The Empire Strikes Back
The Empire Strikes Back
Trump’s “Liberation Day”-tariffs are not a slip-up of an insane person, but an expression of deepest capitalist contradictions.
While China’s rise floods the global market with overcapacity and alternative economic blocs like BRICS gain ground, US capital loses its ability for global dominance.
Protectionism, currency imperialism, unipolarity – a look back at China’s ascent, the fall of free trade, and the geopolitical tremors of a dying hegemon.
Reminder: The words marked in red are links leading to corresponding critique articles.
We strongly recommend reading our series “How Red is the East?” after this article, which deals with socialism of Chinese style, or the Chinese economic system, from a Marxist perspective.
Additionally, reading “BRICS; a Chance, not a Goal” might be insightful to learn more about BRICS and what multipolarity of the world can bring (and what it cannot).
Nearly two weeks have passed since US President Donald Trump announced “Liberation Day” and its content—tariffs on everything.
Even before “Liberation Day,” the Trump II cabinet implemented new tariffs on aluminum exports from Canada, Mexico, and China – raising the average US tariff to 12%—the highest since 1945.
In his “Liberation Day” speech, Trump announced ending the “national emergency” and ending the “exploitation of the United States” through unfair trade relations with his tariffs.
The tariffs apply to 185 states and territories, with the only exceptions being Russia, Belarus, Cuba, and North Korea, as sanctions against these countries are already so severe that “no significant trade” exists with them.
After the tariffs were announced on April 2, global stock markets experienced a massive crash – the Dow Jones lost over 4,000 points within 48 hours, the largest decline since the COVID pandemic; the S&P 500 and Nasdaq each fell over 10 %, resulting in a loss of more than 6.6 trillion USD in market value.
The renowned Peterson Institute states that “The projected annualized growth (assuming tariffs remain) will fall from 2.5% in 2024 to just 0.1% in 2025“, and predicts a “40% chance of a recession within the next 12 months“.
Penn Wharton School of Business in Pennsylvania concluded after developing a comprehensive “Budget Model” that “The tariffs imposed by President Trump (…) could reduce GDP by about 8% and wages by 7%. An average middle-income household faces an estimated lifetime loss of 58,000 USD“.
Jerome Powell, Chair of the US Federal Reserve, states that “The unemployment rate could rise to around 5% by the end of 2025, while inflation could increase to 4–4.5%” (CNN).
However, the political leadership has more concrete concerns; the Republican Kentucky Senator Rand Paul reminded that earlier protectionist measures, like the Smoot-Hawley Tariff of 1930, damaged the Republican Party for decades.
North Carolina Senator Thom Tillis warned of a possible political “bloodbath” in the 2026 midterms (the congressional elections held mid-legislature), if tariffs harm the economy – which they already have.
The outrage from economic institutes, party members, parts of the electorate, investors, and most importantly; corporations, prompted the Trump administration to approve a 90-day halt on “Liberation Day” tariffs – except for the tariffs, which are 145% higher against the People’s Republic of China.
Texas Senator Ted Cruz describes this as a “smart focus” on China – as clever as a brick.
“Quite stupid”, or?
Whenever something happens in the world that doesn’t fit the narrow understanding of bourgeois economists and political scientists, it doesn’t take long before the explanation is found in the “craziness” of the actors involved.
For instance, Nikolaus Blume, chief editor of RTL media group, explained Trump’s tariff policy solely as “clinical madness“, the RND calls him “President Dumb“, and Deutsche Welle speaks of “Madman Trump“.
But Trump’s (undeniably unstable) mental state should not even be the focus here; tariffs are relatively easy to understand from a market economy perspective.
So, what exactly happened that the United States is shifting from a “free trade empire” to seemingly radical protectionism?
The Era of Free Trade
“The problem with free trade is that it is not free. It is managed for special interests.” (Joseph Stiglitz, US economist, Nobel laureate)
After the illegal dissolution of the Soviet Union, the United States had pretty much free rein to do as it pleased – militarily, politically, and economically.
By establishing itself as the unipolar hegemon with an imperial infrastructure, the US could utilize the 1990s as an era of dominance over global free trade.
The NAFTA agreement (1994) forced Mexico to open its markets with special privileges for US companies. The US-led “Uruguay Round” (1994) decided on “further reduction of industrial tariffs and non-tariff barriers, elimination of some agricultural tariffs and subsidies” (USEmbassy), and transformed GATT into the World Trade Organization (WTO, 1995), which institutionalized US-initiated rules such as intellectual property rights (TRIPS) and service trade (GATS), tailored to the interests of US tech and cultural capital.
Participation in US-led free trade was less about cost-benefit analysis and more necessary for many countries because their economies had specialized in export to the US due to US capital penetration.
Mexico, Canada, Ireland, Malaysia, Thailand, and all of Central America depended on the US export market to such an extent that joining US trade institutions was unavoidable.
Countries like Argentina and Indonesia, initially avoiding free trade, were later forced by IMF credit conditions to dismantle trade barriers, privatize state enterprises, and open the doors to US investors.
After the Asian financial crisis of 1997-98 (“Asian Crisis”), “emerging and developing East Asian countries followed. Under strong external pressure, they more or less abandoned their (state-led) industrial policies and protection of domestic markets. The state withdrew, paving the way for foreign investments and multinational penetration.” (Le Monde Diplomatique)
The US-led hegemonic position also allowed the US to punish opponents of its capitalist interests with new methods.
The Helms-Burton Act (1996) enabled the US to sanction any companies trading with Cuba; embargoes against Iraq (1990-2003) barred France and Russia from selling Iraqi oil; and the Iran-Libya Sanctions Act (1996) sanctioned any company investing in Iran’s or Libya’s oil and gas industries, even if these investments were legal under European law.
Since the US dominated all major international trade institutions (IMF, WTO, World Bank), there was no alternative for countries and corporations but to accept US rules – further sanctions or expulsions from these institutions would cause severe economic disadvantages.
What this simple explanation of US dominance in free trade omits, is the reason why trade with the US holds such a special significance.
By the 1990s, the US was already the world’s largest economy, but only Japan, Germany, and France together surpassed the US GDP by about 32 billion USD – so why was trade with the US so crucial?
Dollar Hegemon
The collapse of the Bretton-Woods system in 1971 ended the dollar’s gold backing and laid the groundwork for US capital to push for deregulation of US markets.
As the dollar retained its dominant position as the global reserve currency, the US could leverage its monetary power to benefit from worldwide dollar demand and finance trade deficits through capital imports – for example, via the “Petrodollar system,” where oil exporters reinvest their dollar earnings in US bonds.
The deregulation of financial markets from the 1970s onward was not automatic but a deliberate choice by capital to attract foreign investment and secure the dollar’s hegemonic role.
Because the US dollar has served as the world’s primary reserve currency since 1944, the US has enjoyed a special position in the global economy – it can run persistent trade deficits (import more than it exports) without facing traditional balance-of-payments crises.
If countries like Japan, Thailand, Rwanda, or Germany adopted the same trade policies, they would simply collapse – unlike the US, they cannot issue debt in their own currency, which is also the world’s standard currency. The US can essentially borrow for free because other countries are willing to hold their debt in dollars.
(See our article “Debt upon Debt“)
This “Exorbitant Privilege” (Valéry Giscard d’Estaing) of the US dollar provided the material basis for neoliberalism, which was based on the realization that the US, as the hegemon of the currency, could import in unbounded amounts.
This required deregulation of global markets and interventions against anyone opposing this system:
Because the dollar is the dominant currency worldwide, the US could sustain large trade deficits for a long time without serious problems – in fact, the US is the only country that doesn’t need to maintain a balanced trade, and the trade surplus (or deficit) is necessary for US imperial power.
The reason for this is not due to weakness in other countries’ trade positions but their need for US dollars:
“Countries around the world do not export to the US because they are forced into bad deals, but because they depend on the dollar – to settle debts, stabilize their currencies, or build reserves. (…)
The global trade doesn’t happen as a direct exchange of goods for goods but as a trade of goods against debt instruments – specifically, US Treasury bonds and dollar reserves.
In essence, other countries supply real products, while the US issues money and bonds in dollars, which they print (…) – this system allows the US to consume more than it produces and maintain international dominance through a currency that other countries must hold.” (translated and simplified from Kritikpunkt).
China’s Rise
The free-trade imperialism of the United States worked well for many years: from 1995 to 2022, US GDP grew from about 7.639 trillion to 29.167 trillion USD.
The second-largest economy was Japan, which from the fall of the Soviet Union until 2010 maintained its position, sharing interests with US capital and being its most important partner in Southeast Asia.
This changed for the first time in 2010: China’s GDP surpassed Japan’s by roughly 300 billion USD.
While the US-Japan GDP ratio continued to diverge—from 5,980 billion USD (US) to 3,141 billion USD (Japan) in 1990 (ratio about 1.9:1), to 14,964 billion USD to 5,700 billion USD in 2010 (ratio about 2.6:1)—China’s GDP alone grew from about 398.6 billion USD in 1990 to over 6.06 trillion USD in 2010, an increase of approximately 1,522%—the largest absolute growth in human history. (See “Deng Xiaoping and Socialism 2.0” for a detailed analysis of this growth’s internal logic)
In a liberal free-trade utopia, this would not be problematic; a new, powerful economy would simply mean a new market that could be integrated into free trade.
However, for the US and its allied capital, China’s rise meant that the infrastructure built in the 1990s—partly by Western investors—could now be turned against them.
The Chinese economic rise, especially under Jiang Zemin, was characterized by a planned overproduction of goods combined with massive investments in export infrastructure.
Between the start of the Reform and Opening-up Policy (1978) and 2016, Chinese exports increased from about 2 billion USD to 2 trillion USD—a thousandfold increase brought about by Deng Xiaoping’s establishment of special economic zones where foreign capital could settle.
Using a strategy based on Lenin’s New Economic Policy (NEP), the Chinese Communist Party actively invited foreign capital into these zones to force “rapid development”.
From the late 1970s, the CCP was aware that productive forces’ development must not contradict the system of production—so the primary directive was to rapidly develop productive forces to advance socialist construction.
It is crucial to understand that during Deng’s reforms—and those of subsequent party leaders—financial capital was never tied to political power.
This means that even during phases of decoupling in Chinese state capitalism, investors and corporations could not influence the Communist Party or its policies—that is the major difference between China’s planned state capitalism and a regular capitalist market economy ([1]).
“When a backward country attempts to build socialism, it is only natural that its productive forces will not reach the level of developed capitalist countries during the initial phase, and it will be unable to eliminate poverty entirely. Therefore, we must do everything possible to develop productive forces and gradually eliminate poverty, constantly raising people’s living standards. How else can socialism triumph over capitalism? In the second or advanced phase of communism, when the economy is highly developed and material abundance prevails, we can apply the principle ‘From each according to his ability, to each according to his needs.’” (Deng Xiaoping, 1982)
The rapid expansion of China’s export industry and the widespread “rural exodus” to emerging metropolises have led to profound changes in Chinese society and economy since the 1990s.
A new urban middle class has emerged, driven by millions of migrant workers, forming an increasingly distinct internal market.
At the same time, the government began to impose export restrictions on light industry products, leading to a gradual shift in economic power dynamics:
The rise of China as the “world’s factory” was largely based on the opening policy initiated by Deng in the 1980s; especially in light industry (textiles, toys, electronics), China achieved enormous export surpluses through mass production.
The contradiction between rural and urban areas, driven by state investment in special economic zones, increased urbanization from about 26% in 1990 to over 60% in 2020—about 850 million city residents (World Bank).
Between 1981 and 2012, China lifted around 789 million people out of absolute poverty (World Bank).
This urbanization was accompanied by the rise of a consumer-oriented middle class.
Typically, households with an annual income between $7,500 and $75,000 are considered middle class.
In 2000, only about 3% of the Chinese population belonged to this group; by 2018, over half—roughly 707 million people—were in it.
As incomes grew, consumption patterns changed: the share of private consumption in GDP increased from about 35% in 2000 to over 50% in 2020 (National Bureau of Statistics of China).
China’s export-driven economy led to about 15% of all globally traded goods in 2021 originating directly from China (McKinsey).
The “world’s factory” era gave China a place in nearly every international supply chain: about 90% of all solar panels globally are produced in China, almost all cast or machined base components for machinery come from China, 43.6% of all textiles worldwide are from China, 98% of lithium iron phosphate batteries are from China, and 87% of smartphones are manufactured there.
If a product does not come directly from China, parts or machinery for it likely do—estimations suggest that practically all goods include at least some Chinese components.
China’s subsidized overcapacities in solar, electronics, steel, and other industries have led to a situation where US capital is increasingly unable to profitably invest its surplus inventory and capital—PPI indices for semiconductors and solar modules have fallen over 50%, US steel prices dropped due to dumping from China (2015–2019), with prices sometimes below 500 USD per ton while global costs exceed 600 USD. From China’s WTO accession in 2001 to 2011, the US lost about 2.4 million manufacturing jobs due to Chinese imports (Harvard/NBER), and the US private net investment rate declined from about 6% to 4% between 2000 and 2020.
Meanwhile, US trade deficit with China increased from 83 billion USD in 2001 to 382 billion USD in 2022.
Fictitious Capital
The overaccumulation of US capital during this period, like in any contradiction-ridden state, led to a shift towards fictitious capital:
The share of real economic assets of US capital shrank from 12% to 9.5% of GDP between 2000 and 2023.
Now, things get a little complex (and important), but we will keep it simple: Buybacks.
If it’s no longer profitable to expand production capacity due to overaccumulation, companies buy back their own shares to artificially inflate stock prices.
Imagine a company with 100 shares trading at 1 dollar each—then it buys back 20 shares (buyback), leaving 80 shares outstanding, but at a new price of 1.25 dollars each.
The stock price rises without any new production.
Buybacks are a sign that capital is no longer finding sufficient productive investment opportunities and instead is fleeing into speculative false growth—an indicator of deep contradictions between capital accumulation and actual productive use, meaning fewer profitable avenues for investment.
Between 2003 and 2022, the volume of buybacks by S&P 500 companies increased from 130 billion USD to 922 billion USD—a sevenfold increase.
Meanwhile, the net investment rate in the US (the share of productive investments in GDP) fell from about 3.5% in 2000 to only 1.5–2% in 2023.
In the 2020s, over 60% of corporate profits are channeled into buybacks and dividends instead of expanding production.
This trend is easy to understand:
For decades, China’s manufacturing was most profitable and was further facilitated by the US-controlled WTO and its influence on China’s opening.
The tendency of capital to relocate production to where it is most profitable is fundamental to imperialist profit logic.
However, China’s state-controlled capitalism, with the Communist Party’s strict oversight, has allowed it to shield itself from foreign capital influence and, by 2017, complete the first phase of socialist development.
This mechanism also led to the creation of new multipolar institutions like BRICS.
BRICS enables marginalized states, previously dependent on US-led financial institutions in a unipolar world, to develop alternative organizations such as the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) to gradually detach from the dollar.
The group provides a platform for “South-South cooperation” to increase influence within international organizations like the IMF and World Bank, and to promote independent economic development projects.
While in the US unipolarity it seemed impossible to disentangle from US hegemony—like Gaddafi or Saddam’s fall—multipolar institutions now offer a real chance since 1990 to decouple from US dominance.
Contradictory Protectionism
To oppose this, US capital is forced into radical protectionism, incurring huge losses:
“They can look for another country to exempt. There is no chance that BRICS will replace the US dollar in international trade or elsewhere, and any country trying to do so should give up tariffs and America!” (Donald Trump, January 30, 2025)
Trump’s tariff policy aims to raise import costs and promote exports, thus reducing the US trade deficit and reindustrializing the country.
But this deficit is central to the dollar’s role as global reserve currency: other countries must sell more to the US than they buy, to build dollar reserves – the US must accept a persistent trade deficit to meet global demand for dollars.
However, Trump’s tariffs and trade barriers hinder other countries’ exports to the US, reducing the global dollar circulation – undermining the ability of other nations to hold dollar reserves and weakening international confidence in the dollar, which promotes de-dollarization trends.
Even if exports increased enough to close the trade gap, the industrial workforce would only grow by about 1% (from 8% to 9%, Michael Roberts).
At the root of the global shift in capital flows is a trend Marx analyzed in the 19th century: the tendency of the profit rate to fall.
This long-term mechanism involves capitalists investing more in machinery and technology—so-called constant capital—while the share of human labor, or variable capital, decreases relatively.
Since only living labor creates surplus value, this process leads to a long-term decline in the average profit rate—profit relative to capital invested—even if the total profit volume initially still grows.
Empirical data from Marxist economist Michael Roberts shows this trend in the US economy: between 1945 and 2021, the average profit rate of non-financial corporations dropped by about 27%.
Deep drops occurred during the 1974 oil crisis (~8%) and the 2008 financial crisis (~7%). Simultaneously, US national debt increased from 19.9 trillion USD (2016) to 27 trillion USD (2020).
Trump’s tariffs temporarily caused the yuan to devalue by 10%, increased import costs, and contributed to US inflation. Export-oriented sectors like agriculture also suffered from retaliatory tariffs.
Trump’s tariff policy is not a blueprint for sustainable economic renewal but a symptom of the profound contradictions of neoliberal capitalism.
The systemic crisis is not resolved but shifted geographically and politically—into new regions, new technologies, and new contradictions.
It remains understandable because US capital is more vulnerable than ever, threatened by international competition, internal contradictions, and the possibility of comprehensive decoupling from the dollar.
For China’s economy, even a complete loss of the US market would not be catastrophic; in 2023, only about 14% of Chinese exports went to the US—a share roughly 2.4% of China’s GDP.
As South-South cooperation deepens, it is likely these export volumes will be absorbed by BRICS countries alone—”China is not a pond; it is an ocean. The ocean may have calm days, but strong winds and storms are to be expected. Without them, the ocean would not be what it is. Strong winds and storms may disturb a pond, but never an ocean. After many storms and waves, the ocean remains—so will China.” (Xi Jinping, April 2025)
[1] “In a capitalist society, power and money develop in tandem. Any amount of money can be transformed into a specific measure of political power, and the exchange rate is a predictable unit. The Soviet state interrupted this osmosis of money and power. The Party reserves all power for itself, but leaves money to the NEPman.” (Lenin, 1922)