Trade War as Class War

Brian O’Boyle explains the political logic behind Trump’s tariff chaos.

On 2 April 2025, Donald Trump made the biggest tariff announcement for decades. Upending the post-war liberal order, Trump announced tariffs ranging from 10-50 percent on more than 70 countries, plus the European Union. Trump claimed that this was his country’s ‘Liberation Day’ – the day to ‘Make America Wealthy Again’, but within a week, he’d bowed to extreme pressure from financial markets and reversed most of the measures. Trump increased tariffs on Chinese goods to 145 percent. He kept in place 25 percent tariffs on steel, aluminium and automobiles, and on Mexican and Canadian goods not covered by the USMCA agreement. Everyone else got a partial reprieve; a 90 day pause that involves a 10 percent across-the-board tariff alongside the time and space to ‘negotiate with the master’. Stock markets surged on news that the US had rowed back from its major tariff threats, but Trump has intensified a tariff war with China, and remains insistent that the US needs a reset of the global economy.

How can we make sense of Trump’s many twists and turns on the economy? Edward Luce argues that trying to rationalise Trump’s behaviour has become impossible: that, in effect, “Trump’s sane-washers have forfeited their credibility in seeing a chess game where none exists”. David McWilliams basically agrees, arguing that “the methodology used to calculate Trump’s latest tariffs would fail the Leaving Certificate in economics”. Luce and McWilliams represent a liberal intelligentsia furious that Trump can get away with so much damage to the system they care so deeply about. They assume that Trump must be little more than a narcissist and a bully, when the MAGA movement is far more ambitious than they either realise or care to admit. On one hand, it is designed to move the US working class to the right through a nationalistic jingoism that supports the interests of corporate America. On the other, it is designed to take on the United States’ major imperialist rival, by sharpening the conflict between the US and China and forcing other states to pick a side.

Trade War as Class War

Let’s start with Trump’s domestic reasons for imposing tariffs. During the neoliberal period (roughly 1980-2008), US corporations moved their manufacturing overseas. Their aim was to weaken trade unions at home while exploiting cheaper labour abroad – initially in Mexico and later in China. Trump was part of the capitalist class that benefited from these decisions, but he hates that China was strengthened through globalisation, and he is extremely adept at manipulating the anxieties that have resulted from decades of neoliberalism. Trump wants his supporters to think that their lives got harder, not because their employers attacked their wages and conditions, but because greedy foreigners – first among them China – took advantage of inept US administrations. Trump constantly frames the loss of US manufacturing jobs as the result of predatory foreigners who ‘raped and pillaged’ America because its own leaders ‘did nothing to stop it’. That way, he can position himself as the head of the resurgent nationalist movement that American capitalism has been crying out for – the leader who will finally use the power of the US state to Make America Great Again. Tariffs have an important demonstrative effect in this context. They signal that while Biden and the Democrats allowed US jobs to move overseas, Trump will protect workers from the ravages of globalisation. 

Indeed, the entire rhetoric around tariffs helps to amplify the right-wing populism that Trump relies on to unify his base. He wants his supporters to see China as the major obstacle to a new age of US prosperity; but he also wants them to think that patriotic capitalists should be rewarded for producing in America and that US corporations should be afforded competitive advantages to bring back an era of ‘New American Industrialism’. 

This brings us to Trump’s second domestic objective in imposing tariffs – he needs them to facilitate tax cuts for the rich. In this context, it is worth remembering that the most important legislation passed in Trump’s first term was not tariffs on Chinese imports, but the Tax Cuts and Jobs Act (TCJA) in 2017. This made the biggest cut to corporate taxes in US history and Trump wants to extend this deeply regressive tax cut in the coming months. Analysis by the Urban-Brookings Tax Policy Centre estimates that the top 5 percent – those who earn more than $450,000 a year – will get 45 percent of the resulting benefits, with the bottom 80 percent getting just 29 percent of the rewards. The same report shows that corporation tax receipts have fallen by 40 percent since 2018, while business investment rose, in response, by just 11 percent. In other words, Trump’s promised investment boom never materialised following the last round of tax cuts, worsening the federal debt considerably (it now stands at more than $36 trillion).

Thanks in part to the TCJA, the federal deficit is currently running at more than 6 percent of GDP, meaning that Trump needs to find a new revenue stream to justify extending tax cuts for the rich. His response has been threefold. He has tasked Elon Musk with making savings to the federal budget by claiming it is full of waste and corruption. He has legitimised tax cuts for the rich by claiming that they help to create economic growth, and he has justified tariffs by claiming that any increase in prices will be more than offset by the rising value of the dollar. According to Trump’s Chair of Economic Advisers, Stephen Miran, the rising value of the dollar will make Chinese imports relatively cheaper, allowing the US to raise the extra tax revenue from Chinese exporters rather than US consumers (although at 145 percent, tariffs are likely to choke off trade completely). From this perspective, tariffs have a threefold logic domestically: (1) They help to link US patriotism to corporate America; (2) They help to legitimise tax cuts for the rich; (3) They (supposedly) force foreigners to pick up the costs through the rising value of the dollar.

The International Dimension

Internationally, Trump views tariffs as the most effective way to challenge China’s industrial superiority at the same time as he forces his ‘allies’ to pay more for the reconstruction of American capitalism. To understand his logic, it is essential to appreciate the tensions that have emerged for the US ruling class by maintaining their dominance of the global financial system while gradually ceding industrial superiority to their major imperialist rival. Following World War Two the US economy made up 50 percent of global GDP and nearly half of all global manufacturing. It was the world’s major industrial power and its major financial economy. But capitalism is a system of combined and uneven development. Over time, Germany and Japan caught up with the US and began to outpace it in certain parts of the industrial economy. Faced with these threats, the Reagan Administration initially forced its ‘allies’ to strengthen their currencies to make their exports less competitive. But eventually the US ruling class made the decision to outsource most of their manufacturing, at the same time as they set about strengthening their control of the global financial system. 

Since the 1980’s the US has increasingly dominated global finance through its control of the global reserve currency; its management of the international payments system (SWIFT); its disproportionate control of investment and its central role in directing capital through the world’s most important stock markets. The US ruling classes have gained a range of benefits from this dominance. US Treasuries (loans to the US State) have long been the world’s safest financial asset, meaning the US has been extremely unlikely to suffer currency or balance of payments crises, while foreign states have become increasingly subject to US monetary conditions. The fact that foreigners have wanted to hold their assets in dollars also meant that the cost of borrowing has been lower for US actors while the US state has gained significant power by controlling the global payments system. US stock markets are also disproportionately influential, currently accounting for 60 percent of the total even as the US economy has declined to just 25 percent of global GDP. 

This inflow of foreign funds has been essential for US investors to increase their wealth and consumption through stock market gains. Around 60 percent of Americans have some stock market investments today, either directly or through their retirement accounts – all of which have steadily increased as foreigners want to invest in US assets. Financial dominance has also helped the US to stay ahead of its western rivals through an economy that has been relatively more dynamic. Maurice Obstfeld has shown that by running persistent current account deficits, the US has been able to bring surplus capital into the United States which has helped it to grow more quickly than either Japan or Germany – the western states most clearly defined by persistent trade surpluses (1.8 percent versus 1.5 and 1.4 percent respectively). US corporations have therefore benefitted from a stock market bonanza at the same time as they have benefitted by moving their supply chains overseas. But the sting in the tail has been the rise of China as a major imperialist rival, largely facilitated by the globalisation of western manufacturing. 

Trump is keenly aware of what the French ex-Minister of Finance, Valéry Giscard d’Estaing, termed ‘America’s Exorbitant Privilege’. Indeed, one of his primary objectives has been to maintain the dollar’s role as ‘global money’. But Trump is also keenly aware that, up to now, maintaining control of the global reserve currency has meant the US dollar has been relatively overvalued (it has had to be for investors to want to hold it) and that this has allowed China in particular, but also Japan, Germany and the EU more generally, to outcompete the US in crucial areas of the industrial economy. Two of Trump’s main economic advisors, Peter Navarro (Senior Council for Trade and Manufacturing) and Stephen Miran, argue that the global dominance of the dollar has been a disaster for US manufacturing. Miran wrote an important paper in 2024 in which he argued that the growing demand for dollars as a reserve asset can only be supplied through persistent US current account deficits.

One way to look at this is that Americans have been able to buy more goods than they sell because foreigners are happy to send the resulting cash back into the US to buy dollar-denominated assets. Another way is that the US has an overvalued currency which means its own industrial exports become increasingly uncompetitive. US manufacturing now lags China by a margin of 2:1 (32 percent versus 16 percent). Indeed, China now makes more manufactured goods than the US, Japan, Germany and South Korea combined. According to a recent opinion piece in the Financial Times “the sheer scale of China’s dominance is unprecedented: no country in recent decades has matched this level across such a broad range of products”. This is what worries the Trump Administration, particularly as industrial power is so obviously linked to military capacity. Taking up this theme, the US Vice President, JD Vance, recently told the New York Times that ‘military power is downstream from industrial power’ and that because “China is a more powerful country industrially…they will have a more powerful military in 20 years”. This possibility has created a major challenge for the US ruling classes. Indeed, it seems to present them with a Hobson’s choice – continue to maintain the strength of the dollar and accept the rising influence of Chinese industry or devalue the dollar and risk losing some of the benefits of ‘global money’. On April 2 Trump gambled that, as the leader of the single most powerful actor in the capitalist system, he could square this circle, using across the board tariffs as his weapon of choice.

Trump’s Tariff Chaos

Trump’s ultimate objective on ‘Liberation Day’ was to rebalance the global capitalist system in America’s favour. He recognises the necessity of maintaining the dollar’s hegemony, but he also knows that this financial superiority has merely slowed America’s long run decline without actually arresting it (the US share of global GDP has fallen from 50 percent to 25 percent since WW2). In this context, he wanted to signal that it would no longer be possible to sit on the fence in the conflict between the US and China for global dominance – other states will have to pick a side. This meant two things, more specifically. For US corporations it meant disentangling their dependence on Chinese supply chains. As Rana Foroohar explains, “because China is the most critical geostrategic threat…[Trump] is pursuing decoupling in areas such as ships, technology, critical minerals and energy…creating separate nodes of consumption and production for security reasons”. Trump has now entered a tit-for -tat tariff war with China that seeks to achieve this. His second objective is to force his western ‘allies’ to pick up some of the costs of maintaining the US as the global hegemon – the state that underwrites their own trade and security guarantees. 

Since the Second World War, the US has gained enormous advantages from its role as the West’s military superpower. But Trump is like a Mafia boss who wants to shake-down his weaker ‘allies’ for their reliance on US military superiority. His Treasury Secretary, Scott Bessent, recently captured their thinking in the following way, – for too long the US has provided global security to its allies, “in addition to providing reserve assets, serving as a consumer of first and last resort and absorbing excess supply in the face of insufficient demand in other country’s domestic models”. In other words, US allies have been ‘free riding’ on the US for decades and they now have to rebalance their economies to make the US more competitive. 

Trump’s gamble was that his across-the-board tariffs would allow the US to reassert their dominance over each of the other actors separately. He hoped he could make himself into the ‘king maker’; the centre of gravity around which heads of state and corporate executives would appeal for carve-outs and work-arounds for their specific tariff problems. But after four decades of neoliberal globalisation, he has suddenly realised that even the strongest actor in the system can be disciplined by the collective efforts of the ruling classes. Trump’s first lesson was that most transnational corporations are not ready to give up their global supply chains. This is why, in the days after his big announcement, $9 trillion was wiped off US stock markets, while key figures in the US ruling class – among them Jamie Dimon (CEO of JP Morgan Chase) – warned that the US faced sliding into recession. His second, more painful lesson, was that the US can now be disciplined by the collective might of rival states through their use of the bond market. Trump could just about live with trillions being wiped off US stocks, but he panicked when foreign governments – particularly China and Japan – began to sell off vast amounts of US Treasuries. This signalled that US Treasury bonds were beginning to lose their status as the world’s safe haven asset. It signalled that the US (which has debt of $36 trillion, remember) might face a run on government backed assets and this proved too much for Trump who had to back down. As the Financial Times explains, “it was not until the market crisis extended to a sale of government debt…. that Trump truly buckled…. a man whose business career as a property developer was characterised by deploying debt saw the warning signs in the US bond market”. For now, Trump has had to accept that the US is not capable of acting unilaterally above the heads of the other ruling classes. But this won’t stop him from dragging the rest of us further into barbarism in a frantic search to maintain US military and economic superiority. Our job must be to organise against the whole lot of them.