Madness as method

We are currently living in the fallout of the radical policy shifts of Trump’s “Liberation Day,” when Trump’s team imposed a baseline tariff of 10 percent against every country on earth. According to Trump and his team, these tariffs signalled the end of a system where the whole world has taken advantage of the U.S. for forty years. Never mind that the U.S. designed this system! A week later, rattled by the response of markets, Trump’s team made a semi-reversal, putting a 90 day pause on the majority of the tariffs, but increasing those upon China dramatically, to 145 percent. Since then, there have been further retreats, with certain sorts of Chinese products exempt from the tariffs, such as tech products, which represent 22 percent of all imports from China.

Even after Trump’s retreat, this policy shift has brought U.S. tariffs to their highest level in 130 years, with the average tariff rate on U.S. imports rising to 27 percent. A year ago it was closer to 2 percent. The immediate impact to this most liberating of days was devastating, with markets seeing their steepest decline since March of 2020, and the fourth worst two day decline since the Second World War, destroying $6 trillion in the dollar value of traded assets. Global stocks plummeted following the announcement on the second, though they have since rebounded slightly since the partial-reversal on April 10. The Dow Jones Industrial Average still sits 7 percent lower than it did before the tariff announcement.

It is too easy to make the mistake of getting lost in all of this noise, in the fact that the mouthpiece of this radical change in policy is a megalomaniacal buffoon, blame the whole project on his individual insanity, and lose sight of the underlying material dynamics and blinkered rationality that are driving the new policy designs. The material underpinnings guiding this policy shift are the relative decline of the U.S. global dominance—hegemony—and the crises and weak growth that have followed the financial crisis of 2008.

The danger of blaming the dramatic shifts on Trump’s personal qualities is that we can fall into the trap of what might be called “the fallacy of the primacy of policy,” the idea that policy carries more weight in determining a given economic and political reality than the material circumstances of capital accumulation at a given moment. This fallacy is one of the main tools propping up ideologies that seek to reform capitalism into something humane and sustainable. Naomi Klein’s The Shock Doctrine is a paradigmatic case of this type of thinking, seeking to explain the loss of a post-war Keynesian utopia to neoliberalism in the late 1970s and early 1980s, through a conspiracy coming out of the University of Chicago, rather than forced upon capital by a falling rate of profit. If we spend too much energy drawing attention to the policy insanity, we privilege the subjective element and can potentially conceal the circumstances that provide these policies with their blinkered logic. In the case of a recession, or worse, following the implementation of Trumponomics, we will have to fight the tendency to blame the stagnation on his team’s policies, letting the underlying dynamics that inform these policies escape notice.

As socialists, we understand that in almost all cases, an explanation rooted in material reality can be found for even the most irrational ideologies. Why a recourse to such extreme solutions now? Unlike during the first threat to U.S. hegemony, in the 1970s, when it was possible through skillful means to find a solution that would reassert U.S. rule into the future, the truth is that no such solution exists today for U.S. empire. There is no policy shift that would guarantee U.S. power in the world. The best that could be done was to skillfully manage its decline, as the Biden administration had been attempting to do during its tenure. Faced with a total lack of a winning strategy, sections of the ruling class are beginning to act desperately.

The blinkered logic of Trumponomics

The context in which Trumponomics is being imposed on the world is general economic malaise, the weak recovery following the crisis of 2007–2008, and the United States’ relative decline as world hegemon. Where Bidenomics sought to manage U.S. decline within the framework of the current world system, Trumpism seeks to radically upend the world system by aggressively reasserting U.S. power and forcing the rest of the world, friend and foe alike, to come to heel. It is nothing less than a revolutionizing project for the global economy. It would be a mistake to see in all of this the U.S. self-isolating—in a throwback to Nazi Germany’s contradictory dreams of self-sufficient autarky. This is a deliberate and thought-through policy to reassert U.S. hegemony over the world. Trump’s policy also shares with Bidenomics the domestic component of recognizing the economic and political instability that resulted from the gutting of the U.S. industrial base, and is attempting to turn back the clock on that process.

The brains behind the plan seem to be Treasury Secretary Scott Bessent, a former hedge fund manager, and Trump’s top economic advisor, Steven Miran, a Harvard PhD. Both see de-industrialization as a threat, not only because of its economic and political impacts, but because they fear that the collapse of U.S. manufacturing would put the U.S. at a disadvantage in the event of a military conflict.

Overall, the strategy’s goal is to re-industrialize the U.S. through the weakening of the American dollar while simultaneously keeping the dollar as the world reserve currency. The weakening of the dollar would strengthen other currencies in relation to it, such that they would have the capacity to buy more U.S. exports—thus supporting U.S. re-industrialization.

The strategy seems to have had three parts:

1. An initial barrage of tariffs that act as a negotiating tool to bring countries to the table.
2. It is hoped that this would lead to a certain degree of leveling of the world system, such that the imbalances that make large scale industrial production impossible in the U.S. would disappear. The Trump administration believes that these tariffs will not result in trade wars like those of the 1930s because of the unique position of the United States. In an article published in November of 2024 called “A User’s Guide to Restructuring the Global Trading System,” Miran expressed his belief that the importance of the U.S. market as the consumer of last resort, and the global need for U.S. dollars, give the U.S. a special kind of power that can be leveraged through the use of tariffs to renegotiate the world system. As Miran noted in his article, “President Trump views tariffs as generating negotiating leverage for making deals. It is easier to imagine that after a series of punitive tariffs, trading partners like Europe and China become more receptive to some manner of currency accord in exchange for a reduction of tariffs.”
3. Step three would be a “Mar-a-Lago Accord”, which Miran has spoken about in the past. Like the Bretton Woods Agreement (1944) and the Plaza Accord (1985) before it, this would remake the world system in the interests of the United States. The key idea here would be to have friendly countries backing their currencies with dollar reserves—with an agreement that they would sell some reserves to appreciate their currencies if the U.S. dollar starts to become too strong. This would be the cost of access to the global reserve currency, the U.S. consumer market, and U.S. security benefits. It’s even possible to imagine, given the leaning of the Trump administration, that the U.S. would attempt to charge a fee for this military protection.

Additionally, as has been noted elsewhere, the administration is almost certainly trying to find a way to pay for maintaining the tax cuts for the wealthy that Trump instituted in his first term. Revenue from tariffs that offset the loss from these cuts may be a way to keep the wealthy in his corner.

So far, rather than a heroic display of U.S. dominance, what has been exposed is the striking contrast between the arrogant delusions of Trump’s team and the actual relative weakness of the U.S. in a multipolar world. While Trump’s team surely expected some degree of instability in the markets, they clearly did not anticipate the extent of the collapse. While the hit to the stock market was significant, the core reason for the reversal was the impact to the bond market, with U.S. Treasuries, which underpin the international monetary system, taking a dive.

As Michael Roberts recently put it,

Trump backed down because the bond market was showing signs of severe stress that could lead to a credit squeeze particularly for hedge funds that own a significant  stock of US bonds. If bonds dived there might well be bankruptcies for many companies, especially the heavily indebted so-called ‘zombie’ companies that constitute about 20% of all in the US. Bankruptcies could then ricochet through the economy, leading to a financial crash and slump.

As it was recently put in the Financial Times, “[T]he bond market sets the size of [Trump’s] tariff stick, and it is much smaller than he thought it was.”

The revolt of the markets and within Trump’s own class was too much. The impact of the tariffs even caused fissures within the ranks of the Trump-dominated Republicans. Since Elon Musk’s personal interests are threatened by the tariffs against the EU, he has publicly stated that he would prefer to have “a zero-tariff situation, effectively creating a free-trade zone” between the U.S. and Europe. Republican Senator Ted Cruz has warned of a “bloodbath” in the midterms if the tariffs cause a recession. Cruz, along with other Senators, have co-sponsored the Trade Review Act, a bipartisan bill aimed at limiting the president’s authority to impose tariffs without congressional approval. Trump’s approval rating has dropped by 14 percentage points since he took office.

In short, markets will not tolerate Trump’s ambitions, and there is no domestic will to deal with their fallout. Before the tariffs were implemented, Goldman Sachs estimated that there was a 35 percent probability of a recession in the next 12 months. They then raised that estimate to 65 percent following the tariffs, and lowered it again to 45 percent after the 90 day pause was announced. A U.S. population that has gone through two economic collapses (2008 and 2020), a global pandemic, and an extremely weak recovery, does not have any interest in bearing the material cost necessary to carry through these plans.

Yet there is no going back to normal, both because markets and allies are spooked, not knowing what will come next, and because the trade attacks on China have intensified. If Trump and his team were unable to immediately force vassalage upon the entire globe, they could at least up the attack on the greatest threat to U.S. hegemony.

The sweeping nature of new tariffs on China essentially signal the end of Biden’s more tempered approach to China of having a “small yard and high fence,” around key technologies that guarantee U.S. supremacy while maintaining the trade that has been central to both economies’ growth. What Trump’s administration has precipitated is a virtual trade embargo between the countries, usually an act of war. Both economies are still deeply integrated with each other, but since the trade war initially began during Trump’s term, the two economies have been in the process of slowly pulling apart. China’s share of U.S imports fell to 13.4 percent in 2024, eight percentage points lower than it had been in 2017.

That’s not to say that the impact on the Chinese economy will be insignificant. The Chinese economy has been coping with a crisis in its property sector, and it is more dependent than ever on exports. While exports to the U.S. have shrunk in recent years, 14 percent of its exports still go to the U.S., and trade with the U.S. is an important source of U.S. dollars.

But the position of the U.S. is worse. It is damaging one of the greatest sources of its power, the sense of stability that keeps its financial system the central power of the global economy. The reversal on universal tariffs means that it will no longer be plugging the hole they were in part intended to address, where Chinese products escaped the tariffs by being rerouted through other countries such as Vietnam and Mexico. The exception made for tech products both illustrates the leverage China has over the U.S., and also tacitly admits the fallacy that tariffs are paid by exporters. China has already imposed severe restrictions on six rare earth metals and on magnets (90 percent of which are produced in China) that are essential for many important industries. U.S. companies have only a few months worth of stockpiles of these metals to keep their operations going. Finally, China will have an advantage in terms of popular will to wage this fight. China appears to be the country on the defensive, and between this and the restrictions on political freedom, internal dissent is much less likely to be a factor in terms of influencing the Chinese leadership’s will to wage the fight. China also has some really nasty tools that it could deploy if needed. It currently owns $750 billion worth of U.S. government bonds. If it were to stop buying or start selling these bonds, it would cause enormous pain to the U.S. economy, driving a further increase in interest rates, putting downward pressure on the U.S. dollar, and creating global chaos. China also produces 50 percent of the ingredients that go into U.S. antibiotics.

We are already seeing the way that Trump’s actions are forcing other countries to reconsider their alliances. Biden had gone out of his way to bring his allies closer in a move to repel the ascension of China. One of the hallmarks of this strategy was the three-way accord with Japan and South Korea, historically unfriendly with each other, in order to counter China in the region. Yet almost immediately following the announcement of Trump’s “Liberation Day” tariffs, these countries and China pledged to speed up negotiations for a trilateral free trade agreement.

The net result of all these policy shifts has so far been a fall in stocks, bonds, and the value of the U.S. dollar. This may very well indicate a seismic shift in terms of confidence in the U.S. market. If foreign investors become too spooked to buy U.S. treasuries at a low interest rate, this will dramatically change the world financial system, as well as impact the American way of life, subsidized by the low interest of these treasuries.

As countries lose faith in the stability of the U.S. economy, it’s possible to imagine that the world’s slow move away from the U.S. dollar as the international reserve currency will accelerate, though as of now, there is no clear alternative. As of late 2023, U.S. dollars accounted for 58 percent of global currency reserves, and that number was expected to dip only about 4 percent over a decade. But now, when the world now has every reason to try to find ways to circumvent their dependence on an unreliable and megalomaniacal hegemon, that process may speed up.

I indicated in a recent article that while we are currently living in a time in which the far-right is in ascendance globally, where it will continue to radicalize and achieve successes if the global working class does not first pull the emergency break, this will not necessarily be a linear process. We may see partial restorations of mainstream bourgeois hegemony along the way. It’s possible to imagine that the enormous hit that may come as a result of these new policies to the U.S. standard of living may serve as the basis for a restoration of the Democratic Party in 2028. It may also mean an end for Trump’s personal political career. Yet this restoration will be incredibly unstable, unable to provide real solutions, and will open the door for future right-ward radicalizations in the future.

Capitalist empires do not decline gracefully. Due in part to the subjective element, the decline does not happen at a steady pace. Aware of the necessity of a solution, but unable to conceive of one outside of the capitalist system, radical ideas come to power that accelerate the decline. Trump’s tariff policy may very well be an example of this dynamic.

Nor are the processes of their decline smooth processes for the rest of the world. The transition from British to American hegemony was defined by two world wars and a great depression. This is the level of global instability that we are looking at today as the U.S. empire rides like a mad John Wayne into the sunset.