Trump’s trade war leads to global economic turmoil
Hannah Sell, Socialist Party England and Wales general secretary
James Carville, the political advisor who coined the phrase ‘it’s the economy stupid’ as a campaigning slogan for Democrat Bill Clinton to win the 1992 presidential election, was once asked what he’d like to be reincarnated as. “The bond market,” he replied, “it can intimidate anyone.” 9 April 2025 will be remembered as the day that proved that ‘anyone’ includes current US President Donald Trump.
Traditionally, when stock markets are falling, government debt or bond markets go up, as investors search for safe havens. This is particularly true of US government debt given the US’s dominance of the world financial system. In the first days after ‘Liberation Day’ that was what happened, but then the US bond markets suffered the steepest fall in four decades. Even more alarming, the price of gold – traditionally the safest haven of all – also started to fall. This was an indication that the whole global financial system was in danger of freezing up. Investors were selling whatever they could. A new global financial crisis was on the cards – probably on an even bigger scale than the one that triggered the Great Recession of 2008-09.
Trump blinked
In the face of that looming catastrophe, Trump blinked and announced the ’90-day pause’ in the higher levels of tariffs (except for China). In a sense, on a bigger stage, this was a ‘Liz Truss moment’. However, Trump is still in a stronger position than Truss and is not yet being bundled out of the White House as she was from Downing Street. Nor has he been forced into a complete volte face. On the contrary, even after his U-turn, he has currently – within the space of two months – increased the US’s average tariff rate from 3% to more than 20%, putting them at their highest rate in almost a century.
This is a much bigger shift than introduced by the US Smoot-Hawley Tariff Act of 1930 in response to the 1929 Wall Street crash. Smoot-Hawley, and the tit-for-tat protectionist response to it by other governments, was a central factor in the severity of the Great Depression. Nonetheless, it only increased America’s effective tariff rate by 6%. Today, in a world economy that is more integrated than was the case in the early twentieth century, with highly complex global supply chains, Trump’s measures look set not just to copy US President Herbert Hoover – and the congressmen Reed Smoot and Willis Hawley – in massively exacerbating the next global economic downturn, but to be responsible for triggering a likely world recession.
It is therefore no surprise that, at this stage, Trump’s U-turn has not resulted in the markets looking as “beautiful” as he predicted. On the contrary, things continued to get uglier. The US bond yield (effectively an interest rate which goes up as bond prices fall) finished the week with its biggest increase in any week since 2001. That means the cost of US government borrowing has gone up and is currently at a higher rate than Greece. At the same time the value of the dollar fell against other major currencies.
In one sense, however, Trump’s U-turn seems to have had some effect, at least for now. At this stage, the world financial system seems to be no longer on the brink of freezing up, and the rush to safe havens has returned – with the price of gold and the Swiss franc soaring. Such is the damage Trump has done to the status of US capitalism, however, the markets are not treating US government debt as a ‘safe bet’.
Of course, there are other factors which have contributed to the falls in the US bond markets. They include the fear that China might start to sell the 2.6% of US Treasury bonds, worth $750 billion, that it holds. Another element is the hedge funds’ highly leveraged gambling on US treasuries, where they borrow something like $49 for every dollar of their own money they invest – and therefore simultaneously have to sell when the financial waters get choppy.
A similar process took place under Truss in the UK government debt markets, involving pension funds. But the central factor then was the markets’ lack of confidence in Truss; today it is the markets’ horror at the consequences of Trump’s rule. And whereas Britain is a second-rate power, the US is still the strongest economy in the world, with the global reserve currency. The consequences are therefore far greater for the world economy. Last week, Britain’s government borrowing costs reached their highest level since 1998, not as a result of any policy announcements by the UK government, but as a result of the particular weaknesses of British capitalism, meaning that it is often the first to prove the truth of the saying that ‘when the US sneezes, the world catches a cold’.
What motivates Trump?
So, what is the logic of the massive tariffs introduced by Trump? Despite appearances, it is not simply a question of a crazy billionaire having got the keys to the White House. Trump reflects the decline of US imperialism, still the strongest power on the planet but increasingly less able to set the framework for the world. During Trump’s first term, and under Biden, tariffs and protectionist measures increased, in an attempt to protect US markets from its global rivals. ‘Liberation Day’, however, was on a qualitatively different scale. Trump and his co-thinkers had drawn the conclusion that it is necessary to launch an offensive ‘knock-‘em-down, drag-‘em-out’ economic fight to defend US capitalism against its competitors, above all China.
The current result is a 10% minimum tariff on goods entering the US from other countries, 25% on steel, aluminium, and vehicles, and a mind-blowing 145% tariff on Chinese imports. China has responded by saying it will ‘fight to the end’, increasing tariffs on US goods to 125%, and by allowing its currency to fall. Of course, none of this is the final word. Even had Trump not been forced to introduce his 90-day pause, he would still have proceeded to exult in world leaders phoning him to ‘kiss ass’: playing court to the king in order to get improved tariff deals.
And, no doubt, domestic pressures will force him to adjust. Already the opposition of the majority of the US capitalist class to his antics has been reflected inside his own team, with Elon Musk attacking Peter Navarro, Trump’s trade advisor, as a moron who is “dumber than a stack of bricks”. The removal of smartphones and computers from the tariffs is undoubtedly a response to the screams of the tech industry behind the scenes. As the consequences of the tariffs are felt beyond Wall Street in ‘Main Street’, among working-class Americans, Trump will face far greater opposition.
No going back
However, no matter how much he retreats under pressure, the consequences of ‘Liberation Day’ cannot be undone. The fish soup cannot be turned backed into an aquarium, as one newspaper columnist vividly summed it up. The status of US imperialism has been dramatically undermined, and the mutual co-dependence of the US and China, which has been the central axis of the world economy in the era since the 1990s collapse of Russian Stalinism, has been broken, even if there is a retreat from the current pitch of the trade war.
The trade war with China is going to lead to major suffering for the working class in both countries, and worldwide. It looks set to trigger a world economic downturn and will fuel huge class conflicts in the US and China. Ultimately no side will win.
Nonetheless, it is probable that Trump will pay the price soonest and hardest. The unique character of China, with the state playing a large directing role in the allocation of capital, is what has enabled it to develop from an economy one tenth of the size of the US in 2001 to almost half the size today, now responsible for over a third of global manufacturing output. That unique character has also allowed it to consciously prepare for the coming trade war. China remains extremely reliant on exports, which are responsible for around 20% of GDP. However, whereas in 2017 almost a fifth of China’s exports went to the US, today it is only 13%, accounting for less than 3% of its GDP. Meanwhile, most of China’s imports from the US are agricultural and industrial products, rather than the consumer goods which it exports to the US, which more directly impact on workers’ pockets.
At the same time, Trump’s actions, lashing out at all competitors regardless of whether they are traditional allies, is accelerating the ‘multipolar’ character of the world. In an editorial on 12 April the Financial Times urges China “to take advantage of the turmoil” and the “sapping” of “US credibility with trading partners”. No doubt many Western capitalist countries will agree, including Britain, and be keen to defend their own interests via increased economic cooperation with China. This will be even more the case for many neo-colonial countries.
Balancing between the two major powers will not be simple for any country, however. The same Financial Times editorial also pathetically pleads with China to “reform” and stop “dumping” and “unfair subsidies”. Back in 2001, when China joined the World Trade Organisation, US imperialism was the clear global hyperpower and imagined that China would indefinitely remain its willing cheap labour sweatshop. China’s refusal to follow that path is what lay behind US Vice President JD Vance’s comment that globalisation hasn’t worked out how it was meant to, where “rich countries move further up the value chain, while poor countries made the simpler things”. Today, with China the second global power, Western capitalism in crisis and the US in decline, there is no prospect of pleading by the likes of the Financial Times pushing China to change course when US imperialism failed.
Nonetheless, China’s fundamental internal contradictions will be exacerbated by this crisis, which could manifest in multiple ways. Contradictions exist at the top between the brutal Chinese Communist Party dictatorship – which uses socialist rhetoric yet has consciously developed what is now the second-richest capitalist class in the world – and that capitalist class, large sections of which will not accept state direction forever. But the biggest conflicts will be between the working class – the most powerful on the planet – and all the elite, and will result in huge revolutionary upheavals at a certain stage.
Class conflict ahead for Trump
Class conflict is also on the agenda in the US. Polls taken at the start of last week, just before Liberation Day, already showed a huge 19% drop in confidence that Trump would improve living standards. That figure will fall further. Right now, there are bound to be some workers still hoping that tariffs will mean the return of ‘good jobs’ to the US after decades of manufacturing decline. However, for most those hopes will be quickly dashed by the brutal reality of sharp price inflation and economic slowdown.
At the same time, the mass protests across 1,400 towns and cities on 5 April under the slogan “End this millionaire power grab” represented the first stirrings of mass mobilisation against Trump. Large crowds have also turned out for the rallies against the oligarchy called by Bernie Sanders and Alexandria Ocasio-Cortez. In Denver, Colorado, 34,000 people packed in to hear them speak and 37,000 turned out in Los Angeles. Unfortunately, their message has not been tobuild the new party of the working class that is so desperately needed. However, the most recent CNN poll shows a ‘favourability rating’ of only 29% for the Democrats, the lowest on record, and a sign of the huge potential support for building a new party.
International socialism
Trumpism is both a reflection and an accelerant of the ruling elites worldwide increasingly beating the nationalist drum. While the productive forces have long since outgrown the barriers of the nation state, capitalism has never been able to fully surmount them, even in the age of US-dominated globalisation. Now, however, the nation state has come roaring back as the different national capitalist classes struggle to defend their own interests in a multipolar world.
The need for the workers’ movement to fight for socialism on an international level is urgent. The pressure to back ‘our’ capitalist class against others will be considerable. But the working class does not have the same interests as the bosses who exploit us – regardless of their nationality. Our common interests are with the working class worldwide. The most important starting point for international solidarity is to strengthen the movement against the capitalist elites in our own countries, not least by building independent workers’ parties.
The growth of nationalism is a sign of the growing rottenness of capitalism in the twenty-first century. Nonetheless, it also exposes the lie that workers have been told in the decades when globalisation was rampant. At that stage we were told that nation states were powerless against the almighty power of the global markets. So, we were told, we had to accept wages ‘racing to the bottom’ and manufacturing being moved to countries with cheaper labour. Steel plants and car factories closing were acts of god that governments were powerless to stop. The Socialist Party opposed those lies with every fibre of our beings. And now, it turns out, the government can intervene when needed, as Starmer has shown with British Steel.
Starmer’s government didn’t nationalise the Tata Steel plant in Port Talbot, allowing thousands of jobs to go to the wall. That they are being pushed in that direction to save the Scunthorpe plant is because they can see, in this Trumpian world, it is not viable that Britain becomes the only G7 country without a steel industry. They are acting in the interests of British capitalism, not the working class, and no doubt will intend to hand it back to the private sector as soon as possible. Nonetheless, it gives a pointer to what a workers’ government could do.
If parliament can be recalled on a Saturday over the Easter recess to save British Steel, why couldn’t a workers’ government act to nationalise the major banks and industries that dominate the economy, with compensation paid only on the basis of proven need? Those are the kind of decisive measures that a socialist government would need to take to successfully defy the power of the bond markets. They would lay the basis to begin to develop a socialist planned economy, under democratic working-class control, which could meet the needs of all. Of course, socialism could not be built in one country, but the first steps will be taken in one nation – which would then inspire workers worldwide to break with capitalism. Right now, billions of people around the world are looking on in horror at the horrible reality of capitalism in this era, but in the struggles that will result, the ground is being prepared for socialism.
