The new international division of labor and the Suez Canal

30 March, 2021

Suez Canal and the new international division of labor

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The topic of this article was chosen for yesterday by the readers of the Communia channel on Telegram

The new international division of labor created in the 1990s and “just in time” production

The signing of the North American Free Trade Agreement by Clinton (escorted by Gore, Bush, Carter, Ford and House leaders) in 1990 inaugurated a new stage in the international division of labor.
The signing of NAFTA by Clinton (escorted by Gore, Bush, Carter, Ford and House leaders) in 1990 inaugurated a new stage in the international division of labor.

What was called globalization after the signing in 1990 of the free trade agreement between the United States, Mexico and Canada, was in reality a reorganization of global production chains designed to provide an outlet for a huge mass of fictitious capital with no productive destination. A whole new international division of labor forced by the underlying crisis of capitalism.

This redesign of value chains, as they pompously called it, was so subordinated to the logic of finance capital as a whole that it led to a generalized financialization of all the links in the production chain. This phenomenon went far beyond a scaled-up development of the insurance industry or the generalization of financing and indebtedness: companies became cash maximizers because their liquid revenues – and not just their profits – along the entire chain flowed into the financial markets where they generated an extraordinary speculative income which, again according to the jargon of the time, maximized shareholder value.

Maximizing the results of this game required flattening tariff and tax differentials in order to boost the fluidity of the free movement of capital and commodities. The movement of capital became so rapid and massive, so liquid, that it soon showed how the instabilities inherent in speculative markets could be transferred to the productive apparatus. Suffice it to recall the Mexican peso crisis of ’94 or that of the Thai baht in ’97.

But the world of commodity production and sale, the material heart of capitalism, ran on different timings. It took time to get a commodity from one place to another, and in doing so, logistical costs were incorporated. The maximizing solution consisted in part in reducing these costs and times, at least as far as state controls were concerned. But above all in reducing the adaptation times of peripheral suppliers to changes in the production needs of the final assembly lines within or at the borders of their main markets.

The predictability and speed of component and semi-processed product flows enabled major automotive, electronics and even agri-food companies to implement a new inventory management system, the just in time approach.

The just in time system eliminated warehousing costs, freeing capital for speculation, loaded market risks on the shoulders of suppliers and rendered overproduction invisible in the central capitals, which would no longer be overwhelmed by masses of unsold stockpiles. The new archetypal form of overproduction in Europe and the USA would henceforth be the pauses and mass layoffs, and in China it would be the unemployment of migrant workers in the cities. The new international division of labor also implied greater and new forms of worker precarization.

Three warnings

The collapse of “just in time” chains during Chinese lockdown

Disinfecting machinery in a Chinese factory during the lockdowns.

If Biden, far from reducing pressure on China, has stepped on the gas, it is because U.S. capital as a whole perceives that the stretching of logistics chains is no longer sustainable. When an event as seemingly external to capital accumulation as the Covid lockdown in China cripples industry and domestic capital, the risks of competitor retaliation against increased imperialist competition become unaffordable and a new international division of labor becomes strategic.

What is becoming increasingly clear to US capital is that to maintain its global position it needs to recover the bulk of its productive machinery. Covid has only reinforced that idea precisely because of the exact opposite of what Trump has been claiming. Not because China is the cause of the epidemic, but because any random element, such as an epidemic in the other part of the world, can take down production chains that are distributed and extremely fragile due to a “just in time” system designed to extract the last drop of financial gain by eliminating even local warehousing.

What is the US about? 12/5/2020

And that’s because lockdowns in China during the first Covid wave not only made it impossible to buy face masks and respirators, they also crippled industrial enterprises of all kinds from California to South Africa to Spain to Germany.

It became clear that if China went on the offensive in the trade war, shutting down or limiting its own exports, European and U.S. industry could be crippled. The faction of the U.S. bourgeoisie that propped up Trump then ended up convincing the more reluctant factions of the need to stop Chinese development and give rise to a new international division of labor.

But the reality was even more revealing: It was America’s own attempts to put a stick in the wheel of its Chinese competition which produced the first major industrial shortage crisis during a supposed peacetime.

Chips and the first global industrial shortage crisis in “peacetime”

Workers at a Foxconn electronics factory in China

China focused its investment effort for decades on the mid- and large-capitalization sectors. Its goal was to become the world’s factory in the new international division of labor that emerged in the 1990s… and from that industrial springboard to move on to compete in new markets linked to cutting-edge technologies. So while it became a formidable competitor for American and European capital in cutting-edge production, it maintains a dependence that is impossible to overcome in the short term at the base of the electronics industry: chips and semiconductors.

The Trump strategy to curb Chinese development quickly realized this and conducted a proof of concept by blocking Huawei from buying chips from U.S. companies. It should not be forgotten that Huawei is an industrial spin off of the Chinese military. In doing so, Trump was not only threatening the Chinese tech industry by propelling in the process a fresh flow of capital to his own companies, but was putting Chinese military development in jeopardy.

The Chinese response was swift: de facto nationalization of the main Chinese producer, HSMC and consideration of chip development as a strategic priority to try to close the gap with the US as soon as possible… although not before five years.

The deployment of the strategy by the U.S. and the prospect of technological warfare it opened up immediately made the international chip market more expensive…. quickly affecting first the Japanese car companies and then the European and North American ones that depend on Chinese supplies, and also the Korean tech companies like Samsung or SK. The situation in these months has only worsened. In fact, the supply crisis suffered by European industries is already estimated to last at least another year.

The result is a reconfiguration of global chip production and new competition to house it which outline a new international division of labor. Keeping factories close by has become a matter of security for capital to invest. That is why the EU announced its willingness to double its production in the short term on the basis of state investments… and big capital and global companies are starting to respond: just this week Apple announced that it will invest over 1 billion euros in a specialized semiconductor research center in Munich.

The disruption of the Suez Canal

The Suez Canal and the new international division of labor
Rescue work in the Suez Canal

19,000 ships crossed during 2020 the Suez Canal. The only alternative so far is to circumnavigate Africa, i.e. adding 6 to 7 days of navigation (and costs). And each day of stoppage means the delay of more than 100,000 containers of 14 tons average weight, a third of the world total. And to that must be added 10% of worldwide oil and gas shipping.

With most European companies straining for just in time, a disruption of just three days like the one that ended yesterday, means having to shut down or slow down production in quite a few industrial chains… especially those that require electronic components produced in China.

This is a warning about how vulnerable our supply chains are and how the just-in-time inventory techniques that have been so prevalent need to be rethought.

William Lee, Milken Institute

But can just in time be redesigned without pushing for a new international division of labor?

The new international division of labor will be paid for by the workers and is preparing for war

Workers at a German Volkswagen factory.

The shortages during the Chinese confinement, the industrial shortage of semi-conductors and the economic consequences of the closure of the Suez Canal are only warning signs that in turn fuel a trend underway since the Obama years: the coming to the fore and the increasingly violent development of imperialist competition between China and the U.S.

At a time marked by the rise of economic forces driving the formation of blocs around the axes of trade war, an increasingly violent moment in inter-imperialist relations, technological and economic interdependence is increasingly seen by all as a liability and a danger instead of as a guarantee of stability (as we were told for almost three decades).

The new international division of labor that is being implemented is obviously less efficient, it devotes more resources to produce the same thing. And that in capitalism means higher prices and therefore a further cut to the purchasing power of wages at the global level.

But for once that is not the most important thing, not for workers either. The new international division of labor is manifesting itself in that the production of certain commodities considered strategic, this production is being partly renationalized and partly redistributed in semi-colonial countries considered safe by each power or group of powers. The EU is being the first to expand the list with new dual-use technologies. And they’re only just getting started.

If the trade war created trade blocs at full speed, the new international division of labor is the first symptom of the passage from trade blocs to military blocs. Capitalism is preparing for war and is marching resolutely down the road leading to it. That is the real meaning of the new international division of labor. Once again, we workers are the only ones who can stop the slide. First stop: the new Covid wave that is brewing.