Trump’s “Economic Revolution”

Economic globalization has been hit like never before by the tariffs that Trump just authorized the US to impose against the entire world. He announced them on what he called “liberation day” and said that they’re part of his “economic revolution”. The explicit goals are to reshore (at least strategic) supply chains, eliminate the US’ trade deficit, and reduce the national debt, while the implicit goals are to restructure the world economy and ultimately coerce China into subordinating itself to this new order.

In the sequence that his explicit and implicit goals were mentioned above, the first one about reshoring supply chains has been on his agenda since his first term and became a top priority during the COVID pandemic, but he couldn’t fully execute his plans due to his scandalous loss in the 2020 election. He and his team believe that trillions of dollars’ worth of wealth have been extracted from the US since the end of the Old Cold War to the benefit of China, which is now the US’ systemic rival, and corrupt US elite.

This process began during the 1980s as a direct result of the Nixon-Kissinger duo’s courting of China from the decade prior but really took off after the US-supported dissolution of the USSR. That epochal event led to the popular perception that liberalism was the only viable economic model. American corporations sought greater profits by moving production abroad to China, which they falsely justified on the basis of providing American consumers with cheaper goods for expanding prosperity.

The long-term consequences were disastrous since entire regions of the US were deindustrialized. A significant share of the locals then slipped into the cycle of poverty, drug abuse, and crime, while others fled to more economically promising regions, thus depopulating their hometowns. On the strategic level, the US became dependent on China and later others too for procuring many products, thus representing the inverse of typical core-periphery relations. COVID then drew global attention to this vulnerability.

From the perspective of Trump 2.0, the only way to reshore (at least strategic) supply chains is to make it prohibitively costly for companies to sell their foreign-produced goods inside the enormous American market, ergo the need for tariffing their imports. These same profit-chasing companies will then reinvest some of the wealth that they extracted from the American market all these years back into the US in pursuit of their continued economic self-interest, or so the argument goes.

The challenge though is that some production facilities like those for steel, automobiles, and pharmaceuticals are ultra-expensive undertakings that take years to reshore. Trump will therefore likely be compelled to cut temporary deals with some of the countries in which these facilities are presently located and with whom political relations are close to satisfy US import needs during the interim. This will take time to negotiate though since each bilateral trade relationship is different.

Some of these countries also threatened to impose more of their own tariffs against American imports, which could hit the profits of US-based companies, lead to layoffs, and worsen the recession that many expect. Stock markets across the world have also plunged, not just in the US, and recessions abroad could reduce demand for American goods and thus exacerbate the aforementioned process. In other words, blowback is a very real risk in Trump’s quest to reshore (at least strategic) supply chains.

At the same time, his “economic revolution” also aims to eliminate the US’ trade deficit, but the aforesaid challenges could make that difficult to achieve anytime soon too. In furtherance of his second explicitly stated goal, he’s demanding that all countries remove their existing tariffs against American imports, but they might not easily comply. On the one hand, many of their major exporters rely on the American market, but existing tariffs on US imports help small- and medium-sized enterprises (SMEs).

In a world of truly free and fair trade, including without any of the non-tariff barriers that Trump wants to eliminate, many countries’ SMEs couldn’t compete with the influx of mass-produced US imports. Likewise, some of these same countries across the Global South are learning the hard way that relatively more free and fair trade with China (agreed to as part of the Belt & Road Initiative [BRI] and in some cases in exchange for low-interest loans for major infrastructure projects) can lead to the same outcome.

Unlike China, the US doesn’t have (or rather, no longer has) the infrastructure in place to flood global markets with mass-produced low-cost goods, so the consequences of lifting tariffs on US imports could be more evenly shared if many countries did so around the same time even though that’s unlikely. Approximately 50 countries have reportedly reached out to the US to negotiate, but each bilateral trade relationship is different and will thus take varying lengths of time to reform to the US’ greater benefit.

Those who reach a deal first will enter into Trump 2.0’s political favor and protect the profits of their major exporters who disproportionately rely on the American market but at the possible expense of their SMEs. On the flipside, drawn-out negotiations or the outright refusal to even enter into them could possibly retain their SME’s comparative advantage in the domestic market at the expense of major exporters’ interests, especially if more tariffs are imposed to coerce their governments into a deal.

Trump apparently expects that his team can somehow exploit the wide array of differences between their country’s trade partners to divide and rule them with a view towards maximizing the profits from each and thus more speedily reducing the national debt. The modus operandi appears to be forcing them into a dilemma whereby they must choose between the interests of their major exporters and SMEs, with each decision having its own known and unforeseeable costs, which could also cascade.

This is a general observation based on a reading of the US’ economic imperatives as hitherto explained. Each negotiation will of course be unique, and it’s impossible to prognosticate the consequences for each party, which could be mitigated by accelerating automation trends, redirecting exports, and more state subsidies, but these three recourses among others also entail their own consequences too. Everyone is now thrown into this dilemma, including the US, but Trump believes that he holds the cards.

His confidence is due to the US’ leading role in the global system, which still remains preeminent in spite of the progress that’s been made towards multipolarity since the 2008 financial crisis, the COVID-related one that roughly lasted from 2020-2022, and then the start of Russia’s special operation three years ago. It’s admittedly a gamble, but he’s willing to take unprecedented risks as part of his “economic revolution” due to the immense domestic and strategic costs that the existing economic system inflicted on the US.

From the perspective of him and his team, the US’ hegemony will inevitably end and possibly even in a suddenly catastrophic way one day if globalization isn’t urgently reformed to redress these problems. This segues into the first of Trump 2.0’s two implicit goals related to restructuring the world economy. It’s impossible to know exactly what they envisage as their endgame, let alone what the result will actually be, but it’s sufficient to assess that they want to expand the US’ global economic influence.

The motive is to more effectively compete with China, which has masterfully employed so-called “economic diplomacy” to win not only hearts and minds in foreign societies, but also to ingratiate itself with (or as critics claim, co-opt or even buy off) local, regional, national, and transnational elites. The end result has been to significantly shift some soft power and strategic dynamics in China’s favor, which entrenches and expands its influence at the US’ expense in the context of their systemic rivalry.

China’s export of low-cost goods to Global South countries is usually the first step since it tangibly improves the living standards of the largely impoverished recipient society, which national elites want in order to reduce the likelihood of socio-political unrest even though it’s at the expense of some SMEs. Then low-interest loans are offered without political strings attached, unlike American and Western-led institutional ones, for major infrastructure projects that reduce unemployment and help boost exports.

These outcomes also reduce the likelihood of socio-political unrest, especially when some SMEs and major domestic exporters are able to take advantage of this new Chinese-financed infrastructure, thus advancing the national elites’ goal of “regime reinforcement”. Chinese companies can also obtain a greater profit margin upon the completion of these projects by employing local labor that’s cheaper than at home to produce goods that can be exported quicker to more developed markets at lower prices.

Sometimes local, regional, and especially national elites get in on this BRI bonanza, the last-mentioned of which then champion the benefits of this arrangement on the world stage and work to help China reshape the global system to its advantage by tying a greater number of stakeholders to its success. Given the US’ leading role in the post-World War II and -Old Cold War economic orders, this naturally represents a threat to its hegemony, which could gradually take political, military, and strategic forms.

The preceding paragraphs explain why the US perceives China’s growing economic influence to be a systemic threat, but many of its own national elites from both parties also profited from the same arrangement that was just described and is why they didn’t do anything to stop this. It wasn’t until the black swan event of Trump’s 2016 election, who earned his fortune in ways that had nothing to do with China unlike many in the American establishment, that an effort was made to change this.

Alongside him were some policy experts, businessmen, and members of the military who understood the consequences of perpetuating this outdated “deal with the devil”, which is what they consider the US’ Old Cold War-era financial support of China’s economic rise as a counterweight to the USSR to be. American capital failed to turn China into a so-called “Western country”, while the Communist Party thwarted the Tiananmen Square Color Revolution and subsequent controls prevented other such ones.

Continuing their outdated geopolitically driven arrangement after that only led to the further corruption of the American elite and the massive extraction of national wealth by China on the false pretext of providing US consumers with cheaper goods for expanding post-Old Cold War prosperity. China then reinvested this wealth to tangibly improve its own citizens’ lives, thus reducing the likelihood of socio-political unrest, while developing top technology and undertaking an unparalleled military buildup.

Combined with the entrenchment and expansion of Chinese influence across the world at the US’ expense, which significantly shifts some of the soft power and strategic dynamics in China’s favor, it’s easy to see why many across the world believe that the end of American hegemony is inevitable. Trump’s return to office, which was another black swan, therefore represents the last chance for him and like-minded Americans to make the US at least the “first among equals” in the emerging world order.

A return to 1990s-like unipolarity is likely impossible given the progress that’s been made towards multipolarity over the previous decades, but it can’t be ruled out that Trump’s explicit and implicit goals might result in a future where the US remains a step above the rest in an increasingly multipolar world. For that to happen, the economic basis of Chinese power must be weakened, which can only occur through a successful conclusion of Trump’s global trade war in the ways that were already described.

Coercing countries into correcting their trade deficit with the US implies more American imports at the expense of Chinese ones, which can cumulatively shake the foundations of China’s grand strategy that were just explained, especially if the dynamics that Trump unleashed lead to others tariffing China. To elaborate, China might dump US-tariffed goods on the ASEAN (its top trade partner) and EU markets, thus prompting them to restrict some imports in order to protect their SMEs and major exporters.

Another point to consider is that Trump imposed such high tariffs against many Asian countries like US-friendly Vietnam because China offshored some of its own production to them over the past eight years as a loophole for getting around his first term’s tariffs. He and his team therefore want to ensure that whatever deal the US reaches with these same countries prevents these de facto Chinese products from exploiting trade deals with those countries for indirectly entering the American market.

Nevertheless, whatever moves those Asian countries might make in compliance with the US’ demands could worsen ties with China, and that could in turn lead to yet another trade war in which Beijing has just as much or even in some cases more economic-financial leverage than Washington does. It’s for these reasons why it’s so difficult to predict how everything will turn out, but one important factor in the US’ favor is some Asian countries’ fears about their disproportionate dependence on China

Although China doesn’t attach political strings to trade and investment (other than demanding that they don’t recognize Taiwan, which isn’t a deal-breaker), some of their local, regional, and national elite have begun to worry that they might be replacing prior economic dependence on the US with China. Redirecting their US-tariffed exports to China in the event that it continues opening its market, which it might not if it tries to sell more of its own US-tariffed goods at home, could heighten these concerns.

The US has already seeded the narrative, regardless of whether one considers it credible, that greater dependence on China could entail costs to countries’ sovereignty that might take the form of sudden non-tariff barriers that harm their economies if they don’t one day do what Beijing demands. Those national elites that lend credence to it might therefore think that the US could serve as a counterbalance to China for preempting this so long as they’re able to adroitly multi-align between them.

Accordingly, increasing American imports even at the possible expense of some SMEs and major domestic exporters could be seen as worth the economic-financial cost if it results in the strategic benefit of rebalancing their presently disproportionate ties with China, though that’s easier said than done. It’s not just one country that’s forced into this dilemma, but the entire world, thus making everything unthinkably complex and correspondingly impossible for anyone to predict the final outcome.

That said, it can confidently be said that the US hopes that all of this will help it coerce China into subordinating itself to this new world order brought about by Trump’s “economic revolution”, thus retaining some element of American hegemony therein to at least make it the “first among equals”. China has promised to fight back against his tariffs, however, which makes sense since everything that it’s built at home and across the world is dependent on preserving the existing economic system.

In fact, the threat that Trump’s global trade war poses to China can arguably be described as existential at least from the perspective of its ruling Communist Party, which might even consider asymmetrical means for responding to the US. The worst-case scenario is that China initiates a large-scale war by either using force to reunify with Taiwan and/or launches a first strike against the US’ regional bases out of desperation to offset what might be seemingly irreversible disadvantageous grand strategic dynamics.

After all, that’s the reason why Imperial Japan attacked Pearl Harbor, which occurred in the context of crushing American sanctions that threatened its hegemonic project in Asia. To be absolutely clear, no geopolitical or value comparison is being made between Imperial Japan and China, which are completely different geopolitical entities. The only point being put forth is that the precedent exists of the US economically choking an Asian Great Power that then resorts to military force out of desperation.

Drawing to a close, Trump’s “economic revolution” is an epochal event on par with the USSR’s US-supported dissolution and the two World Wars before it, provided of course that he doesn’t back down. He’s not expected to though since he declared during his second inauguration that he believes that God saved him from being assassinated last summer so that he can “Make America Great Again”. That being the case, a new era of global uncertainty has just dawned, and it’s anyone’s guess how it’ll end.