Method in madness; Trump’s tariffs Part 2

I get physically ill watching liberals complain about Donald Trump, instead of what made people desperate enough to vote for him – Reverend Chris Hedges

It’s difficult to get a man to see a truth his salary depends on him not seeing – Upton Sinclair

Commenting on Part 1 of my series on Trump’s tariffs, Dave Hansell links to a “Janet and John” ¹ podcast by Joeri Schasfoort on his Money & Macro site. I’ll return in Part 3 to that podcast, whose million plus viewings had Dr Schasfoort tweet that “people really do want in-depth explanations in the age of TikTok”.  It argues that tariff mayhem marks the start of a concerted effort by some very smart minds around Donald Trump to let US capitalism have its cake and eat it; to resolve the dilemma posed in Part 1 by Sri Lanka based journalist, Indrajit Samarajiva:

The biggest trade-off is between printing a reserve currency and running a trade surplus. You can’t do both.

Joeri Schasfoort isn’t saying you can (or can’t); rather, that US Treasury Secretary Scott Bessent, and economic advisor to the president Stephen Miran, believe  you can. So when Trump says at breakfast he wants America to reindustrialise – and at lunch that the dollar must keep a reserve currency status premised since the Nixon Shock on running a trade deficit which leaves creditor economies holding their surpluses in dollars and treasury bonds issued as Washington sees fit ² – that isn’t because the 47th president couldn’t sustain a joined up argument to save his life, but because his team has a strategy …

… meanwhile this post features an article linked by Dr Schasfoort near the end of that podcast. Co-authored by two Biden men – former deputy treasury secretary Wally Adeyemo, and former economic advisor Joshua Zoffer ³ – it originally ran in The Economist, which has a pay wall, but was replicated on a Spanish not-for-profit site which does not. Steeped in globalist prejudices of the neoliberal kind, it sheds light on the theory wing of a liberal establishment which loathes Trump even as its own bankruptcy, intellectual no less than moral, greenlit his return to office.

I’ll comment as we go.

The global trading system needs new rules, not tariffs

Viernes, 28/Mar/2025 Joshua Zoffer, Wally Adeyemo

If President Donald Trump is true to his word, reciprocal tariffs on the world will come as soon as next week. This follows tariffs on America’s allies in Mexico, Canada and the EU, as well as China, who have all responded with tariffs of their own. Mr Trump is pulling the world back towards the kind of protectionism not seen in a century. But the return of tit-for-tat tariffs is just the latest symptom of a dysfunction that has been growing for more than two decades.

It is clear the global trading system is broken. But the use of tariffs as a first, second and last resort won’t fix it. What would is a new set of trade rules that fit the realities of the global economy.

If Dr Schasfoort is right, and at this level of analysis I think he is, the tariffs – far from being “a first, second and last resort” – are the opening fusilade of a three stage war plan, its seeming self destructiveness indicative not of Trump’s alleged stupidity but of the enormity of the crisis confronting the US ruling class.

Again though, that’s a subject for Part 3. Meanwhile Wally and Joshua go on …

Today’s governance of global trade, including the World Trade Organisation (WTO), grew out of the Bretton Woods agreement of 1944, a rules-based system designed to promote international financial stability and market-based economic governance. That system was premised on shared commitments to multilateralism, open markets and good-faith economic dealing that emerged in response to the Depression and the second world war.

This is a remarkably rose tinted view of a Bretton Woods Agreement premised on rebuilding a capitalist world order to America’s advantage. As Yanis Varoufakis noted a decade ago in The Global Minotaur, there would be winners – designated creditor economies like Germany and Japan (fury at “rewarding aggression” duly faced down) – and losers, designated debtors like Greece. But all would play their part in the new fight, even as the USSR bled out to the tune of 27 million on the eastern front of a WWII whose outcome was by July 1944 a given, against The Red Threat. Keynes’s failure to make a neutral ‘bancor’ the global reserve currency of this rules-based system ceded the role to the yankee dollar, with consequences that reverberate as loudly today as they did at the dawn of cold war, and as they would again in 1971 when Nixon removed that reserve currency from the gold standard agreed at Bretton Woods.

China’s accession to the WTO in 2001 was premised on the belief that it would behave similarly. That turned out to be spectacularly wrong. President Xi Jinping’s policies have shown China’s unwillingness to live within the constraints of this rules-based order and lack of interest in becoming a market economy. While developed countries opened their markets and cut their subsidies for domestic industries, China spent the past several decades doing exactly the opposite: undercutting intellectual-property protections and spending hundreds of billions of dollars on subsidies in an effort to dominate global manufacturing and supply chains. This is why the Obama administration, in which one of us served, refused to grant China market-economy status and the full privileges of WTO membership.

China’s accession to the WTO in 2001 was premised on the belief it would stick to its allotted role of making stuff cheaply for the West, and super-profits for Western finance capital, while hundreds of millions of its people remained in the same extreme poverty (identified by a World Bank metric of less than $2.15 a day) as the rest of the global south.

There, fixed it.

The inability to give house room to the idea that China might offer a brighter possibility for the global south as a whole, through BRICS and Belt & Road, than eight decades of post Bretton Woods imperialism even attempted, is telling. I see it as a form of mental illness. As for China not doing as the West would (hypocritically) have it do – instead allowing the state to nurture industry by funding the transport, educational and other infrastructure its manufacturers would otherwise have to finance then pass on in higher prices – the authors need to brush up on their history. At the dawn of industrialisation first Britain, then Germany and the USA, secured their manufacturing bases through:

Protectionism and colonial diktat ⁴ [though these] were not the only methods. Another was state funding of infrastructure (roads, rail, ports) and education: burdens that must otherwise fall on private capital, raising production costs. And as the growing complexity of industrialisation demanded a better trained and more experienced workforce, longevity became an issue. Workers dying in their 30s had not much mattered in the early days  – provided they bred copiously first – but now the expenses of training argued for taking better care of them. Cue for Factory Acts, Food Adulteration Acts, public sanitation projects and curbs on child labour from the 1840s onwards.

Why read Michael Hudson? Part 3

China is doing not as the West says, but as the West – after prevailing over an economically dysfunctional feudalism in Europe, and an equally dysfunctional slavery in the USA – did, and for the same reason. The difference being that where the West shook off the dead hand of rent-seeking feudal oligarchs, only to be captured by rent-seeking financial oligarchs of Reagan and Thatcher vintage, Beijing keeps tight rein over its banks. Another way of saying the same thing is that while in the West the state is ever more subordinate to capital, in China capital remains subordinate – to the bemused ire of economists steeped in a half century of Chicago School orthodoxy – to the state. As I put it in a sideswipe eight months ago at The Economist:

Search its decade and then some of doomsaying China’s impending crash. Why? Because Beijing won’t do as the West – with its rotting inner cities and permanent precariat, its welfare systems at death’s door while a heap of horrors whose fixing should be the alpha and omega of economics go unfixed – counsels. To the bafflement of these geniuses, Xi and his latter day mandarins just won’t take their solid gold advice and hand over the beating heart of any modern economy, its banking sector, to the famously farsighted care of rentiers. ⁵

And that “undercutting intellectual property rights”?  Pot. Kettle. Black. (Though in the case of these two authors my charge is of self-serving – because well rewarded – myopia rather than outright hypocrisy.) The neoliberal revolution now in its sixth decade has seen the rise of rent extracting monopolies like Amazon and Apple; wealth and power accruing to ever fewer hands while debt leveraged buy-out and lawfare stifle the competition globalists of neoliberal stripe hold up as a holy grail, while the most propagandised societies on earth ⁶ are primed for war with China.

As China took these actions, advances in internet communications, robotics and other technologies led to increased automation. This created pressures that hit advanced, industrialised economies hard—resulting in the loss of millions of jobs, the hollowing-out of industrial bases and a backlash against globalisation.

Beneath this seemingly bland comment stands an abyss no one in the mainstream dare name. A capitalist world depends on the overwhelming majority of humankind selling its labour power to the few who own the means of deploying it to create wealth. Now, for the first time in history, hundreds of millions, mostly in the West, live with the reality of ever fewer buyers of the stuff; not, as in the past, due to crises terrible but transient, but as a permanent reality. I’m sure this is whispered by our elites, behind closed doors at Davos, but in mainstream discourse the silence is deafening.

(Liberals struggle with this, because their worldview sees ideas rather than material forces as history’s primary engine, but whenever human need is at odds with the dominant system of class rule, the powerful will do whatever it takes – whatever it takes – to ensure that the latter prevails.)

Even more immediately to the point, jobs not yet automated have gone to the cheaper labour pools and ‘business friendly’ regimes of the global south. In pointing the finger at China’s failure to play by the West’s rules, Joshua Zoffer and Wally Adeyemo stand causality on its head in an ideologically constrained search for the causes of that “backlash against globalisation”  which gave us Donald Trump.

In response, many countries have adopted self-help measures like tariffs and industrial subsidies, and beggar-thy-neighbour policies such as digital-services taxes. The WTO has proven incapable of enforcing its rules that supposedly bar many of these practices. Ironically, China has even sought to use the WTO to challenge the legality of America’s Inflation Reduction Act and Europe’s efforts to protect itself from China’s own battery subsidies.

China leads a BRICS challenge both to dollar supremacy and its misuse, and to a global order I described, in a 2017 post on the economics of imperialism, thus:

Nations early to industrialise – the ‘little tigers’ of the Pacific Rim – saw rising living standards on the back of economic liberalisation and political repression. But as other economies shift to manufacturing, the benefits diminish. The IMF’s own data rebut its claims of a virtuous cycle of industrialisation and enrichment. Rather, the balance of supply and demand tilts every more decisively, with each new entry to the ‘value chain’ by a ‘developing’ nation, to favour northern capital while the south competes in a hunger game, its winners those most able to drive down wages, and trash safety and environmental standards. We condemn Bangladesh’s sweatshop owners, polluters, slum landlords and corrupt politicians but it is the north’s elites, aided by IMF and World Bank conditionality, who set the terms under which they operate. And wealthy as the local exploiters may be, theirs is the lesser share of the surplus value appropriated. Most of it flows – as shown by that $720 of ‘value added’ to an iPhone made in China for $80 – unwaveringly northward.

The upshot? Cheap consumables for the north, driving down the value of labour power there in ways we do  require an understanding of the law of value to appreciate, are one consequence; super profits for the various capitals another.

There’s much I’ve learned in the years since that post; most importantly the vulnerability of the West to a China led challenge. Recognition of this is what unites, for all their real differences, those in the US ruling class who back Trump with those who loathe him. All agree on China as the enemy, and all agree on the need to reframe the why of that in terms which can be sold to Elm Street America and the collective West at large.

Call me naive but, in the absence of any credible alternative, I’m prepared to take Beijing more or less at its word in the win-win nature of initiatives like Belt & Road – in stark contrast to the West’s zero sum approach, of which Trump’s “Liberation Day” is merely the latest and most daring manifestation.

We should be clear-eyed about where all of this is heading if we don’t change course. The global economy is starting to look a lot like the Siege of Melos, according to Thucydides: “The strong do what they can and the weak suffer what they must.” America is using its economic heft to bully other countries with tariffs, using them to demand everything from more inward investment to actions to curb the flow of fentanyl into the country …

Starting to look …?!?  That the authors can voice such wild-eyed alarm after three decades of US chaos and carnage under six presidencies (if we start at Clinton) speaks volumes on the liberal outlook. It’s the ‘intellectual’ equivalent of Meryl Streep’s Golden Globe rant over Trump’s first term.

Meanwhile, China is using its industrial overcapacity to flood the world with cheap goods and make it harder for other countries to develop their own manufacturing sectors.

That last sentence displays another Economist  fantasy. Heaven forbid that anyone should think centuries of colonialism followed by eight decades of imperialism – export of monopoly capital from global north to global south … south to north repatriation of profits – impoverished Africa, Asia and Latin America! Nope, blame China.

But see my 2021 post, Sri Lanka and the ‘debt trap’ slur, and this podcast by Bangkok based Brian Berletic on how China is a better friend of the global south than Uncle Sam ever aspired to be:

A global economy where might makes right will hurt everyone, but it will be particularly hard on emerging and developing economies. It will slow growth, lower incomes and encourage economic migration—further fuelling the discontent seen recently in rich countries.

Trade has lifted untold millions around the world out of poverty, and consumers have benefited from reduced goods prices. But it is also true that in many cases those lower costs were the result of labour or environmental arbitrage and distortive industrial policies, not true competitive advantages. China and many of the largest multinational companies have been the winners of this arrangement. Others, especially developed economies and their workers, have suffered. And going forward, China’s overcapacity will make it harder for developing countries to move up the global value chain through manufacturing. They, too, will lose out.

Asian nations early to industrialise saw, as already noted, rising living standards on the back of economic liberalisation and political repression. But as other economies shift to manufacturing, the benefits diminish. The IMF’s own data rebut its claims of a virtuous cycle of industrialisation and enrichment. Furthermore, the same 2016 World Bank Report which acknowledged China’s feat, quite without precedent, of lifting 730 million from extreme poverty in a single generation, also glumly noted that with China removed from the equation, progress on eliminating poverty has been dire. So much for trade lifting “untold millions around the world out of poverty”!

It is time to admit that the WTO is not fit for purpose. We need a new set of rules and institutions that are up to the task of governing today’s global economy. This system will have to be able to distinguish between market-oriented, open economies that respect labour and environmental protections, and everyone else. And it will need a different set of rules, including tariffs and other barriers, for countries in the second camp.

“Open economies that respect labour and the environment …”  Isn’t globalisation as practised by the West, and stripped of the sales pitch, aimed precisely at cutting production costs by shifting to parts of the world not hampered by respect for labour and the environment?  To add insult to injury, a West whose elites found it more profitable to send smokestacks southways now piously demands that the south clean up its act.

Would that this were mere hypocrisy! Yesterday in Naked Capitalism under the header, Pulling the Rug Out from Under China’s Clean Tech Strategy, Conor Gallagher had this to say:

Geopolitics have almost always trumped any concern over climate change, but the economic war against China drives that point home with an exclamation point. That’s because Beijing went all in on clean energy technology in recent years — to the point China now has the capacity to lead a global energy transformation — only for the US, EU, and others to essentially say they don’t want it.

Nearly done.

The success of the system should not be judged by trade balances alone, as some in Mr Trump’s orbit advocate. The underlying substance of labour and environmental rules driving those balances, as well as investment and capital flows, must be taken into account.

The system should promote competition and prosperity by strengthening these safeguards and creating the conditions needed for fair trade. The goal should be for developing countries to grow, adopt higher standards and move into the trading bloc of open economies. They cannot be allowed to operate outside the global trading rules indefinitely. If they are, workers and companies operating in more advanced economies will continue to be punished for holding themselves to the high standards their own laws require.

Whether or not Joshua Zoffer and Wally Adeyemo realise it, and I’m charitable enough to think they don’t, they bewail a race to the bottom which is inextricable from the free market logic they are paid well – and no less important, garnered with prizes and praise – to advocate. Now they demand, as so many have before, that the leopard change its spots without loss of its big cat status:

The system will also need a wider mandate, recognising that trade is just one part of the global economy. Today, for example, capital and trade flows are being distorted by incentives in the international tax system for multinationals to shift jobs and assets to low-tax jurisdictions—rendering smaller businesses uncompetitive and short-changing governments on tax revenues. A new system must address these challenges together, starting with implementing the 15% global minimum tax agreed by most OECD countries.

The rules governing global commerce must change to address these challenges. And that starts with reimagining the global trading system. The world does not need to wait for America to catalyse this effort. Other market-oriented economies, including the EU and the 12 members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, represent roughly one-third of global GDP. If these countries are willing to forge a new way forward on trade, rooted in fair, market-based competition and protection for labour and environmental standards, the rest of the world should welcome it.

Should the rest of the world laugh or cry?

I apologise for the length of this but let’s not labour under the delusion that Trump’s critics within the mainstream have a more coherent, let alone morally superior, response to the threat confronting US hegemony. As promised at the outset, Part 3 will feature an attempt to view Trump’s tariff mayhem in the wider context of seeking to reconcile the irreconcilable.

The biggest trade-off is between printing a reserve currency and running a trade surplus. You can’t do both.

* * *

1. For the benefit of non Brits, “Janet and John” refers to a popular series of early reading books for children, published in the UK 1949-50. It featured a brother and sister in a “look and say” approach to help children learn to read.
2. To be clear, nobody sane is arguing for a return to the gold standard: there just isn’t enough gold to underpin the vast sums of today’s global economy.
3. Wally Adeyemo was America’s deputy treasury secretary from 2021 to 2025. He is the Carnegie distinguished fellow at Columbia University’s Institute of Global Politics and its Centre on Global Energy Policy. Joshua Zoffer was special assistant to the president for economic policy from 2023 to 2024. He is a non-resident senior fellow at the Centre on Global Energy Policy and a policy fellow at Stanford’s Institute for Economic Policy Research.
4. “Colonial diktat” refers to the way Britain – with France, Holland etc doing similar – had laws to stifle capitalist development in Ireland (the linen industry around Cork) and India (jute and cotton in Bengal).
5. An amusing glimpse on how Western corporate media respond to all and any good news about China by adding the four word suffix – “but at what cost?” – is given in my 2021 post, Sinophobia – but at what cost?
6. In a 2023 post revealing both the ‘political’ and ‘spiritual’ sides to Caitlin Johnstone – You don’t have to choose between being happy and being informed – she wrote:

   Western civilization is dominated by a power structure that has invested more heavily in “soft power” (mass-scale psychological manipulation) than any other in history. It pervades our media, our internet services, our art — literally all of mainstream culture. The politicians lie, the news media lie, the movies lie, the internet lies, the advertisements lie, the shows between the advertisements lie. They lie about our world, they lie about our government, they lie about what’s important, how we should think, what we should value, and how we should measure our level of success and worthiness as human beings.