Trump’s tariff wars will result in grim results for all economies involved, argues Dominic Alexander

Trump’s threats have finally become a reality, and a global tariff war has been ignited. Already, it is clear that other countries, from Canada to the EU, are going to retaliate, and the result will likely be grim for all the economies concerned. Predictably, stock markets are seeing serious falls, and the US dollar is falling too. It will take some time, even years, for the full impact of the new tariff regime to become clear. 

We can say that even if a global recession is avoided, costs will certainly rise, as it will be difficult for supply chains to be reconfigured in ways that might minimise the impact of higher prices of both components and finished articles. This will mean higher inflation and probably damage to industries throughout the world. This will be especially true for economies geared towards exports, so it’s worth noting in this context that the US is the largest consuming economy in the world.

There is a general consensus that this will all end very badly both for the USA and for its erstwhile allies, who are now cast as rivals and even as exploiters of US goodwill. We shouldn’t just accept this consensus at face value, however, as it is largely based on the neoliberal orthodoxy of the universally beneficial role of free trade. The history of free trade versus protectionism, that is, the levying of taxes on imports, suggests that a simple binary of free-trade good, tariffs bad misses the wider meaning of the oscillation between these two poles in capitalist economic strategies.

Trade policy and imperial power

Ironically, considering Trump’s wish to leverage US economic power, tariffs have most often been resorted to from a position of weakness rather than strength.

Conversely, advocacy of free trade tends to come from positions of economic dominance, where free trade will further benefit the economy of the advocate. Britain, in its heyday as a manufacturing powerhouse in the mid-nineteenth century, became a fierce champion of free trade, to the point of starting two wars with China (1839 to 1842, and 1856 and 1860) in order to force that country to open its borders to trade, including to the import of the ruinous drug, opium. Indian textile handicrafts had earlier been devastated by British industrial imports in another instance of imperialism and free trade working hand in glove. In these cases, free trade was a bludgeon used by powerful countries to further their domination of weaker ones. In other words, it was always a policy arm of imperialism.

While they are the converse of free trade, tariff policies cannot be said to spring often from any better motives. Ironically, Britain at the time of the First Opium War had not yet fully embraced free trade, as the notorious Corn Laws were still in effect until repeal in 1846. The Corn Laws made importing grain from Europe too expensive to compete with British grain, thus protecting the rents of the landowning class at the expense of the cost of living. Manufacturers wanted rid of the laws, hoping free trade would raise their profit rates; cheaper food might enable them to reduce wages. Either way, the working class had little to gain and concentrated on the fight to win suffrage in the Chartist movement, rather than campaigning for repeal as middle-class radicals wished them to.

Rising economic powers in the nineteenth century did not by any means universally accept the British dogma that free trade benefited all. In Germany, free trade had had a dominant ideological position as the practical justification of the Zollverein, the German customs union that preceded political unification in 1871. However, German manufacturers wanted protection from British exports. Prussian landowners, the Junkers, came around to agreement on this, as the beginning of the Long Depression of the 1870s to 90s was accompanied by a long-term fall in agricultural prices, particularly due to cheap grain from the US. The iron and textile industries led the way in demanding tariffs, and a conservative political realignment of the German Reich in 1878 brought in a tariff regime. Similarly, the United States operated a tariff policy during the nineteenth century, protecting its infant manufacturing from competition, particularly, of course, from Britain.

Tariffs and war

As Britain began to lose its status as the world’s preeminent industrial nation, so the attraction of free trade as a policy began to wane. It wasn’t until the Great Depression had struck that the country fully abandoned free trade in favour of an imperial preference policy that favoured countries within the British imperial system, from Canada and Australia to India. The United States also adopted tariffs in response to the Great Depression, the notorious Smoot–Hawley Tariff Act of 1930, which set off an international tit-for-tat trade war. This is generally agreed to have worsened the slump. It is important to note, however, that tariffs did not cause the Great Depression, being rather a response to it on the part of countries like the US and Britain. This is important due to the unwarranted reputation that free-trade policies have perennially had as liberal, peace-friendly policies, as opposed to tariffs, which tend to be identified with reactionary, even war-mongering turns in world politics.

It is true that tariffs probably did play a significant role in escalating tensions between the great powers in the years before World War II. Certainly, the oil and iron embargo on Japan in 1941 likely triggered the Japanese attack on the US. However, the seeds of World War II lie deeper in the imperialist conflicts that remained unresolved by World War I. These were further intensified by the Depression itself; tariffs accompanied the primary causes of war in the scramble of imperial powers for markets and sources of raw materials.

The horrors of World War II brought an end to the civil war between European powers, leaving the United States and the Soviet Union as the two superpowers. It was very much in the United States’ interest to put an end to the closed trading blocs from the era of tariffs, and Britain’s imperial preference soon had to give way as its Empire dissolved. Free trade now benefited US manufacturing to the extent that rebuilding Western European and other economies with direct aid and trade liberalisation through the Marshall Plan helped to prevent a post-war return to depression, tied allied economies in particular to the US, and cemented US economic hegemony. The Marshall Plan could be seen as a kind of international Keynesianism; state spending to stimulate economies rebounded positively for the US because the funding created economic growth and expanded markets for US goods.

Free trade triumphant

The apogee of free trade came after the collapse of the USSR. There was no obstacle now to the creation of a world-trade order with the United States at its apex. In the post-war period, many countries had pursued trade substitution policies in attempts to develop industrially. These policies involved various mechanisms, of which tariffs were one, to nurture infant industries and protect their countries from the cheap exports of developed economies. Trade substitution strategies were employed throughout South America, in Africa and in some parts of Asia as well. With the neoliberal turn of the imperial economies in the 1980s, increasing pressure was placed on developing countries to abandon their economic protections by the US, the EU, the World Bank and the IMF. This began the new era of globalisation and free trade.

Many benefits have been claimed for globalisation, of course, but these have also been strongly challenged, and there is no question that the structural adjustment programmes imposed by the West have been devastating for most countries that have suffered them, and have not led to many countries escaping poverty and underdevelopment. Rather, trade liberalisation has led to a huge loss of jobs and industry in poor countries in their formal economies. The benefits have gone largely to Western corporations, indeed to US ones in particular.

Importantly, the flow of profits did not accrue to the Western working class, since manufacturing was hollowed out in developed countries, leaving many industrial areas devastated. Free trade had the effect of pushing wages down generally, so it became effectively a weapon in the neoliberal class war in the West, just as it was in the Global South.

It is nonetheless an error for trade unions to take a sectionalist response, welcoming Trump’s tariff war, as if one arm of a reactionary capitalist agenda will restore working-class jobs and living standards in general. The US United Auto Workers claims, for example, that there is ample capacity for automotive manufacturing to ramp up production within the country, and thereby provide more good, unionised jobs. 

Whether capital will respond to the opportunity in this hoped-for way remains to be seen. The impact of the tariffs on many other sectors and other supply chains, might well make the general economic climate too risky and difficult. If the new tariff regime acts to raise prices in general and push other sectors into crisis, then this will harm the wider working class, and the sectional victory is likely to be chimeric. The same can be said for the reaction of a British union like Unite to military spending at the expense of renewed austerity. In both cases, sectionalism mistakes a wider strategic blow to the whole class on the part of imperialist policy for a narrow and unproven advantage in one area.

China and the new superpower conflict

The developing country that escaped the traps of globalisation was, of course, China, but that country trod its own path to industrialisation with a carefully state-managed economy and substantially state-controlled industry. It was able to avoid simply laying itself open to the power of Western capital. So, China’s rise contradicts the neoliberal fairy tale about the universal benefits of free trade.

China brings us back to the current situation and Trump’s declaration of trade war, apparently against the world. It is very clear that the chief target of the tariff policy is China, which due to its rapid rise since 2000, is threatening to overtake the United States as having the largest nominal GDP, perhaps by the mid-2030s. China overtook the US as the world’s greatest manufacturing economy in 2011, and the decline of US industry in terms of jobs is one of the factors driving politics in the US. 

Until relatively recently, US capital did not seem overly worried by this development, as its technological lead appeared to be still substantial. This matters very much because the trade in the products of advanced technologies captures a disproportionate share of the world economy’s profits. In this sense, it is values, not volumes, that matter. However, with increasing competition over advanced computer chip making, and now with China apparently entering into competition over AI as well, the US hegemony in this respect appears under threat. The trade war with China was well advanced in Trump’s first term, and did not pause under Biden.

Biden’s lacklustre attempts to use a kind of Keynesian stimulus programme to revive the US economy with an investment programme failed to move the dial, and so now we have Trump’s blunter approach. The tariffs are not, however, going to revive US manufacturing in the way that they protected nascent US industries in the nineteenth century. 

For a start, there needs to be a capacity for rapid expansion under the umbrella of a tariff regime, but modern technology and industry is much more complex and capital-intensive than it was 150 years ago, so with potential exceptions, a major industrial resurgence is not likely to be on the cards. Secondly, industries have become enmeshed in very developed supply chains, so that on the way to making a car, for example, parts cross borders multiple times in the manufacturing process before they are finished. It remains to be seen how these new tariffs will affect the range of US industries, but they are likely to cause at least as much damage as they improve the competitiveness of ‘American-made’ goods in the domestic market. 

The tariffs will also do nothing to restore the US technological lead. The US tech industry is mired in its own intractable difficulties, with, for example, Intel pushing back the opening of its $28 billion computer-chip manufacturing plant in Ohio until 2030 or 2031, when it was originally meant to open in 2025. What the tariffs are unlikely to do is encourage the kind of capital investment that would be needed to revive US economic fortunes, and bring it out of the crisis that has beset Western capitalism since 2008.

The tariffs are almost bound to be a failure if their intended effect is to shore up US economic hegemony. The results could even be an acceleration away from trade dependence on the US by other countries. The existing tariffs against China have already benefited EU exports of soybeans and pork to China, while Bangladesh increased its textile imports, countries like Vietnam were able to raise electronics exports, and so on. Many countries may find they have reasons to tilt their economies more towards China and away from the US. In fomenting a global trade war and possibly a global recession, the US might find that it has unpicked the threads that hold together its increasingly threatened global hegemony.

The unravelling of the world’s greatest imperial power is a very dangerous time for everyone. The possibility of escalation beyond economic war is increasingly plausible. It is not, however, the alternative strategies of free trade or protectionism that are the root causes, but rather the competitive system of capitalism, which has repeatedly threatened the world since the nineteenth century. Capitalism drives conflict between different companies, sectors, and finally nations, in its drive to extract ever more profits, and drive down the cost of human labour and social reproduction. Free trade and protectionism are only ever two sides of the same profit-driven juggernaut. If we are to survive this period of crisis, it is that system which needs to be dismantled.