Pakistan government prepares savage austerity following IMF “bailout”

Sampath Perera

Pakistan’s Islamic populist Tehrik-e-Insaaf (PTI) government is preparing to bring down a savage austerity budget next month, after reaching agreement with an International Monetary Fund (IMF) technical team on a $6 billion “bailout” and “structural adjustment” package.

Reports describe the terms of the bailout—which still requires approval from the IMF’s Board of Directors—as the toughest ever accepted by Pakistan, which has received IMF aid 21 times since 1950 and more than a dozen times in the past 30 years.

At a press conference last Saturday, Hafeez Shaikh, Prime Minister Imran Khan’s principal economic adviser, bluntly declared that the upcoming budget would be “an austerity budget.” He claimed the “army, civilian and private institutions are on the same page,” and that all of them will participate in “serious, sustained and structured reforms and difficult decisions.”

The IMF is demanding that Pakistan reduce its annual budget deficit by $5 billion or 0.6 percent of the country’s gross domestic product (GDP). It is also demanding Islamabad increase tax revenue by 36 percent, or the equivalent of 2.2 percent of GDP. Dodging a question on whether the budget of Pakistan’s nuclear-armed military will be cut, Shaikh affirmed that the “sovereignty [of Pakistan] will be protected by giving every possible sacrifice.”

Defence and debt servicing currently consume more than half of all Pakistan government expenditure. Shaikh’s refusal to countenance any reduction in the defence budget means that the cuts to social and development spending will be even more savage. Reported plans include the elimination of subsidies for electricity, gas and petroleum products.

Shaikh did not elaborate where the increased tax revenue would come from. The tax evasion of Pakistan’s ruling elite, both government-sanctioned and illicit, is notorious—to the point that even the IMF advocates it do more to support the infrastructure needed to make Pakistani capitalism more “competitive.” But the pro-big business PTI, like all its predecessors, will undoubtedly ensure that most of the burden of any tax hikes falls on Pakistan’s impoverished workers and rural toilers.

According to a 2018 World Bank report, 30 percent of Pakistanis are living in poverty, and one in every five Pakistanis is malnourished.

Islamabad and the IMF technical team reached agreement on the proposed bailout against the backdrop of intensifying geopolitical rivalry between the United States and China. Washington, which over the past 15 years has downgraded its traditional strategic partnership with Pakistan in pursuit of closer ties with its arch-rival India, is seeking to exploit Pakistan’s economic crisis to disrupt Islamabad’s burgeoning economic and military-strategic ties with Beijing.

Last summer, shortly after the PTI government was elected to office, the Trump administration threatened to use its influence in the IMF to block any bailout, with Secretary of State Mike Pompeo declaring that the US had no interest in rescuing Chinese creditors.

Since then, Washington has repeatedly raised concerns about Pakistan’s growing economic reliance on China, and in particular the more than $60 billion China-Pakistan Economic Corridor (CPEC) project. Not only would the CPEC dramatically expand Chinese-Pakistani economic ties. It has major strategic implications, as it would link western China to the Pakistani Arabian Sea port of Gwadar, providing a means for Beijing to partially counteract Pentagon plans to blockade China by seizing Indian Ocean and South China “chokepoints,” in the event of a war or war crisis.

The May 12 announcement of the proposed IMF-Pakistan bailout package in no way means Washington has relented in its opposition to the CPEC or in its determination to limit and disrupt ties between Islamabad and Beijing. If the deal is subsequently approved by the IMF, over whose policy the US retains a commanding say, it will only be because Washington calculates it has leveraged Pakistan’s economic crisis to the optimum.

In recent months, Pakistan has sought to curry the Trump administration’s favour by assisting it in launching “peace negotiations” with the Taliban. Washington is also no doubt concerned about the impact of a refusal of all and any IMF assistance to Islamabad. Such action would only push Pakistan further into China’s economic and strategic embrace, and could trigger an economic collapse that would be disruptive to an already fragile world economy.

Full details of the IMF-Pakistan package have yet to be announced. But there is also much to suggest that the IMF has made “transparency” about the financing and other details of the CPEC a condition of its bailout package.

The proposed agreement falls far short of the $12 billion Islamabad originally sought, but will provide a desperately needed injection of funds to its depleted foreign reserves.

Uncertain of its chances of securing IMF assistance and wary of the draconian terms it expected would be attached to any “bailout,” the PTI government secured $9.2 billion in assistance from China, Saudi Arabia and the United Arab Emirates last fall. Nevertheless, the government continued backroom negotiations with the IMF, and repeatedly imposed austerity measures to demonstrate its determination to implement “politically difficult” pro-investor “reforms.”

However, Pakistan’s economic position has continued to deteriorate in recent months. Pakistan’s rupee is among the worst performing currencies in Asia, with its value plunging more than 40 percent since December 2017 against the US dollar. Inflation has risen to 9 percent in recent months.

“Pakistan is facing a challenging economic environment, with lackluster growth, elevated inflation, high indebtedness, and a weak external position,” the IMF statement announcing the bailout agreement said.

Apart from demanding austerity, the IMF is also expected to have insisted on an aggressive drive to privatize state-owned “loss making” enterprises.

Prime Minister Imran Khan, who posed as a vociferous critic of the IMF while in opposition and promised an “Islamic welfare state” as part of his election campaign last year, has restructured his government in recent weeks so as to demonstrate to the IMF that he is ready to impose its diktats on the population.

This has involved elevating to senior positions in his government a number of people who played leading roles in imposing neo-liberal reforms under the hated, US-backed dictatorship of General Pervez Musharraf.

Khan picked Shaikh, Musharraf’s minister for privatization, as his chief economic adviser after firing his finance minister, Asad Umar. In addition, to serving in Musharraf’s government, Shaikh oversaw the implementation of a previous round of IMF austerity measures, while serving as finance minister of the Pakistan People’s Party government that came to power after Musharraf’s regime unraveled. Shaikh is popularly reviled for refusing to provide any meaningful relief to the millions of people severely affected by unprecedented floods in 2010.

Khan has named Ijaz Shah, who served as head of the Intelligence Bureau under Musharraf, to run the Interior Ministry. Shah’s appointment is a sharp warning to the workers and toilers that the PTI government is preparing to face down the inevitable eruption of popular opposition to its policies with vicious state-repression.

The new governor of the State Bank of Pakistan (SBP), Reza Baqir, was himself for 18 years a senior IMF employee, and as such played a leading role in designing and implementing anti-worker “structural adjustment” programs in multiple countries. When the announcement was made that Baqir was becoming the head of Pakistan’s central bank, he was the IMF’s Senior Resident Representative to Egypt, advising President Abdul Fattah el-Sisi on the austerity measures to be implemented by his blood-soaked military dictatorship.

The London based Financial Times responded to the announcement of the IMF package for Pakistan by publishing an editorial that demanded it “enforce strict targets in Pakistan.” After warning against possible backtracking by Islamabad in the face of popular opposition, the mouthpiece of Britain’s financial elite urged the IMF to leverage the bailout against China. “An IMF programme will at least help in that goal, and limit the country’s growing overdependence on China,” declared the Times. It then went on to insist that the IMF require “full transparency on the currently opaque terms of Pakistan’s bilateral loans (from China), and the repayments due after Beijing invested $62 billion in the China-Pakistan Economic Corridor.”

Russian health care workers protest over wages and staffing

Andrea Peters

Emergency health care workers in the Penza oblast, Russia, several hundred kilometers southeast of Moscow, staged a work-to-rule strike in late May over wages and working conditions. The labor action in the region of 1.3 million people is an expression of the anger mounting across the country over the impact of the government’s ongoing “optimization of health care,” which has led to the shuttering of facilities, pay cuts, and increased burdens on an already overstretched public system.

Medical assistants at Penza’s emergency unit refused to work unless their teams were fully staffed, nurse-anesthetists refused to perform their duties unless accompanied by the appropriate doctor, and drivers refused to operate faulty vehicles. The 138 employees demanded a wage hike and an increase in the number of response teams to the federally mandated minimum such that units can reach the sick within 20 minutes of an emergency call.

Union leaders acted quickly to call off the action, announcing on Friday that they had reached an agreement with local officials to create a joint commission to address the “economic” and “technical” issues raised by the workers. Union representatives said they are “prepared for dialogue.” None of the workers’ demands have been met.

The protest by Penza’s medical workers comes on the heels of similar actions elsewhere. At the end of April, nurses in Kemerovo oblast in Siberia announced a strike over massive cuts to the health care system due to a 1.7 billion ruble (US$26 million) budget shortfall. The governor responded by declaring the action impermissible and a “shame on the honor of the region.”

In early March, health care providers at an emergency unit in Moscow oblast staged a work-to-rule strike over low wages, low staffing, and the burdens created by the closing of medical facilities in neighboring areas. In mid-March, 500 demonstrators protested in Okulovka, a town of 10,000 midway between Moscow and Saint Petersburg, over similar issues.

Throughout the country, public doctors are leaving the profession due to abysmally low salaries and impossible working conditions—facilities lack basic medicines and equipment, such that medical personnel cannot treat patients or are forced to rely on primitive techniques. As is common throughout the world, those with money increasingly turn to private practices for care, creating huge inequalities in the quality of medical services people receive and extraordinary burdens on families desperate for treatment.

The worsening state of Russia’s public health care system is bound up with the Putin government’s “optimization” plan, which has taken advantage of the already deplorable state of medical services to mount further attacks. Particularly in the country’s regions where population is declining, the economy is stagnant, and job opportunities are few, the government has set about consolidating medical facilities, axing staff, eliminating clinics, liquidating specialty departments, and vastly increasing the demands on whatever and whoever remains.

All of this has been done in the name of making a more rational use of resources, which is simply a cover for cutting expenditures by ending access to care for millions of people. Like the changes to the health care system carried out under the Obama administration in the United States, the so-called reforms of the Putin government are overwhelmingly regressive.

In an interview with the press outlet IA Regnum on April 3, Yekaterina Negoda, a medical worker in Kaluga, south and slightly west of Moscow, noted that “optimization” is driving up the death rate. According to her, reforms carried out in Kaluga in 2018 caused mortality in the oblast to exceed the birth rate by 13 percent.

The assault on public health care comes alongside the raising of the retirement age, which is now at such a level that a significant portion of the population will die before it ever sees its pension. Widespread protests against the changes to the pension system unfolded throughout 2018, in yet another sign of the increasing unpopularity of the Putin government.

As occurred with the pension protests, right-wing forces in Russia are attempting to take advantage of the outrage within the population over health care. Alexei Navalny, the US-backed liberal opponent of President Putin, is a key figure behind the recently organized Alliance of Doctors, a supposedly independent trade union aimed at leading the demonstrations against the miserable state of the medical system.

Navalny is an ardent supporter of free-market policies and the total subordination of society to the profit interests of big business. While casting himself as a crusader against a corrupt Kremlin, his opposition to the Putin government is rooted in his support for American imperialism and that section of Russia’s oligarchy that wants to exploit the population as a junior partner of Washington. A Navalny government would continue and intensify all of the attacks against the working class in Russia that have unfolded over decades.

To carry out their struggle in defense of public health care, Russia’s medical workers must reject the effort of Navalny and all other political forces to channel social anger behind one or another form of capitalist right-wing politics. The genuine allies of Russia’s working class in its fight to defend public health are the workers around the world—in the United States, Great Britain, Honduras, Bolivia, New Zealand, Sri Lanka, Ireland, Po

Following European elections: EU summit haggles over top jobs

Peter Schwarz 

The last polling stations in the European elections had barely closed when haggling broke out among the heads of government over the top jobs in the European Union. They gathered for a summit in Brussels on Tuesday to discuss the future leading personnel in the EU.

The meeting concluded without a decision being taken. The conflicting interests could not be reconciled in the short term. To avoid a conflict erupting in public, current EU Council President Donald Tusk was tasked with drafting a list of proposed names ahead of the next EU summit at the end of June.

A total of five top jobs are at stake: the European Commission President, the President of the European Central Bank, the EU Council President, The EU Foreign Policy Representative, and the President of the European Parliament. The first three in particular wield considerable power.

The EU Commission President controls a staff of 32,000 officials and employees, which is closely tied to the 25,000 lobbyists in Brussels who seek to influence the EU. Largely outside of any democratic control, this apparatus exercises substantial influence over all areas of European political and economic life.

The European Central Bank determines EU monetary policy. Unlike the EU Commission, the Central Bank is independent, meaning it is free from any controls or orders from elected committees. Monetary policy is determined within the closed circle of the financial aristocracy, from which the ECB President usually comes.

The EU Council President is responsible for organizing the meetings of the heads of government and the meetings of other departmental ministers, and therefore chiefly responsible for the EU’s main executive and legislative periods, although the latter responsibility is shared with the European Parliament.

To date, the Christian Democrats and Social Democrats, who always had a majority in parliament, divided the posts up among themselves. Of the current occupants, three are members of the conservative European People’s Party, (Commission President Jean-Claude Juncker, Council President Tusk and EU Parliament President Antonio Tajani). Although ECB President Mario Dragghi is a non-party figure, he was helped into power in 2011 by the EPP members Silvio Berlusconi, Angela Merkel and Nicolas Sarkozy. The EU Foreign Policy Representative, Federica Mogherini, is a social democrat.

The EPP’s dominance of the top officials ensured the significant influence over the EU of Germany, where Angela Merkel of the EPP has held power for 14 years, for most of that time in a coalition with the SPD.

However, social democrats have been forced from power in France and Italy. In the newly-elected European Parliament, the conservatives and social democrats control just 332 of the 751 seats, or 44 percent. In the old parliament, they held 401 seats. To secure a majority, they are now dependent on support from the Liberals or Greens.

The political differences between all of these parties are minimal. They have all shifted sharply to the right over recent years, supporting the EU’s austerity policies, its military rearmament, the construction of a police state apparatus and the enforcement of inhumane refugee policies, and they will continue to do so.

This shift to the right has intensified the national divisions within the EU and given them an increasingly aggressive character. This finds expression in the splintering of the European parliament into several competing factions.

French President Emmanuel Macron has made clear that he will not accept a German Commission President. By contrast, German Chancellor Merkel has insisted on supporting the EPP’s Manfred Weber, who ran as the party’s lead candidate in the election. The Commission President is proposed by the heads of government, but must receive the parliament’s majority support.

In France, the EPP has virtually no representation. Its representative, Les Républicains, won a mere 8 percent of the vote. The Socialist Party did even worse, obtaining just 6.2 percent. Macron’s own party, La République En Marche, came second with 22.4 percent, behind Marine Le Pen’s right-wing extremist Rassemblement National with 23.3 percent. Macron’s party joined the liberal group in the European Parliament, which increased its representation to 105 seats as a result.

The disputes over influence and positions are being driven by more deep-going conflicts that have been developing over a longer period. Macron has repeatedly been met with opposition from Berlin in his attempt to further integrate the EU’s finance policy. Frictions also exist over plans to establish a European army and a European arms industry independent of the United States, which both Berlin and Paris support. Paris was outraged when Germany temporarily halted weapons exports to Saudi Arabia following the murder of journalist Jamal Khashoggi. And while Macron advocated a hardline stance on Brexit, Merkel indicated her readiness to offer Britain concessions.

With the request for Tusk to propose a list of candidates, these conflicts will now continue to rage behind the scenes, and may be reconciled with a filthy compromise.

The public is being systematically lied to about the real issues that are at stake. For example, the German government justified its support for Weber by referring to the principle of lead candidates, which was introduced at the last European elections but has no legal basis. According to this, only a candidate who stood as the lead candidate for one of the European parties can be elected as Commission President. As a result, so the argument goes, they receive democratic legitimacy.

This argument is evidently absurd. Weber was chosen as the lead candidate by the inner circle of his party, which then won less than a quarter of the vote across Europe. Even in Germany, a survey found that only 32 percent of voters support Weber becoming Commission President, while 59 percent are opposed.

It remains unclear whether Merkel will insist on appointing Weber. There are suggestions that she may concede in order to secure the position of ECB President for current Bundesbank President Jens Weidmann, who is seen as an austerity hardliner.

Another possible candidate for Commission President is Margarete Vestager, who is currently commissioner for EU competition affairs. The Danish member of the liberal group would receive Macron’s support and could be backed by the Greens as the first woman to lead the Commission.

Some observers believe that the haggling over the top jobs could drag on for months. However, one thing is clear: Whatever the makeup of the new Commission being worked out behind the scenes, it will continue the right-wing, anti-working class policies enforced by its predecessor.

Fresh Israeli elections after Netanyahu fails to form a government

Jean Shaoul

Late Wednesday night, an ashen-faced Prime Minister Benjamin Netanyahu initiated legislation to dissolve the shortest Knesset (parliament) in Israel’s history and hold fresh elections.

They will take place in three and a half months, the minimum period for an election campaign under law, on September 17. This is only two weeks before Netanyahu’s pre-indictment hearing on a raft of corruption charges on October 2 and 3.

Calling fresh elections is an expression of the crisis of bourgeois rule gripping Israel, provoked by the twin pressures of the decades-long military suppression of the Palestinian people and deepening social inequality within Israel itself, which ranks among the highest in the developed world. Political and social tensions are so great that the traditional mechanisms of bourgeois democracy are breaking down—mirroring the political upheavals taking place throughout world.

Netanyahu has failed to form a governing coalition within the legal deadline with his former far-right nationalist and ultra-Orthodox partners, seven weeks after they and his Likud party collectively won 65 seats in the 120-seat Knesset in the April 9 elections.

Avigdor Lieberman, leader of the right-wing, secular Yisrael Beytenu (Israel is our Home) that won five seats in the Knesset, refused to join his coalition. He had resigned his post as Defence Minister last year over Netanyahu’s “softness” on Gaza, leaving the government with a majority of one and precipitating an early election.

Lieberman insisted that the new government support a law forcing ultra-Orthodox Israelis to serve in the Israel Defence Forces (IDF), a proposal anathema to Netanyahu’s religious party partners. Lieberman refused all attempts to modify the law, saying, “I won’t to be party to a Halachic government,” referring to religious Jewish law.

Lieberman added, “We will go to elections again, and the people will determine whether they want a right-wing government or a Haredi [religious] government.” He claims that there are between 20 and 25 legislators who support a state run on the principles of Jewish law, including stricter laws for transport and store opening hours on the Sabbath and greater control over determining Jewish identity that would affect his own, largely Russian, supporters.

This has sparked a vicious furor, with Likud accusing him of trying to turn the conscription issue into a war over religion.

Netanyahu was equally incapable of reaching an agreement with his other right-wing partners, despite his attempt to buy support by introducing legislation to expand the number of ministers in his cabinet. They all sought to use his weakened position to extract the maximum concessions at the expense of their rivals.

According to a report by Channel 12, Netanyahu even approached the Labour party and offered chairman Avi Gabbay the Finance Ministry and three other portfolios, without success.

The final straw was the refusal of Moshe Kahlon, the finance minister and leader of the Kulanu party, which holds four seats, to support a coalition made up of just 60 Knesset members because it would be almost impossible for the government to function, particularly as the forthcoming budget would require further attacks on workers’ living conditions in the face of a ballooning national debt and fiscal deficit.

The crisis is engulfing Netanyahu at a time when he, his family and large sections of Israel’s political elite are in the grip of several major corruption scandals. His wife Sara has just agreed to a US$15,000 plea bargain to evade criminal prosecution over allegations she misused US$78,000 of state funds. Already weakened by Lieberman’s defection, Netanyahu called the election ahead of schedule in a desperate attempt to outmanoeuvre Attorney General Avichai Mandelblit over his expected indictment for multiple charges of corruption involving allegedly granting regulatory concessions to businessmen in return for lavish gifts or favourable news coverage.

Netanyahu viewed the elections as a means of derailing the attempt to prosecute him, calculating that victory would give him a “personal mandate” to rule. To strengthen his electoral position, he even forged an alliance with the fascist and anti-Arab terrorist Jewish Power, comprised of followers of the late Rabbi Meir Kahane. Kahane advocated the “transfer” of Palestinians to neighbouring Arab countries and a ban on intermarriage between Jews and Arabs. His Kach Party was banned as a terrorist organisation.

Netanyahu pledged before the election that he would not seek an immunity bill to prevent the indictment of a sitting prime minister and legislators, but but afterwards demanded immunity legislation. Now, irrespective of whether Likud—as is expected—wins again in September, it will be too late to push through the immunity and override bills. Furthermore, the likelihood of any of his right-wing partners signing a coalition agreement with someone facing prosecution in what appears to be an open-and-shut case is all but zero. Netanyahu therefore faces the certainty of a challenge for the leadership from within Likud.

Netanyahu began the process of dissolving the Knesset on Monday to ensure that no one else became prime minister. It prevented President Reuven Rivlin from calling on Benny Gantz, the former IDF Chief of Staff who leads the main opposition bloc Blue and White, or his rival within the Likud Party, Gideon Saar, to form a government.

The elections are expected to cost US$131 million, which—according to the Ministry of Finance—includes US$58 million in subsidies for party campaign costs and US$73 million for the election itself, under conditions where the parties themselves are saddled with debts from the last elections.

In whatever way this conflict is resolved, it will produce an intensification of the drive toward war, the assault on living standards and the destruction of democratic rights.

Israeli workers and youth cannot afford to remain passive spectators as the ruling class works out its internal conflicts at the expense of their economic, social and democratic rights. The fight of the working class for its interests—an end to the ongoing conflict with the Palestinians and the growing threat of war against its neighbours and Iran, along with a vast redistribution of wealth and social equality—raises the urgent necessity for a mass political movement of Israeli and Palestinian workers, independent of and opposed to both the Israeli and Palestinian political parties, against the capitalist system and for socialism.

The German government prepares military intervention in Syria

Peter Schwarz

The German government is preparing to provide military support for a US-planned “safe zone” in northern Syria. The zone is intended to protect the Kurdish militias, which fought against the Islamic State (IS) on the side of the US, from both Syrian and Turkish troops.

Appropriate plans are to be discussed in Berlin on Friday, when US Secretary of State Mike Pompeo makes his first official visit to Germany—a visit which has been postponed several times.

Spiegel Online reported on Thursday that the German government “signaled to the US in months of secret talks that it would be prepared to participate militarily in securing the safe zone”. The Americans had “in recent months repeatedly requested for German commitment behind the scenes, for the first time on the sidelines of the Munich Security Conference in mid-February.”

Since then, the German government had sought “a constructive dialogue with Washington”. “In order not to put off the US once again, the Chancellor’s office, the Foreign Office and the Ministry of Defence largely agree that one should not alienate the US regarding the Syrian issue.”

According to Spiegel Online, secret negotiations have taken place almost continuously since the Munich Security Conference. For example, in mid-March, the political heads of the German Ministry of Defence and the Pentagon, Geza Andreas von Geyr and John C. Rood, gathered together “in Berlin in strict confidence all the other nations that had previously participated in the anti-IS coalition.” In April, both the German Defence Minister, Ursula von der Leyen, and Foreign Minister, Heiko Maas, travelled to Washington “to discuss the issue at the highest level.”

According to Spiegel Online it is still open how the German army will participate in the establishment of the safe zone. The dispatch of ground troops has been ruled out for political reasons, but the possibility of aerial support for a security force has been raised. To this end, Berlin made the offer to Washington of extending the German army’s current mission in Jordan.

Since June 2017, the German army has maintained its own base at a Jordanian air force base under the name “Camp Sonic”. Specially equipped Tornado jets conduct air reconnaissance for the US-led anti-IS coalition from the base. The German Air Force also refuels coalition jets over Syria from the air. The mandate for this mission expires on October 31 and, according to a decision by the German parliament, is not to be extended.

Military officials, however, assume that “the high-resolution images of ‘Tornadoes’ and aerial refueling” would also be valuable for a future coalition, Spiegel Online reports. “Politically, the mission would also be a symbol that Germany does not refuse to participate in more difficult international missions.”

Military support of a “safe zone” in northern Syria would mean a massive escalation of Germany’s participation in the Syrian war, which from the outset was aimed at ousting the regime of Bashar al-Assad and replacing it with a Western puppet regime.

The German foreign ministry has been intensively involved in the construction of the pro-imperialist Syrian opposition, which relied mainly on al-Qaeda-affiliated Islamist militias. To this end it was supported not only by the SPD and the Greens, but also by the Left Party.

Following the failure of this operation, which has cost the lives of 400,000 civilians and reduced large parts of the country to ruins, the German government is now plunging into a military adventure that involves not only confrontation with the regime in Damascus, but also with its NATO partner Turkey, Iran and the nuclear power, Russia.

Damascus rejects such a “safe zone” because it would massively curtail the country’s sovereignty. Ankara is opposed because it wants to prevent at all costs the emergence of a Kurdish state on its border, which is under the control of a PKK-affiliated organisation. Tehran, which is being economically starved by the US and threatened with a devastating war, is closely allied with both Damascus and Ankara. And Moscow, which supports the Assad regime militarily and maintains close ties with Tehran and Ankara, quite rightly views the Western offensive in the Middle East as part of a containment strategy against Russia.

Should the German government accede to Pompeo’s request for military support for the establishment of a “safe zone”, then the official propaganda machinery will immediately begin to proclaim that such a mission is a “humanitarian action” aimed at protecting lives, or a “fight against a dictatorial regime” or something similar. This was already the pattern in the Afghanistan, Iraq and Libyan wars. The latter also began with the establishment of a “safe zone”, which then provided the pretext for bombing the country and overthrowing the Gaddafi regime.

No credence should be given to such lies. Washington and its European allies, including Berlin, are pursuing naked imperialist interests in their wars in the Middle East—control of oil, gas and markets, repression and weakening of their rivals, and strengthening their own position as a world power.

Five years ago the German government announced—in the words of then Foreign Minister Frank-Walter Steinmeier—that it is no longer prepared “to comment on world politics from the sidelines” and intends instead “to engage in foreign and security policy earlier, more decisively and more substantially”. Since then Berlin has been massively upgrading its military forces. In the powder keg of today’s Middle East, the Germany elite sees another welcome opportunity to translate its goals into action—even at the risk of a Third World War.

US escalates threat of force against Iran

Bill Van Auken

The two principal architects of US imperialism’s war buildup against Iran are carrying out a series of foreign visits aimed at bullying Europe into falling in line behind Washington’s campaign of aggression and whipping up the US-backed anti-Iranian axis comprised of the Persian Gulf Sunni oil sheikdoms, led by Saudi Arabia.

John Bolton, the US national security adviser, was in Abu Dhabi, the capital of the United Arab Emirates, on Wednesday, leveling unsubstantiated allegations against Iran and threatening a “very strong response” by the US and its war machine.

It was Bolton who announced the military buildup against Iran earlier this month, with the dispatch of the naval strike group led by the aircraft carrier USS Abraham Lincoln along with a bombing task force including nuclear-capable B-52s.

Since this initial buildup announced at the beginning of May, Washington has deployed an amphibious battle group carrying warplanes and US Marines, a Patriot missile battery and, at the end of last week, the deployment of another 1,500 troops to reinforce the nearly 50,000 already deployed in a string of bases encircling Iran. Acting US Defense Secretary Patrick Shanahan said that the latest deployment consists of another 900 troops being sent into Saudi Arabia and Qatar, along with 600 assigned to a Patriot missile battery that had scheduled to rotate out of the region but will be kept in place.

The Pentagon, meanwhile, drew up plans for the deployment of as many as 120,000 troops to the region, a similar number as was deployed before the 2003 invasion of Iraq.

Bolton, who prior to his appointment as national security adviser had frequently called for regime change in Tehran and penned an Op-ed for the New York Times titled “To Stop Iran’s Bomb, Bomb Iran,” made the improbable claim to reporters in Abu Dhabi that US policy under the Trump administration was not one of regime change.

The US national security adviser blamed Iran for an alleged sabotage attack on four vessels off the shores of the UAE, including two Saudi-owned tankers, together with a drone attack on pumping stations on the Saudi oil company Aramco’s East-West pipeline—claimed by Houthi rebels as a retaliation for the near-genocidal war being waged by Riyadh on Yemen. He also claimed that there had been another attempted attack—previously reported by neither the US nor Saudi Arabia—on the Saudi oil port of Yanbu.

Offering no evidence whatsoever, Bolton declared that the alleged sabotage of the Saudi tankers and the other two vessels was the result of “naval mines almost certainly from Iran.”

The same Bolton in 2002 and 2003 insisted with far greater than “almost certainty” that the government of Saddam Hussein was stockpiling “weapons of mass destruction” when, as undersecretary of state for arms control and international security affairs in the Bush administration, he was one of the leading advocates for a war of aggression against Iraq.

Iran’s foreign ministry denounced Bolton as a “warmonger” and dismissed his remarks as a “ridiculous accusation.”

Washington’s transparent aim is to present Iran as the aggressor. This is under conditions in which US imperialism is carrying out what it describes as a campaign of “maximum pressure” against the country of 83 million people, mounting an unrelenting military buildup, while imposing sweeping sanctions tantamount to a state of war with the principal aim of reducing Iran’s oil exports to zero and creating social upheaval by crashing the country’s economy.

The US reimposed and escalated sanctions one year ago after unilaterally abrogating the Joint Comprehensive Plan of Action (JCPOA), known as the Iran nuclear deal, reached in 2015 between Iran, the US, the European powers, Russia and China. Under the agreement, Tehran sharply limited its nuclear program while submitting to an intrusive inspections regime in return for the lifting of sanctions and normalization of economic relations.

Recently Tehran announced a 60-day suspension of its commitment to cap its production of enriched uranium and heavy water in an attempt to pressure the European powers to make good on their promises to launch an Instrument in Support of Trade Exchanges (INSTEX) to circumvent US sanctions by facilitating non-dollar trade with Iran.

While the reported quadrupling of its production rate of uranium to 3.67 percent would still leave Tehran in compliance with the JCPOA, the increase would soon cause it to exceed the cap of 300 kilograms of stockpiled low-enriched uranium. Under the JCPOA, Tehran is supposed to sell off any enriched uranium, which it did to Russia, but now cannot because of the US sanctions.

With unmitigated cynicism, Bolton said of Iran’s action, “There’s no reason for them to do any of that unless that’s part of an effort to reduce the breakout time to produce nuclear weapons.” He added, “That’s a very serious issue if they continue to do that.”

He claimed that Tehran’s actions had vindicated Washington’s ripping up of the agreement: “This is just more graphic evidence that it hasn’t constrained their continuing desire to have nuclear weapons. It certainly hasn’t reduced their terrorist activities in the region that we just discussed or their other malign behavior in their use of conventional forces.”

Tehran has consistently denied that it has ever sought to develop nuclear weapons.

Bolton’s trip to the Middle East came on the eve of a trio of conferences that were convened in Saudi Arabia on Thursday—the Organization of Islamic Countries, the Arab League and the Gulf Cooperation Council—all brought to Mecca in a blatant attempt to exploit the Muslim holy city to line up member states behind the predatory interests of the House of Saud which are being pursued in alliance with Washington against Iran.

Meanwhile, US Secretary of State Mike Pompeo is conducting a tour of Europe aimed at bullying its governments into subordinating themselves to Washington’s war drive against Iran. It includes stops in Germany, the Netherlands and the UK, as well a visit to Montreux, Switzerland for the annual meeting of the secretive Bilderberg Group, to share Washington’s war plans with a group of billionaires and senior state officials who are sworn to secrecy about what he reveals.

Before Pompeo’s arrival, Washington issued a naked threat against any attempt by Europe to bypass the crushing US sanctions against Iran.

The Bloomberg news agency reported in a May 7 letter sent by Sigal Mandelker, the Treasury Department’s undersecretary for terrorism and financial intelligence, warning that anyone associated with Instex, the European vehicle created to sustain trade with Tehran by avoiding the US dollar and financial institutions, could be subjected to severe penalties and barred from the US financial system.

“I urge you to carefully consider the potential sanctions exposure of Instex,” Mandelker wrote in the letter to Instex president Per Fischer. “Engaging in activities that run afoul of US sanctions can result in severe consequences, including a loss of access to the US financial system.”

Meanwhile, the US sanctions regime against Iran has focused on a single Chinese super-tanker, the “Pacific Bravo,” which took on a load of crude at Iran’s Kharg Island and has headed back toward China.

Washington has issued a warning to Hong Kong that if it allows the ship to dock or services it, it could face severe sanctions for violating the US blockade against Iran.

China’s Foreign Ministry issued a statement rejecting the threats. “The normal energy dealings between Iran and the international community, including China, that is within the framework of international laws, are reasonable, lawful, and should be respected and protected,” it said.

Hong Kong’s Commerce and Economic Development Bureau similarly responded that it has been “strictly implementing sanctions decided by the United Nations,” which don’t impose “any restrictions on the export of petroleum from Iran.”

This standoff exposes the real roots of the war drive against Iran. They lie not merely in the maniacal warmongering of Bolton or Pompeo, but in the drive by US imperialism to offset the decline of its economic hegemony by wrapping its fists around the oil pumps of the Middle East, Venezuela and the entire planet in order to dictate terms to its emerging rival, China.

Bound up with the “great power” rivalries that are the focus of the ever-escalating eruption of US militarism, a military confrontation with Iran could trigger a third world war fought with nuclear weapons. Such a global catastrophe can be averted only by means of the independent political mobilization of the working class against war and its source, the global capitalist system.

New prime minister installed in Papua New Guinea

Patrick O’Connor

After weeks of acute political turmoil, the parliament in Papua New Guinea this morning voted overwhelming 101-8 to replace Prime Minister Peter O’Neill with former finance minister James Marape.

The country’s ruling coalition remains in place. Marape, who resigned last month over a natural gas deal and defected along with others to the opposition, returned to the government side along with his supporters. As finance minister, Marape had a major hand in formulating the austerity measures imposed on working people.

O’Neill, in office since 2011, had announced last Saturday that he intended to step down, appointing as stand-in leader Julius Chan, parliamentarian and former prime minister between 1980-1982 and 1994-1997. The situation quickly descended into political farce, however, as the opposition accused O’Neill of announcing a fake resignation.

On Sunday Chan declared that there had been “a huge misunderstanding” and that he had not been nominated the new prime minister. The following day O’Neill issued a press statement as prime minister explaining that he was taking court action to prevent the parliamentary opposition tabling a no confidence motion against him.

On Tuesday, parliament briefly convened with the speaker blocking the no confidence motion and closing down the session amid physical altercations between government and opposition parliamentarians. Only yesterday did O’Neill confirm that he was indeed stepping down, explaining that he had submitted his official resignation.

The manoeuvring between rival groups of parliamentarians to form government demonstrates the vast gulf that separates the poverty-stricken Papua New Guinean masses and the country’s corrupt and venal political elite.

Papua New Guinea (PNG) is among the poorest countries in the world, despite having some of the most lucrative natural resources. Most of the country’s eight million people confront limited or non-existent health care, education, and other social services and infrastructure, with preventable disease and other indices of social distress comparable to sub-Saharan Africa. Members of the ruling class, on the other hand, have reaped enormous personal wealth through their collaboration with Australian imperialism and services rendered to the giant transnational corporations profiting from PNG’s energy and mineral wealth.

O’Neill was pressured out of office amid a furore in PNG ruling circles over a series of deals he negotiated with Australian-based Oil Search and France’s Total for a significant expansion of the country’s enormous liquid natural gas project that is led by US energy giant ExxonMobil.

In 2014, O’Neill personally approved a $1.2 billion state loan from Swiss bank UBS, via its Australian arm. Most of this money was used to purchase a 10 percent PNG government stake in Oil Search, with the liquidity assisting the development of new gas fields in the PNG Highlands known as Elk-Antelope. The O’Neill government last month announced it had finalised a deal with Total to develop the new gas fields, using the existing huge gas extraction and processing facilities that came online in 2014 constructed by a US-Australian energy consortium led by ExxonMobil.

The Total deal triggered fresh scrutiny of the 2014 UBS loan. At the time O’Neill ran roughshod over legal and parliamentary norms, ramming through approval for the massive loan without parliamentary approval and despite opposition from his treasurer Don Polye, who resigned in protest.

A damning state ombudsman’s investigation into the affair reportedly concluded its findings last December. Though the report has not been publicly released, it was leaked online and picked up by the Australian Financial Review. The newspaper reported that the ombudsman found that O’Neill may have violated 15 different laws.

The Australian Financial Review explained that UBS charged interest rates of between 8.1 and 9.1 percent on the $1.2 billion loan, and began demanding payments when the ink on O’Neill’s signature was barely dry. “If the state missed the interest payment by more than two days, it would constitute an event of default,” the newspaper stated. “That would trigger defaults from World Bank and Asian Development Bank loans, impair PNG’s ability to access international markets, and even force a run on its currency, the kina.”

Amid plunging world oil and gas prices in 2014-2015, the PNG state lost an estimated $420 million after being forced to sell part of its Oil Search stake.

Not everyone lost out, however. After UBS effectively threatened to crash the PNG economy, the government sent $2.61 million to Australia, a sum that the ombudsman reportedly found was more than $200,000 in excess of what was required, “raising doubts as to what became of the remaining balance.”

Behind the sordid cash-grabs and intrigues in Port Moresby lie sharpening geopolitical tensions.

The country’s LNG industry forms part of the rivalry between the US-Australia and China. In 2011, then secretary of state Hillary Clinton told a Congressional committee about ExxonMobil’s work in PNG, before immediately complaining that “China is in there every day in every way trying to figure out how it’s going to come in behind us, come in under us.”

China remains one of four Asian countries that PNG sends its gas to. Japan remains the largest customer, however, with Prime Minister Shinzo Abe previously explaining that he was seeking to maximise LNG imports from the Australasian region because they did not travel through the territorially-contested South China Sea. All trade through this naval passageway would grind to a halt in the event of a conflict between the US and China, or between China and one of its US-backed neighbours.

Australian imperialism is determined to maintain its hegemony over its former colonial possession. There is little doubt that intelligence operatives will be actively working to ensure a pliant government in Port Moresby. O’Neill seized power in blatant violation of the constitution in 2011 thanks only to Canberra’s backing. Last weekend Australian Prime Minister Scott Morrison was effusive in his praise for O’Neill when his resignation was first foreshadowed.

O’Neill has lined up alongside the Australian and American governments on every major geopolitical issue since he seized office—including agreeing last year to reopen the World War II-era deep sea naval port in Manus Island for Australian and US warships.

Ford layoffs provoke widespread anger

Tim Rivers

There is a growing anger and apprehension among Ford workers in the US and around the world after the automaker’s announcement that it will cut the jobs of 7,000 salaried workers by August. Top engineers and managers, who are required to hold graduate degrees, and many of whom also have decades of seniority, were subjected to the agonizing suspense of rumors followed by being called into meetings where they were terminated.

Some of those who were once considered among the most secure and well-placed in the company have been reduced to the status of workers on the assembly lines, who have suffered falling wages, benefit cuts and the constant threat of layoffs and plant closings that have been sanctioned by the United Auto Workers union. Some 900 engineers, managers, technicians and other salaried workers were cut in the US last week, in addition to the 500 workers who have already been forced to take “voluntary separations.”

Ford CEO James Hackett, whose personal compensation rose 6 percent to almost $18 million last year, calls the jobs cutting program, Ford’s “Smart Redesign.” The planned cuts that began at Ford world headquarters south of Detroit last week will continue in Europe, China, Russia and South America until 10 percent of a global salaried workforce of 70,000 are slashed by the end of August.

Analysts for Wall Street firm Morgan Stanley who scrutinize the company’s balance sheet for investors are demanding, not 7,000 white-collar cuts, but more than four times that number, or a total of 30,000 salaried layoffs, to meet Hackett’s promises of increased profits through cost cutting. Industry adviser Jon Gabrielsen told the Detroit Free Press, “No one who analyzes the Ford situation believes that 7,000 job cuts remotely scratches the surface of what will be required for Ford’s long-term longevity.”

In a post on the web site thelayoff.com, one salaried Ford worker said, “Young professionals with tons of student loan debt should not expect to work at Ford for any extended period of time. See what the company has done to our parents, aunts, uncles, friends, etc. They push/throw old older, experienced employees like old shoes. They could care less about their employees. Glad I left last year. This is repeated behavior every 10 years. Work for a company that values your expertise and experience.”

Another replied: “They lure in the kids every year with all sorts of promises. Telling them ‘they are the future’ and that ‘they are the most prized and valued employees.’ Just remember, youth is fleeting AND every year there is a new batch of kids they bring in. Within just a couple years, you too will be included in what they treat as ‘old/ burned out dead weight employees.’”

Reporters from the WSWS Autoworker Newsletter spoke to production workers at the Dearborn Assembly Plant (DAP) about their conditions. A young worker had just been hired at a plant as a “Supplemental Temporary Status” (STS) employee, which means he works for half pay with no contractual rights while still paying dues to the UAW. “I was at Flat Rock Assembly Plant for three years‚ working nights, he said. “They just called one day and said, ‘Hey, we are going to one shift,’ and I was in the street.”

The union gave no warning of the layoff. “The UAW told us the same day as the company announcement,” he continued. “There were rumors but nothing official. They basically did nothing.” New hires are routinely given the false expectation by both the company and the union that they will be rolled over to full-time positions within a matter of a few months.

“After three years, I am still an STS,” he sighed. “I was working on and off, back and forth.” Changing what needs to be changed, such conditions resemble the early years of the last century when autoworkers had to gather at the gates each morning to see who the foreman would pick to work that day.

“Right now, we’re working four days a week at Dearborn Assembly Plant. They did not give me an end date. They say anything, except, ‘This is what we’re doing, so take it, or leave it.’ They literally have tiers of STS workers now,” he said.

“The UAW is the opposite of what they were in the ‘30s and ‘40s, when they were sticking up for the workers and fighting the company.”

Regarding the efforts by the Trump administration, backed by the Democrats and the UAW, to promote hatred of workers in China, Mexico and other countries, the young worker said, “These tariffs on Chinese goods are going to cause prices to go up and worse. We should cooperate with workers in other countries, everywhere. That is the direct opposite of what the country is doing right now. It makes no sense to me, or to any of us, to provoke a war, to provoke a trade war.”

A highly skilled, salaried employee with full seniority stopped to talk to us. “I’m a job setter and I have seen a lot of cuts over the years. I’ve never been laid off. But this time is different. If they close plants, nobody’s job is secure.”

A TPT or “Temporary-Part-Time” worker who has worked at DAP for two years said that he does not know when, or if, he will be hired in as a full-time worker. “It is unknown really,” he said. “I ask the union all the time, but they just string me along. They take dues out of my check every month, around $50.00. But they can’t tell me anything. It is not right.

“That 6 percent pay raise that Hackett got last year is probably more than I will make in the next ten years,” he added. Even that lopsided calculation represents a vast underestimation of the depth of the actual class divide. Assuming rates of taxation and all other expenses were equal, it would take a typical TPT 600 years to earn as much as the CEO received in 12 months.

“I never trusted the government,” the young worker continued, voicing a growing conviction among workers of an approaching political struggle. “The company is a massive part of the problem, but it is more the government’s fault.” The vast expansion of second-tier workers, pay cuts and multiple layers of temporary and part-time workers was imposed under the restructuring of the industry engineered during the first year of the Obama administration.

“I am ready to leave every day,” he continued. “If they told me that I have no chance of getting hired in at full pay, I would quit right away. I am more capable of tolerating this work than a lot of people. Workers all around me are broken down and hurting. I don’t know how they do it.”

In the face of falling sales and mounting signs of a coming economic recession, the corporations are restructuring their global operations to slash costs, boost investor returns and better position themselves for cost-heavy and cutthroat competition for the emerging electric and self-driving vehicle markets.

The global automakers, along with the UAW, intend to use the threat to jobs as a hammer to extract further concessions from 155,000 Ford, GM and Fiat Chrysler workers whose contracts expire in mid-September. To answer this, production and salaried workers should form rank-and-file committees, independent of the corrupt unions, to prepare a national strike to stop plant closings, layoffs and overturn all concessions, including abolishing the two-tier wage system and transforming all temporary workers into full-time employees with full pay and benefits.

The global attack on jobs requires a global response by workers. This means rejecting the nationalism of the unions and big-business politicians and unifying autoworkers across all national boundaries to defend jobs and living standards. The giant industries built up through the collective labor of generations of workers must be transformed into public utilities, owned and controlled by the working class as part of the socialist transformation of the world economy. Only in this way can the great advances in science and technology be used for the common good to provide safe and reliable transportation and secure the livelihoods of the millions of workers in the global auto industry.

Austrian Chancellor Kurz toppled following vote of no confidence

Markus Salzmann

On Monday, the Austrian parliament sacked the right-wing government led by Chancellor Sebastian Kurz (Austrian Peoples Party—ÖVP) following a vote of no confidence. The opposition Social Democrats (SPÖ) had introduced the motion of no confidence in a special sitting of parliament. The SPÖ was able to achieve the necessary majority by voting together with the former government partner of Kurz, the far-right Freedom Party (FPÖ).

Not only was the Kurz administration the shortest reigning government in the history of modern Austria, it was also the first ever government to be brought down by a vote of no confidence. The end of the ÖVP/FPÖ coalition marks the culmination of a severe government crisis in the Alpine republic. At the same time, it is indicative of massive political upheavals taking place across Europe.

The dismissal of Kurz came just ten days after the German news magazine Der Spiegel and the Süddeutsche Zeitung published a video that made clear that FPÖ leader and Vice-Chancellor Heinz-Christian Strache was guilty of bribery and corruption. Strache then resigned from office and the right-wing coalition broke apart. Following the sacking of the interior minister, Herbert Kickl (also FPÖ), other FPÖ ministers resigned from their posts.

Austrian President Alexander Van der Bellen responded by appointing an interim government led by Kurz, with four “non-aligned” experts taking the place of the FPÖ ministers who had resigned. This administration lasted just five days.

The Austrian president supported Sebastian Kurz and appealed to other parties, in the name of stability and the preservation of state power, to allow him to stay in office until the parliamentary election in September. After considerable hesitation, however, the Social Democrats decided to call a vote of no confidence.

Van der Bellen, a former member of the Green Party, was elected president in 2016 with the votes of the SPÖ. His main rival at that time was the FPÖ candidate Norbert Hofer.

Following the vote of no confidence, Van der Bellen dismissed Kurz and commissioned the finance minister, Hartwig Löger (ÖVP), to take over the affairs of government. He is to remain in office with the other ministers until a new chancellor is appointed. Forming a new interim government should take no longer than a week, Van der Bellen declared.

As was the case with the so-called Ibiza video, the vote of no confidence carries all the hallmarks of an internal conspiracy. All of the parties in parliament are engaged in bitter infighting, but there is no avenue within the political system for the working class to assert its own interests. All of the various factions in the ruling elite are tacking to the right, and in the election campaign that has already begun following Kurz’ dismissal there is every indication that these parties will shift even further to the right.

With the exception of a seven-year period, the Social Democrats headed all Austrian governments between 1970 and 2017. It was their right-wing and anti-working class policies that enabled the far-right FPÖ to flourish. In the meantime, the SPÖ is so despised and its policies differ so little from those of the ÖVP and FPÖ that the party was unable to benefit from the government crisis in the European elections held on Sunday.

At 23.5 percent, the SPÖ fell slightly below its 2014 European election result and well below its 2017 National Council election result. The ÖVP, on the other hand, gained several percentage points, with 35.4 percent, while the FPÖ gained 1.6 percent compared to the previous European election. Its total of 18.1 percent represented a loss of 7.9 percent compared to the 2017 National Council election.

The new SPÖ leader Pamela Rendi-Wagner embodies the profound political crisis racking the SPÖ. A trained physician, she joined the SPÖ only in March 2017 and was appointed health minister in the then-SPÖ-ÖVP government. She now she supports a government of “experts” until the election planned for September.

There are many signs that the ÖVP and FPÖ coalition will return to power in the autumn.

In his resignation speech, Kurz praised the balance sheet of the outgoing coalition, which has brutally proceeded against refugees, tightened up labor laws, cut social benefits and lowered corporate taxes. Kurz immediately plunged into the election campaign. On Tuesday, an ÖVP spokesman declared that Kurz would turn down positions both as head of the ÖVP parliamentary fraction and as member of the National Council in favour of taking to the road across Austria “to win the support of the people for a continuation of his course.”

Several ÖVP and the FPÖ politicians have already called for a renewed coalition in the autumn. “Of course, the FPÖ has the clear goal to participate in a new coalition government after the election in September,” declared the Freedom Party councilor of Lower Austria, Gottfried Waldhäusl. “We want to help shape politics in Austria at the highest level,” he added, and “continue governing Austria with the ÖVP.”

The ÖVP and FPÖ continue to work together closely at state level. Manfred Haimbuchner, the FPÖ leader in Upper Austria, where all parties represented in the state parliament are involved in the administration, said: “In Upper Austria the trust between government partners and the will to work for the country is intact. Therefore, I can assure you here and now that, irrespective of today’s vote of no confidence, there will continue to be close cooperation with the ÖVP in future.”

For its part, the SPÖ is using the vote against the Kurz government to strengthen its own cooperation with the FPÖ. Against the background of its dramatic electoral defeats in recent years, the SPÖ has repeatedly strived for alliances with the far-right.

On Sunday, the SPÖ lost its former heartland Burgenland to the ÖVP for the first time in 60 years. The party retains control only in Vienna. Under these conditions, Burgenland’s prime minister, Hans-Peter Doskozil (SPÖ), affirmed the alliance he struck with the FPÖ in 2015. “It’s clear the situation is difficult,” he said. But he did not want the situation at the federal level to influence Burgenland. Many other SPÖ politicians also advocate a new federal coalition with the FPÖ.

China considering “rare earths” retaliation in conflict with the US

Nick Beams

While its official position remains that it is still willing to engage in trade negotiations, China has signaled that it is ready to hit back in the US economic war against it.

A major Chinese planning body has made a thinly-veiled threat to cut off the supply of rare earth minerals, used in a large variety of high-tech products, in response to the US move to ban the sale of vital high-tech products to the technology and communications giant Huawei. It came in a question and answer bulletin posted on Wednesday by the National Development and Reform Commission.

“Will rare earths become China’s counter-weapon against the US’s unwarranted suppression? What I can tell you is that if anyone wants to use products made from rare earth to curb the development of China, then the people of the revolutionary soviet base and the whole Chinese people will not be happy,” the posting said.

The US relies on China for about 80 percent of its rare earths, a category covering a variety of minerals used in a range of products including smartphones, electric vehicles and military equipment. China has a dominant position in the supply of these minerals which, despite their designation, are relatively abundant but costly to mine.

An editorial published on Wednesday in the People’s Daily, one of the key media outlets of the ruling Chinese Communist Party, warned that the US should not underestimate China’s ability to fight a trade war.

In its report on the editorial, Bloomberg noted it contained a phrase meaning “don’t say I didn’t warn you” that had been employed on other occasions, including in 1962 when China went to war against India, and also before the conflict between China and Vietnam in 1979.

The belief that rare earths could possibly be used as a weapon in the conflict with the US was sparked earlier this month when China’s president Xi Jinping made a visit to a rare earths plant accompanied by his chief trade negotiator Vice Premier Liu He.

The conflict has also extended to the World Trade Organisation when the Chinese representative raised the issue of the US bans on sales of products to Huawei at the meeting of the organisation’s market access committee on Tuesday.

According to a report in the Financial Times, when the meeting moved to discuss “other business,” the Chinese representative launched an attack on the US saying the placing of Huawei on an export blacklist by the US Commerce Department breached WTO rules.

Under those rules, member states can invoke trade bans on “national security” grounds. However, the representative accused the US of claiming “national security” concerns across the board, which was causing “great concern” in the membership of the organisation.

Trump has invoked “national security” to place tariffs on steel and aluminium imports and has threatened to impose a 25 percent tariff on auto imports on the same basis.

There was now a “great danger of having too wide an exception that would permit anything under the sun,” the Chinese representative said.

The scope of the US action against Huawei and its implications have also been raised in a legal case brought by the company against an earlier US ban on the supply of Huawei equipment to federal agencies.

The action was launched three months ago, arguing that the ban under the US National Defence Authorisation Act is unconstitutional in that it singles out a person or a group for action without trial. The Huawei lawyers are seeking summary judgement in the case; that is, to decide on the matter without a full trial.

Huawei said it was filing the motion in order to accelerate the process of halting “illegal action against the company.” It is arguing the ban violated sections of the US constitution, that there were no facts at issue, and therefore a judgement was purely a matter of law.

Speaking on the case and the wider attacks on Huawei at a press conference in Shenzhen on Wednesday, the company’s chief legal officer, Song Liuping, said the judicial system was the last line of defence to obtain justice.

The US administration was “using every tool they have, including legislative, administrative, and diplomatic channels. They want to put us out of business. Almost never seen in history. The fact is the US government has provided no evidence to show that Huawei is a security threat. There is no gun, no smoke. Only speculation.”

Commenting on the decision by the Commerce Department to add Huawei to the US Entity List, banning US firms from supplying it with products needed for its operations, Song said the action had set a “dangerous precedent.”

“Today it’s telecoms and Huawei. Tomorrow it could be your industry, your company, your consumers.”

He said as many as 1,200 companies could be affected by the US action. Last year Huawei spent around $11 billion on buying components and services from US firms. The ban is due to come into force in August, following Trump’s decision to give a three-month reprieve on its implementation.

However, already major hi-tech suppliers, including Google, Qualcomm, Microsoft and the chip technology provider ARM Holdings, have moved to cut ties with Huawei, hitting its international smartphone business. Huawei is the second largest supplier of smartphones worldwide.

The war against Huawei followed the breakdown on trade talks between China and the US which came on May 5. Trump had announced new tariff hikes in the lead up to a meeting in Washington that had been touted as finalising an agreement.

The South China Morning Post has published an article on the circumstances which led to the decision. On April 30, China’s top negotiator Liu He held a private meeting during trade talks in Beijing with US negotiators Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer.

According to the report, citing a person who was present at the wider negotiations, the expressions on their faces was “stern and gloomy” when they emerged and a sense of “foreboding” permeated the meeting hall. Five days later, Trump announced the new tariff measures.

The US claimed that they were imposed because China was “backtracking” on what had been previous agreed.

However, according to two Chinese sources cited by the newspaper, the US negotiators “kept adding new demands in the late stages of the negotiations” some of which would “directly affect China’s political and social stability.”

“The real reason is that the US side keep changing their demands. There were so many changes … And then they turned around and accused us of backtracking.”

With the escalation of the attacks on Huawei, Trump has effectively ruled out any prospect of a trade agreement with China. At a joint press conference in Tokyo with Japanese prime minister Shinzo Abe earlier this week, he said China wanted to make a deal but “we’re not ready to make a deal.”

He warned that American tariffs on Chinese goods “could go up very, very substantially, very easily.”

Trump’s comments were not just directed at Beijing but were also intended as a warning to Abe. The US is engaged in bilateral trade negotiations with Japan in which it is demanding that Japanese markets be opened for increased exports of US agricultural products.

Similar negotiations on a bilateral deal, also involving US agriculture, are being conducted with the European Union. Both sets of discussions are being held under the threat that if US demands are not met then auto tariffs of 25 percent—consideration of which has been suspended by Trump for six months—will be imposed.