Jayden Rivers looks at what’s behind Trump’s tariff onslaught and whether it will crash the global economy
US President Donald Trump is imposing dramatic new tariffs on US allies and enemies alike. He claims higher import tariffs will raise government revenue to fund tax breaks for the rich and force the reshoring of production on American soil.
Most dramatic have been Trump’s global “reciprocal tariffs”, targeting virtually every country. While he has now paused tariffs including 20 per cent against the European Union, 46 per cent against Vietnam, and 25 per cent against South Korea, each country has been told to negotiate a deal or see the tariff rate imposed in 90 days. In the interim Trump has imposed 10 per cent tariffs across the board, including on Australia.
But China was given no reprieve, with an enormous tariff of 145 per cent imposed immediately.
Shock at the scale of the new tariffs sent US stock markets tumbling to lows not seen since the COVID-19 recession. They briefly recovered before falling again as the scale of the tariffs on China became clear.
According to Marxist economist Michael Roberts, if fully implemented the average US tariff rate would reach 26 per cent, “the highest level in 130 years”. Economist Joseph Politano reported that “the costs of these actions are enormous, covering $1.3 trillion in US imports or roughly 42 per cent of all goods brought into the United States”.
Trump’s moves are a break with the free trade policies and economic globalisation the US has promoted for decades.
Why is it happening?
Trump’s tariff plans are often seen as crazy and irrational. They are unlikely to work. But there is a logic behind what he doing. Trump’s trade policy is a response to the rise of China and the relative decline of US economic power.
He is obsessed with the idea that other countries are ripping the US off through unfair trade deals, blaming this for the decline of US manufacturing and the shift of industries abroad. In an address to US Congress after 100 days in office, Trump claimed “tariffs are about making America rich again and making America great again”.
In 1885, Friedrich Engels observed that when a capitalist economy is dominant worldwide, it typically prefers free trade. This allows the dominant nation easy access to markets in other nations. The free movement of capital to poorer nations can also lead to profitable investments.
From the 1840s to 1870s, Britain adopted free trade policies. But after the 1880s depression, Britain turned to protectionist measures to deal with its waning economic strength relative to Germany.
The US is repeating history. At the height of its economic power following the Second World War, the US dominated global manufacturing. Able to produce cheaper goods than its competitors, the US demanded the dismantling of global trade barriers to foreign markets. From 1949 until the financial crash of 2008 global trade grew on average at 10 per cent per year, roughly twice the growth of world production.
In 2001 the US brought China into the World Trade Organisation (WTO). It was an attempt to further expand US production and gain access to Chinese markets. As Bill Clinton said in 2000, “Our companies will be able to sell and distribute products in China made by workers here in America without being forced to relocate manufacturing to China.”
But China’s entry into the WTO gave its exporters access to global markets for goods they could produce cheaper than anyone else. It attracted a flood of foreign capital, rapidly expanding its economy. Today China accounts for 35 per cent of global manufacturing, almost three times the US’s share and equal to that of the next eight nations combined.
The rise of China threatens not just the profits of US companies but the US’s global power and military dominance as well.
Manufacturing provides skills, technologies and logistics which are transferrable to military production. For example, car assembly lines can be repurposed to produce military vehicles. Recent high-tech innovations like artificial intelligence also have military applications, such as in targeting systems.
As the Australian Strategy Policy Institute analysed, “China is ahead of the game. In its bid to have the most technologically advanced military in the world, Beijing applies a strategy of military-civil fusion to boost its military and defence capabilities, using civilian research and heavily subsidising domestic commercial sectors.” This is why China is such a threat to the American ruling class. As US Vice Present J D Vance stated, “Military power is downstream of industrial power.”
The driving force behind Trump’s trade offensive is reinforcing US imperialism. Today imperialist power brings together the geopolitical competition between states with the economic competition between firms.
Capitalist economies are dominated by huge industrial firms which compete with overseas rivals: think China’s Huawei and America’s Nvidia, which compete in the fields of microchip design, cloud computing and networking services. If Huawei outcompetes Nvidia, then the US loses a major innovator, employer, and source of tax revenue. If Nvidia fails, other giants further down the supply chain can fail, too.
Manufacturing jobs
Trump thinks tariffs will bring back manufacturing and jobs to the US.
Tariffs are import taxes, imposed on goods when they are brought into the country. This results in higher prices for working class people when they are eventually sold. The idea is that higher prices for imports protect local manufacturing companies, increasing domestic production and jobs.
Five million manufacturing jobs have been lost in the US in the past 25 years, replaced with casualised work on lower wages. Workers in communities worst hit by manufacturing job losses voted overwhelmingly for Trump.
As a result United Autoworkers Union president Shawn Fain responded to Trump’s automaker tariffs by saying, “We applaud the Trump administration for stepping up to end the free trade disaster that has devastated working class communities for decades.”
Tariffs are also popular among sections of the union movement here in Australia, such as the Australian Manufacturing Workers Union. They argue that tariffs will protect jobs from overseas competition.
History shows they’re wrong. The car industry in Australia grew behind tariff protection until the 1980s. Yet workers at Holden and Ford were among the lowest paid in heavy industry and far worse paid than car workers in America, Japan or Europe.
Later on, subsidies replaced tariffs. Between 1997 and the final closure of Holden and Toyota in 2017, governments handed the car industry $30 billion. But they continued to cut jobs and wages. The car companies had already axed 45 per cent of jobs between 2005 and 2012, before the decision to close completely.
But the unions’ support for tariffs and subsidies saw Holden workers continually accept wage cuts and job losses in a vain bid to keep the company afloat.
Tariffs and subsidies do not protect workers’ jobs—only company profits. Supporting tariffs encourages workers and unions to accept cuts to jobs and conditions to maintain company profitability—instead of fighting to maintain jobs and conditions.
Tariffs will not bring back US manufacturing jobs today either. The Economic Policy Institute reported that, “Eighty per cent of lost jobs were not replaced by workers in China but by machines and automation.”
Protectionism was used successfully to build up early industries in many countries, including the US, Germany and Australia. In the mid-1970s South Korea and Taiwan successfully deployed trade barriers to establish manufacturing industries. But this was aimed at building industries able to compete on the global market—not permanently sheltering uncompetitive companies.
Production today is also far more internationalised. Studying the effects of tariffs on American businesses, The New York Fed found that “extracting gains from imposing tariffs is difficult because global supply chains are complex and foreign countries retaliate”.
Globalisation has made disentangling supply chains near impossible. Take the iPhone for example. It’s made up of 180 components produced in more than 40 countries by different suppliers. So Apple cannot simply move all its production chains to the US.
Another problem is that countries retaliate with their own tariffs. China has already announced tariffs of 125 per cent on all US imports, Canada is imposing a 25 per cent tariff on US auto products and Europe has also vowed to respond. This threatens to ignite trade wars that will end up damaging the US economy as well as its rivals. As the downward spiral of retaliation swallows up more trade, consumer prices will rise dramatically and Trump will find it difficult to maintain high tariffs.
The tariffs will almost inevitably cause a US recession. A Yale University study concluded that the increase in domestic prices in the US would reduce consumer demand so much that it would cut US economic growth by 25 to 30 per cent this year. According to a UBS forecast, US real GDP this year could fall by 1.5-2 percentage points and inflation could rise to near 5 per cent.
Tariffs will raise the cost of living for working class people as well as the risk of recession, potentially creating mass unemployment for workers all over the world.
Alternative
Trump’s protectionist trade policy is no alternative for the working class. Yet free trade has also destroyed millions of people’s lives.
Free trade globalisation has driven down labour and environmental standards. It meant the rampant privatisation of state industries to turn them into profit-making avenues for big corporations, as well as the prising open of foreign markets so the US could flood them with cheaper goods.
Both free trade and protectionism are policies implemented at different times to ensure the profits of big business and the rich at workers’ expense.
The alternative is to build union power to organise and strike to fight the bosses head-on. This is the only way to save jobs and win the pay and conditions workers need.
Trump’s trade war has the potential to push the US and the rest of the world into recession, exposing the rot at the heart of world capitalism. The booms and slumps of the stock exchange and the demands that workers sacrifice will continue until we end the system itself.
