), which is a military alliance against China that includes India. For both Australia and Japan, the economic benefits of the RCEP led them to join regardless of its political implications; New Zealand, which, like Australia, is part of the Five Eyes intelligence alliance with the United States, also joined purely for realistic economic reasons. This is—nonetheless—a major political blow for the United States and the cold war it has attempted to impose on China.

Vijay Prashad is an Indian historian, editor and journalist. He is a writing fellow and chief correspondent at Globetrotter. He is the chief editor of LeftWord Books and the director of Tricontinental: Institute for Social Research. He is a senior non-resident fellow at Chongyang Institute for Financial Studies, Renmin University of China. He has written more than 20 books, including The Darker Nations and The Poorer Nations. His latest book is Washington Bullets, with an introduction by Evo Morales Ayma.

John Ross is a senior fellow at Chongyang Institute for Financial Studies, Renmin University of China. His writing on the Chinese and U.S. economies and geopolitics has been published widely online, and he is the author of two books published in China, Don't Misunderstand China's Economy and The Great Chess Game. He was previously director of economic policy for the mayor of London.

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