Markus Lehner
April 2 can be seen as a milestone on the road to a new period of crisis for capitalism, marked by trade wars. On that day, which he called „Liberation Day“, US President Donald Trump announced a new system of tariffs on virtually all of the United States‘ trading partners. Depending on the size of the US trade deficit with the partner country and its tariffs (or „unfair“ subsidy policy), „reciprocal“ US tariffs will be imposed on imports into the US at a minimum rate of 10%. For China, for example, this meant an increase of 34% (at the time), for India 27%, for Japan, 24% and for the EU, 20%. There are special tariffs for certain sectors, such as the automotive industry (25%) and semiconductors. Exempt from the scheme are Canada and Mexico (due to the North American trade agreement, which is, however, being interpreted more strictly) and Russia (due to the upcoming Ukraine negotiations).
Unlike the last tariff coup in Trump’s first term, China, for example, cannot simply divert its exports to the US via India or Vietnam, as these countries are now also affected by the tariff policy (Vietnam has even been hit with 46%). The blow to global trade if this tariff avalanche were to be implemented would be severe. The increase in the cost of imports would not only affect the markets for end products because a large proportion of global trade now consists of intermediate products and runs through global supply chains. The US’s 15% share of the global market for end products is also relevant. The US tech industry, with its heavy dependence on imports from Asia, would also be severely affected by tariffs, particularly in terms of its supply chains. It has been calculated that if Trump’s tariffs were implemented and Apple’s supply chain remained unchanged, an iPhone 16 would cost around $3,500 (more than three times as much as it does now). Overall, a price shock is expected that would push the inflation rate in the US back above 4%. Consumer confidence and business sentiment indices immediately plummeted in the US, prompting all major financial institutions (e.g. Morgan Stanley) to speak of an imminent recessionary threat to the US economy – with serious consequences for the already sluggish global economy.
Questionable justification
Trump’s justification for this radical shake-up of the global trade order is more than questionable. The US trade deficits are cited as evidence that the US economy has been exploited and bled dry for decades. In fact, the special role of the US in the financial markets leads to what is known in finance as „extraordinary privileges“. Despite trade deficits, because the US dollar acts as the global currency not only is there no outflow of dollars but, on the contrary, all kinds of debt incurred by the US economy (and the state) are themselves deposited back into dollar assets. The negative trade balance is more than offset by the service and capital investment sectors.
Added to this are the favourable terms of trade for the US (particularly due to its position in technology-intensive economic sectors), which mean that global trade actually results in a transfer of value to the US („unequal exchange“) – the opposite of Trump’s claim. Even though jobs outside the technology-intensive sectors and the service sector, i.e. primarily in traditional industries, have migrated on a large scale during the period of globalisation, particularly to Asia, this has not caused the US working class to disappear, but rather to be restructured. Most economists rule out the possibility that Trump’s tariff hammer will now reverse this trend and that traditional industries and even sectors such as semiconductor production will actually return to the US on a large scale – this would require enormous investment and the acceptance of huge losses during a transition period. There is no indication whatsoever that US capital would be even remotely prepared to do this, as was made clear in statements by major capital market players such as Morgan Stanley and Goldman Sachs (the US consumer market is not large enough to justify the effort). In response to the Trump camp’s idea of the impact of tariff policy, the English-language financial journals introduced a previously unknown array of expressions for „nonsense“.
Financial markets
The reaction of the financial markets to „Liberation Day“ followed suit – the British business magazine „The Economist“ even headlined Trump’s action as „Ruination Day“. Rarely has a speech by a single politician triggered such a slump in global stock markets as Trump’s reciprocal tariff announcement. Within two days, share price losses wiped out around US$5 trillion in market value for S&P 500-listed companies alone. Before the recovery, the losses reached a low of 23% below the annual high. The US markets dragged down the Asian financial markets in particular, and eventually the European markets as well. A global financial crash loomed – and Trump, who was busy playing golf, simply declared that everything was going well.
Meanwhile, rumours circulated that there were two factions in Trump’s camp: one that saw the tariff announcement as merely a means to achieve better trade agreements (led by Treasury Secretary Scott Bessent), and another that actually sees protectionism and isolationism as the future of US economic policy (led by Commerce Secretary Howard Lutnick) – with Trump somehow representing both sides. This narrative led to constant reports of a tariff moratorium during the days of stock market panic, which Trump then actually declared on 9 April for 90 days. All countries had agreed to negotiations, with the exception of China.
This led to a bidding war, with the US tariff against China now standing at 145%, while the latter has followed suit at 125% (China is a large market, especially for US electronic products). In the technology sector, in particular, some tariff increases on China were then quietly suspended. This postponement of the price shock has calmed the stock markets, even if the 9% recovery by Easter did not make up for the losses. Confidence in a long-term normalisation is low.
Responses from trading partners
The responses of the US’s trading partners vary considerably – and the EU and China in particular are not in as weak a position as the US administration had expected. While the EU may be weak on other issues, it is not weak on trade or, as it now stands, on currency issues. Customs and trade policy is a central responsibility of the EU Commission, not the member states – there is no longer a veto here; the majority principle applies. In particular, the Commission’s „Anti-Coercion Instrument“ (ACI) can be used to impose serious countermeasures, e.g. against imports of services from the US (where the US has a trade surplus), especially against tech companies. Even though there are differing interests among EU countries (e.g. Ireland with regard to tech companies), export-oriented economies such as Germany, the Netherlands and the Scandinavian countries are pushing for the full force of the ACI measures that have actually been decided, which could spell the beginning of the end of the market power of Google, Amazon, Facebook & Co. in the EU. This now serves at least as a threat in the negotiations during the 90-day moratorium.
In addition to effective counter-tariffs, China is also imposing export bans on the United States. This affects certain groups in the „rare earths“ category, among others. These are heavy elements with special chemical properties that make them very important for many newer technologies (e.g. semiconductors for computers with AI programmes, electric motors, magnetic bearings for generators, etc.). However, their special chemical properties also make them difficult to extract from natural deposits. China not only has a privileged role in the latter, but also a de facto monopoly on the know-how for their extraction – only Russian companies have recently caught up (Trump’s deals with Ukraine and Russia also revolve heavily around rare earths and other rare metals such as titanium). China’s export restrictions on seven rare earths, announced on 4 April, have caused panic in the US technology sector, as further restrictions on the entire sector are looming, which could hit companies such as Nvidia (graphics processors and AI accelerators) and Tesla (electric cars) particularly hard.
The other response from China, the EU and Japan to the US trade restrictions lies in the expansion of their respective trade agreements with each other and with other regions. This includes pushing ahead with the Mercosur agreement between the EU and Latin America, but also larger deals between, for example, China and Vietnam, China and Malaysia, etc. Within the EU, there are both efforts to further open up to Chinese investment and concerns that a flood of Chinese goods could now be diverted from the US market to the EU.
China and the EU are therefore by no means defenceless in a trade war. Nevertheless, the internal effects will also be enormous. In China, a reduction in US demand will exacerbate the already existing problem of overproduction in key sectors, which, in addition to the search for other markets and trade agreements, will also increase pressure on Xi to strengthen consumer demand in the domestic market (which he has so far rejected in favour of these capital groups). In the EU, of course, the economy will also be hit hard, which will be cushioned at least in part by economic stimulus packages for capital (including massive increases in military spending).
Currency flows
Another important aspect of the emerging trade war concerns the reorientation of monetary and government debt policy. One of the most astonishing consequences of the stock market downturn in early April was the suspension of a previously clear law: in times of turmoil on the capital and investment markets, investors secured their capital either by buying US government bonds or stashing it in accounts held by the US central bank (Fed). This time, the opposite happened: US debt securities and Fed bonds were sold off on a large scale at the same time as US equities, and the dollar fell in parallel with share prices.
This is a clear sign that the role of the US dollar as a „safe haven“ for global financial capital is being called into question. This is further exacerbated by the political pressure that the Trump administration is exerting on the Fed (including threats to dismiss Fed Chairman Jerome Powell if he does not lower interest rates quickly enough). Although the US dollar is still the central reserve currency (58% of global foreign exchange reserves), the euro (20%) and the yen (6%) have caught up significantly in recent years. Following the euro crisis, European financial institutions and capital markets are much better prepared for shocks and offer their own „safe havens“ (e.g. German government bonds as part of large-scale special funds). In this respect, it is not surprising that Trump’s shocks have led to a shift of further reserves and hedge funds away from US assets and towards the euro and yen in particular. Even if recent developments, especially the war in Ukraine, expose the EU’s political and military weaknesses, it remains a geopolitical factor, particularly in trade and financial matters. The EU will seek to leverage this in trade deals with the US, China and the Global South in the near future, just as it will use it for its own rearmament.
What is the goal?
The mystery remains as to what plan lies behind this whole campaign by the Trump administration. The stated goals – reducing the US trade deficit and reindustrialising the country – are certainly not achievable. The reaction of the financial markets and the actual impact on the economy and inflation in the US show the real consequences: tendencies towards recession or slumps in growth, burdens on the lower classes, especially through rising prices and the loss of pension guarantees, possibly even a new financial market crisis. Clear cracks are also appearing in the originally close ties between the Trump movement and large sections of US finance and monopoly capital. A weakening of the US dollar and thus of the US financial markets is not in their interests. There is speculation that part of the US bourgeoisie supports Trump’s policies in order to put an end to the status quo – in other words, they see these policies as a „disruption“ of a development of the US economy that is becoming increasingly stagnant, deindustrialised and dependent on manufacturing champions in countries such as China. In this respect, these sections of the bourgeoisie would see Trump’s shock therapy as a kind of „reset“ button to reorganise the global economy in their own interests.
Free trade, protectionism and the working class
The working class has nothing to gain from the conflict between protectionism and free trade. It is clear that a phase of protectionism will be used by the bourgeoisie to divide workers in a very overtly nationalist manner. This is evident in the United States, where the class is already deeply divided in the face of structural change in the globalisation period – and where some workers in declining industries may indeed harbour illusions in their „saviour“ Trump, who is giving „their“ industries a competitive advantage through his tariff policy. At the same time, the migrant sections of the population (most of whom are excluded from the electoral system), who often make up the low-wage labour force in the service sector or in the newly repatriated manufacturing industries, are subjected to extreme repression through Trump’s migration and domestic policies. This is only the flip side of the coin: in the „free trade nations“, workers in export industries are called upon to „secure their jobs“ by wage concessions and overtime that are supposed to ensure „competitiveness“ so that „our“ jobs are not jeopardised by Trump’s crazy policies. This is also what we hear from our union leaders. This focus on securing the location, the division of the class both internally and globally, benefits only capital on both sides of the Atlantic, which can thereby enforce improved conditions of exploitation for itself vis-à-vis its competitors – thus prolonging the life of the global regime of exploitation that is capitalism. Of course, the working class must closely monitor the escalation of the looming trade war, as these conflicts will increasingly merge with the military confrontation between the major powers and blocs over the redivision of the world.
Against this incitement against each other and the disastrous nationalist division, the working class must strengthen and build its global connections in order to impose its own international alternative to this increasingly murderous and irrational capitalist system—international socialism that overcomes existing borders and, above all, a new, revolutionary Fifth International.