Donald Trump declared that April 2, 2025 – the beginning of a massive trade war against friend and foe – was “Liberation Day.” “Reciprocal tariffs” were imposed on countries around the world based on an extremely arbitrary formula.
But “liberation” from what or whom exactly? The message for ordinary people in the United States was that this would be the end of being “ripped off” by other countries and that tariffs would allow the U.S.’ industrial base to be rebuilt, implicitly along with well-paid, secure jobs. This was connected to other promises by Trump, including to end inflation on everyday goods and massive growth.
In reality, April 2 was the day that U.S. imperialism fully unshackled itself from the “burdens” of being the guarantor of the world capitalist system, in order to use its raw economic power without restraint. And while the trade war has spared very few, it was first and foremost directed at its core adversary, Chinese imperialism.
But eight months on, it should be asked how this process is going. What exactly has the U.S. achieved through this reassertion of power through blackmail? Clearly the massive increase of tariffs for goods entering the U.S. has caused havoc for many countries, particularly in the neocolonial world, and contributed to the fragility of the world economy.
Meanwhile, none of the promises to American workers have materialized, rather the opposite. And while the overall position of U.S. capitalism vis a vis other countries was temporarily strengthened on the surface, none of the contradictions it faces have been solved. In fact these contradictions – including the beginnings of recession, massive indebtedness and a massive speculative bubble – are set to worsen in the next period, with or without high tariffs.
How It Began
The first phase of the U.S. trade war began in 2017, under Trump’s first administration, and was squarely focused on China as part of U.S. imperialism ramping up its competition with the Chinese regime. For example, Trump targeted the technology company Huawei and pushed to remove it from 5G networks in the West. The trade war then escalated again in 2019.
When Biden became president in 2021, he claimed that Trump’s tariffs on China would be reviewed and many would be reversed. In the end none were reversed. Rather, his administration added more, including 100% tariffs on Chinese electric vehicles (EVs).
But all of this pales in comparison to what happened after Trump returned to office in January. After Liberation Day, tit-for-tat escalation between the U.S. and China led to the U.S. tariff on Chinese goods temporarily reaching 145% and China responding with 125% tariffs on U.S. goods. This pointed towards an immediate and virtually complete cessation of trade, turbocharging the “decoupling” between the world’s two largest economies.
Along with punishing “reciprocal tariffs” on many other countries, the escalation with China led to a very sharp reaction in financial markets, including the market for U.S. treasury bonds, which is seen as a critical safe haven for investors. This forced Trump to partially retreat. But while the immediate crisis passed, The Economist made it clear in a headline that, “The financial system came perilously close to the brink.”
Trump’s partial retreat became the basis for the claim that “Trump Always Chickens Out” (TACO) which began to trend among the liberal media and sections of American social media. But as of the start of November and after a huge amount of toing and froing, the average level of tariffs imposed internationally by the U.S. still remains at 17.9%, according to Yale University’s Budget Lab, the highest level since 1934, in the middle of the Great Depression.
This is clearly extremely high, but there are a couple factors which prevented a far worse trade war which would have had dire consequences for the world economy overall. First of all there were many exemptions worked out for specific sectors. This includes the exemption of most goods imported from the U.S.’ biggest individual trading partners, Mexico and Canada which are also highly integrated into U.S. production supply chains. Secondly, with the significant exception of China, countries generally avoided retaliation, seeing little choice but to comply, try to ingratiate Trump and persuade him to lower the tariff rates applicable to them.
We have seen a months-long pathetic spectacle of countries going cap in hand to Washington and promising to eliminate not just any tariffs on U.S. goods but also various protections for their domestic industries, as well as environmental regulations. Some committed to buying billions in U.S. goods, including fossil fuels, or investing vast sums in the U.S. economy. But in the end, even the replica of a gold medieval crown given to Trump during his visit in Korea did not fundamentally change the outcome.
U.S. imperialism forced countries to submit to terms that showed the real relationship of forces. These included agreements with the EU, South Korea and Japan, which left all of them feeling badly burned and facing 15% U.S tariffs. Taiwan, which the U.S. claims to be protecting from the threat of Chinese invasion, now has 20% tariffs.
And while many have claimed that China got the better of negotiations with Trump, this is belied by the simple fact that, in the end, the tariff level on Chinese goods entering the U.S. stands at 47% while the tariff on U.S. goods entering China is 10%. The Chinese regime sought to use leverage like their near-monopoly of rare earth minerals before Trump’s recent meeting with Xi Jinping. It was also thought that the CCP regime could use the chaos and resentment caused by Trump’s tariffs to increase their own international political standing. But given the enormous problems facing the regime – including virtual zero growth masked by falsified government data, mass unemployment and a deflationary spiral that is sapping the economy’s strength – they were forced to accept this disproportionate outcome.
What Are the Medium Term Consequences?
In the new reality, the U.S. treats its foes like enemies and its “allies” more like vassals while abandoning all pretense at “soft power.” This has led to a lot of speculation about other countries or alliances stepping in to fill the void, as the U.S. turns away from its role as global “buyer of last resort” which it has occupied for a quarter century in the global system. Could this be the beginning of a “multilateral” world as promoted in recent years by China and some within the BRICs alliance?
It is indeed true that the treatment by the U.S. has given new impetus to the EU, for example, to finalize trade deals with the Mercosur trade bloc in Latin America and to pursue trade deals with India and countries in Southeast Asia.
The crisis that opened up after Liberation Day also points to the potential for further developments to bring into question the “full faith and credit” of the United States and its control over the key reserve currency which has been a key component of the American dominance of the world financial system for decades.
But predictions in April of a rapid collapse of the dollar’s reserve status did not materialize. All bets would be off, however, in the event of a more serious global crisis. But while the dominant position of the U.S. dollar could deteriorate, there is no country, or group of countries, which is able to take over the U.S. role, with its own reserve currency.
There is also speculation that the U.S. Supreme Court could overturn Trump’s tariffs as unconstitutional. But given how supine the Supreme Court has been in the face of Trump’s assault on various bourgeois institutions it is hard to believe, even if their ruling is negative for the administration, that they won’t find a way out. This could be through Congressional action. But the idea that the U.S. would now simply abandon the cudgel it has been using to put others “in their place” is essentially ruled out.
Promises Not Kept
Whatever short-term advantage has been gained by the ruling class from Trump’s policies, the position faced by ordinary people in the U.S. is worsening. Trump’s tariff cudgel may have secured promises of investment in the U.S. from foreign countries, while his “Big Beautiful Bill” was a huge tax cut bonanza for the rich. He has also given full backing to the tech giants in their bid for Artificial Intelligence (AI) supremacy. All of this is very far from the day-to-day reality faced by the working class.
Report after report in recent weeks has explained that much of the American economy is already in recession. People’s view of their personal finances is at its lowest level since 2009, in the middle of the Great Recession. A very striking figure that is often cited now is that 10% of the population (people earning over $250,000 a year) is responsible for nearly 50% of consumer spending. This is according to an analysis of Federal Reserve data by Moody’s Analytics.
The U.S. is now a two-speed economy. On the one side, is an affluent upper middle class and a super wealthy elite. On the other side, is a majority who fear losing their jobs, while groceries and other essentials continue to become more unaffordable and housing and medical costs soar. While not a new phenomenon, there is a growing trend in a number of cities of people who work one or two jobs but are homeless, living in shelters or their cars because they simply can’t afford the rent. Unemployment for 16-24 year olds is now at 10.5% and for Black people is up sharply to 7.5%.
October saw the highest number of layoffs in 22 years with more to come. It is clear that many tech companies see AI as an opportunity to significantly cut their payrolls. Trump also unleashed Elon Musk and his DOGE mercenaries early in the administration to slash many parts of the government to the bone and fire tens of thousands.
As for the claim that tariffs would bring back industrial jobs, we are now in the ninth straight month of a manufacturing contraction. Of course the militarist buildup against China and the state-led investment in certain sectors deemed critical for “national security” can lead to the development or redevelopment of certain industries, especially those with military applications. But the much-vaunted idea of a general “reindustrialization” shows no signs of materializing.
And as for tariffs themselves, there’s little doubt that the tariffs – which are paid by importers to the government – are, to a significant degree, being passed on to consumers. It is estimated that the tariffs will cost the average household an extra $1,800 in 2025.
While far from the only factor in Trump’s electoral victory in 2024, the tonedeaf denial by Joe Biden, Kamala Harris and the Democrats that there were any problems facing ordinary people was definitely a factor in their defeat. Trump now seems determined to copy this approach. He claims that inflation has been tamed even though headline figures show it rising and says that discussion of an affordability crisis is a “hoax.” His poll numbers on the economy are now disastrous. A recent Fox News poll showed that only 38% approved of his handling of the economy while 61% disapproved. Overall, 76% had a negative view of the state of the economy.
But while claiming that prices have come down across the board, in a sign of the pressure of negative mass sentiment, the Trump administration has lifted tariffs on bananas, coffee and many other imported food items. For example, on November 20, Trump issued an executive order lifting a 40% tariff on Brazilian goods including beef, coffee and other food items.
His next gambit may be to send everyone a check for $2,000 from tariff revenues before the midterm congressional elections next year. This is taking a page out of the pandemic playbook when Trump sent signed checks in 2020. It would undoubtedly have an impact on perceptions, but only to a point.
Everything, Everywhere, All At Once
The recession which has already started is only the beginning of the problems facing the U.S., and by extension, the world economy. A recent front page article in the New York Times (November 26) pointed to “the profound uncertainty and heightened risks running through the global economy and financial system.” They cite a series of issues, including the massive AI bubble, the spreading use of cryptocurrencies in mainstream banking, billion dollar bankruptcies “related to a mad rush of lending by shadow banks” and “titanic levels of debt that the United States and other governments have built up.”
A great deal of attention is now focused, correctly, on the AI speculative bubble – centered on the data center construction boom – given the hundreds of billions being invested by the “Magnificent Seven” U.S. tech firms alone. It is estimated that 40% of growth in the U.S. economy this year and 80% of stock market gains can be attributed to AI spending. This means that without the bubble, the U.S. would already be in a full scale recession. Meanwhile the actual returns – except for the chipmaker Nvidia – have been meager.
For example, Open AI likely made $4 billion last year but lost $5 billion all while preparing for an Initial Public Offering aiming to raise $1 trillion in the stock market. This shows how disconnected the expectations have become from reality.
Tech titans like Amazon’s Jeff Bezos claim that this is a “good bubble” because it is backed by very profitable companies, unlike during the dot-com bubble a quarter century ago. However, even the Magnificent Seven are now taking on growing amounts of debt but then hiding it using some of the same type of financial chicanery that preceded the implosion of the sub-prime loans in the housing market in 2008. That was the start of the most serious economic crisis for the world economy since the Great Depression.
Private equity and the U.S.’s unregulated “shadow banks” are playing a big role in the bubble. Data center leases are being turned into securities and sold to investors. These securities are then turned into “tranches” to spread the risk, exactly as was done with sub-prime mortgages. It is claimed that unlike in 2008, however, “normal” regulated banks aren’t exposed. This is not true. New reports show that they are also investing in private equity as are pension funds.
As the New York Times points out, “In many cases, established guard rails — like restrictions on what 401(k) retirement plans could invest in — are being rolled back by the Trump administration. As a result, long-term savings accounts for many Americans can now include investments in real estate, cryptocurrencies and private equity funds.”
This shows how the idea that AI financing is separate to the rest of the financial system is pure delusion. While the timing remains uncertain, the speculative bubble’s implosion will inevitably lead to a bloodbath that will have a much wider effect on the economy and ordinary people, possibly including a full-scale financial crisis.
The U.S. and World Economy
Given the still dominant role of U.S. finance capital in global markets, the bursting of the AI bubble would almost certainly tip an already fragile world economy into a serious downturn. As ISA has pointed out, the underlying cause of this fragility is massive overaccumulation of capital. In China, this takes the form of massive overproduction now directed into an intensive export drive while “America is now one big bet on AI” as the Financial Times headlined. While various mechanisms can prolong the misery, this process points towards a massive “destruction of capital” as in 2008-9 with all the social devastation this will cause.
Any replay of a 2008-9 scenario will happen in a radically different situation. Then, the U.S. and China were partners in the drive to a more globalized world order. When the crash began, the U.S. was able to manage the crisis in coordination with the EU, Japan and China. The BRICs countries, and especially China, played a key role in the subsequent recovery.
Now the U.S. is no longer playing the hegemonic role of guarantor of the global political and economic system as it has since 1945. Growing friction and interimperialist conflict is the order of the day, as was the case between the two world wars. This made the Great Depression far worse than it otherwise would have been.
The situation is compounded by the level of indebtedness in the U.S. and other major economies. In the case of the U.S., the level of government debt – now $39 trillion or 125% of the country’s GDP – has only ever been seen in World War II.
Of course, for every bourgeois commentator pointing towards these dangers – and there are now many – there is another who says there is little to worry about. Astonishingly, one of these is economist Nouriel Roubini, the famous “Dr. Doom” who predicted the 2008 financial crisis and in 2022 wrote a book entitled Megathreats about “the dangerous trends that imperil our future.” He has turned 180 degrees and now believes the economy will have a “soft landing” and that the debt can be paid down through AI-fuelled growth rates of up to 4% over the next period.
Sustained growth at this level has not been seen in advanced capitalist economies since the postwar boom of the 50s and 60s. Marxists do not deny that further technological breakthroughs could lead to phases of growth but the vista painted by Roubini is another fantasy, like Trump’s idea that tariffs will lead to reindustrialization.
Not for the first time, the human race stands in front of the question of what to do about the capitalist system which leads to periodic, catastrophic economic crises and imperialist wars, with the added feature now of a climate crisis that threatens to undermine the basis for civilization as we know it. The answer is not just to keep restarting the stalled growth machine after every disaster, but to put capitalism out of business once and for all and lay the basis for a rational, global, planned economy. This is the task that lies in front of the international working class.
