Liberal Panic and Market Falls

Why a Cool Head is Required.

This is yet another occasion when we have to separate ‘news’ from ‘analysis’. The news is a matter of immediate and often emotional but also manipulative reactions whereas analysis has to get under the skin of what is actually happening. We have to strip away both emotion and manipulation in order to understand what the Trump tariffs may mean in the longer run. We have to ask the right questions – not whether this is a surprise (clearly it is to many people) but just how serious the Trump Administration is in pursuing its tariff policies, whether it will be forced to pull back by external or internal factors, what the consequences will be and what other key geo-strategic developments are we in danger of missing because of current media and political fear and loathing of the policy.

First, let us look at the emotion and the manipulation involved. The intensity of the reaction is partly a rational response of those with a stake in the existing system faced by serious disruption and potential losses, partly an emotional response matching the classic grief cycle experienced by people facing a death of a loved one and partly an aggressive attempt to hit back (if only to be seen to be doing something) in the hope of mobilising various forces to place pressure on Trump and force him to reverse his policies. Trump has, in effect, not merely attacked an abstraction (the liberal world order with its neo-liberal economics) but a system with beneficiaries who have accumulated sufficient power to have considered themselves ‘lords of the universe’ yet with insufficient power to give the actual hegemon its marching orders. This is the old king versus the barons struggle (in which the peasants have no say) writ global.

The System in Question

Until recently, the neo-liberal system could reasonably assume that, although theoretically threatened by populism, it was secured against threat both by dint of ‘reason’ and power. Even if a populist did seize hold of the centre of power in Washington, ‘reality’ (meaning the actuality of that system) would soon constrain that populist and revert him to conservative type. Fear that this might not be so started to establish itself in late 2024. Nevertheless, there was widespread denial that someone already perceived to be a flawed source of continuous disinformation (a serious miscalculation) could be the threat that he has become. The denial started to become impossible to maintain once Trump was in office. The last few days have indicated that not only is Trump determined on a global economic revolution but that assassinating or replacing him by way of an impeachment (both of which will have no doubt occurred to some) would make no difference. His successor, Vance, may be even more radical.

So, to answer the first question we raised, it is now clear that the Trump Administration is deadly serious in pursuing its programme of work. Despite the claims of the global financial media and conservative opponents, it is not clear that he does not have the support of sufficient internal forces to continue with a revolution that he recognises will be painful in the short term in order to achieve long term benefits (in his view). The Chinese Communists are in the curious position already of circulating material from Ronald Reagan in an attempt to help along the hoped-for split between MAGA populists (who are almost ecstatic about what is taking place) and conservative republicans linked to the interests of Wall Street and large-scale corporations. Even Musk seems to be being pushed aside somewhat having perhaps ceased to be quite as useful and almost certainly under pressure to attend to his own weakening business empire.

A European Marxist (of the sensible revisionist school with practical experience of inter-state financial dealings) Yanis Varoufakis quickly pointed out the ‘internal contradiction’ within the Trump system – the interests of the American industrial working class and of American capitalist finance were ultimately not compatible. Trump would eventually have to choose one over the other. His expectation (a reasonable one) was that this would take place in a couple of years (presumably after problematic mid-terms). As a Leftist, Varoufakis assumed Trump would back Wall Street because that is what theory said he must. However, watching events unfold, including the way the auto workers were presented at the tariff announcement, it might equally be concluded that Trump has decided to bring forward that potential confrontation in favour of the ‘working class’, disregarding the interests of Wall Street in the short term to establish his populist base once and for all.

A Possible ‘Occult’ Political Strategy

This is where it gets hard to interpret things in ways that do not fall into the trap of Hegelian prediction. Some things are true. Trump’s commitment to tariff regimes is longstanding (it goes back to the 1980s) with a hero figure in President McKinlay (1897-1901) who was, intriguingly, assassinated. Other than gentle mutterings from Musk, the Administration appears to be united around the strategy with protests appearing largely amongst conservative Republicans in Congress and on Wall Street itself. The strategy has a cogency based on a rethinking (as radical as Reagan and Thatcher’s) of how capitalism works. If Trump is moving fast, it is almost certainly because he and his team know that the faster and harder you implement ‘reforms’ the quicker any benefits appear and the harder it is to unravel afterwards. Vance as Vice President and the lessons of the later unravelling of McKinlay’s tariff policy suggest this interpretation.

There may also be an interesting political strategy in addition that is passing most people by. Trump is no socialist but he is a nationalist, not an ethno-nationalist like Erdogan, Netanyahu, Zelensky or Orban but an ‘imperial-nationalist’ like Xi or Putin, that is, it is the holding together of an imperium in a fixed space, a sphere of influence, that matters. This implies an extension of influence in the national interest, not as vague values acting as cover for that influence (as in liberal imperialism) but as realpolitik. One thing that both Putin and Xi have managed to do is to tame their own oligarchs and unravel their political ambitions. MBS in Saudi Arabia did the same more forcefully in 2017. The logic of this imperial strategy is not to dispossess or ‘socialise’ great wealth but to isolate it, guide it into national imperatives and punish it if it engages in the ‘wrong politics’. From this perspective, tariffs may have a political as well as economic purpose in stating who is the senior partner within ‘capitalism’ – the State, not the collectivity of ‘oligarchs’.

Having established that Trump is serious, a realisation that has taken Europeans a little longer to understand than they should have done, the next question is whether the combined opposition (if it can combine) of global elites (essentially the quasi-oligarchical systems of the allies and the imperial rivals) can force a reverse either through direct action or through influencing internal forces within the US itself. We have covered some of this ground before but the major problems for all allied counter-parties are that a) they are mostly weaker and economically dependent on the US, b) some of them are geo-strategically and militarily heavily dependent on the US, c) their responses are fragmented and competitive and d) any strong move towards independence could result in strong counter-measures by the US well before independence is credibly possible. In other words, Trump has struck at a moment of weakness and fragmentation where the machineries of resistance are not in place and dependencies are significant.

China’s Response

Trump’s administration is becoming adept at cherry-picking core players in order to bring the others either into line or into such a mode of independence that they are no longer a burden to the US itself. Israel is virtually a colony now. The UK not far distant where it is clear that the lowest 10% tariff, the open talk of a free trade agreement between London and Washington and the desperate condition of the British economy all combine to suggest the possibility of the UK being decisively detached from Europe. In East Asia, the US is clearly sending a signal that Japan may be the first to have preferential terms agreed, leading to some potentially interesting calculations whereby an East Asian trading bloc in formation (China-Japan-South Korea) cross-links to a carefully managed Japan-US bloc. China and the BRICS are, of course, in a different boat from these allies.

China’s response to all this is carefully calibrated to assert a new attempt at the global leadership of a modified form of economic internationalism with an emphasis on peace and, increasingly, environmentalism. This, however, takes place in a context of anti-imperialism as ideology and the need to manage internal Chinese national sentiment much as Trump has to manage and exploit American national sentiment. The probability of mounting tariff conflicts is increasing because Beijing cannot afford globally or internally to be seen to kow-tow to the would-be hegemon. This is not good for either country, creating the potential for disruptive internal class conflict in both countries. In the US, an entire bubble of traders in cheap Chinese goods could be sent to the scrap heap, many of them small businesses. The inflationary effect is potentially very real. On the Chinese side, the export-orientated East Coast will have to find new markets with the risk of deflationary dumping of product on the rest of the world including the UK and Europe, leading to yet more trade conflicts.

To a considerable extent, China (which does not have the burden of democracy in times of crisis) has pre-empted the tariff war by building alternative foci in Russia and the other BRICS and being careful not to alienate Europe as the latter learns hard lessons about relying on the US too much. The ultimate prize for China is the detaching of Europe from the North Atlantic into a Eurasian sphere of influence in which Beijing brokers a new understanding with Russia – a very long term game – as the OBOR strategy moves forward. We will not dwell on Sino-US economic and military competition here but it is the marker issue for the next phase of human history. It could go either way – an historical accommodation which effectively divides up the world between powers or a mounting conflict that could go cold to hot in the wrong hands.

Incentive to Reverse?

All this means that both Europeans and Chinese can propagandise to the American people in implicit support of the domestic US oligarchical interest as much as they like but with little effect. The Europeans face serious risks of escalation they cannot afford if they go over a line and appear to support Trump’s domestic critics. The American people are so Sinophobic by now that anything China might try of that type would be counter-productive. Some evidence that Europeans have thought better of their initial defiant position is demonstrated by Von Der Leyen’s sudden shift from an aggressive tone to one of attempted negotiation in a matter of a very few days. The Commission is now getting into the habit (as Kallas has shown in foreign affairs) of shooting its mouth off only to have to retreat when the professionals in the nation states have a quiet word and bring fantasy back to reality.

In our current tentative view, there is no immediate incentive (quite the opposite when it comes to ‘face’) for Trump to reverse policies. The assumption that the economic consequences will force him to do so is in considerable part wish-fulfilment on the part of the globalists who still command most of the legacy media. Observe what is actually being said by responsible nation state leaders and there is a moderation emerging while they assess the situation. Even amongst the ‘capitalists’, we are seeing the liberal media seizing on concern at disruption when it is being expressed yet some of the biggest players are doing what Russian and Chinese oligarchs do in their systems – remain relatively silent, even shifting language into populist territory, and try to get policies moderated through back door representation. As of today, the share falls already appear to have moderated and even reversed perhaps to the consternation of American regime change hopefuls.

As to consequences, little can be said because it is almost impossible to separate out the irrational responses of those hurt by the policy – denial, anger, depression, acceptance, that age-old human grief cycle linked to ‘loss’ – from reality. Once again, Yanis Varoufakis this morning keeps his cool this morning albeit with some of his own natural Leftist bias. He points out that share prices should not be confused with actual trade. We can also point out that shares are very disproportionately held by the beneficiaries of the old order who hold the commanding heights of information and communication. Their emotional reactions construct the narrative. However, it is true that the current economic order is very dependent on the intangible that is ‘confidence’. It is possible that the panicked reaction of shareowners and traders eventually affects this, bringing us towards a serious recession although probably not one as bad as the one we are being made to fear.

Which Capitalism?

Another factor that perhaps has not been considered is that Trump’s revolution is certainly not an anti-capitalist one and not quite as illiberal as some would like it to appear. It is neo-mercantilist only in regard to industrial production (things) in a global economy that is already shifting into an intangible model of services and ideas holding value. Finance capital and services remain operating within a neoliberal model which is why the British are perhaps less alarmed than most. The London equity market saw much less dramatic falls than most. The reality is that this is a war on cheap labour competition not only from China (which has been systematically moving away from that model and is only concerned that it is now happening too fast) as from economies like Vietnam. The speed with which Vietnam is looking to comply with US demands indicating a concern to learn and adapt rather than completely lose a market.

What Varoufakis has pointed out is that the Trump plan has two aspects – the tariffs and then the domestic tax cuts which will be aimed at boosting the domestic market without pulling in foreign product. Well, that’s the theory. Varoufakis again assumes (as a Leftist) that these tax cuts will benefit the rich rather than the poor. He may be right but, if I am right that Trump is bringing forward the inherent class conflict in his own movement and emphasising mass working and lower middle class support, then it is possible that those tax cuts may be directed at the voters he needs at the mid-terms rather than lots of tax breaks for the super-rich. Indeed, part of Trump and Musk’s ‘sell’ has been to attack the implicit corrupt relationship between the State and oligarchical capitalism in defence procurement and other state services so we may be surprised … or not, as the case may be.

What will be interesting is not share prices shooting through the roof again – as Varoufakis predicts and, after all, there is an incentive for the clever money to drive down prices to a bottom where they can be purchased at a lower price in anticipation of recovery – but higher disposable income in a more inflationary atmosphere resulting in increased share purchases further down the ranks of the middle class. This would achieve in theory the old Reagan-Thatcher dream of a shareholding society and reversing the concentration of capital. In fact, capital cannot but concentrate despite these libertarian aspirations so some sort of crisis is only being pushed forward by another few decades. Obviously this particular analysis is speculative. Such a ‘plan’ (if it exists) will do nothing to help the truly poor and unskilled – only socialism or constant global neo-liberal ‘trickle down’ can do that – but populism as a political movement can only thrive on the basis of pleasing the middling sort. It eventually crashes and burns on increasing inequity.

Conclusions

Varoufakis makes another point worth mentioning. The legacy media seem to want us to think that Trump is replacing a functional system with a dysfunctional one. The new system may prove to be just as dysfunctional but the old system was (as he notes) already dysfunctional in its own right. The system could not last on the basis of that massive American trade and government budget deficit. What we are seeing in Trump’s action is a ‘shock tactic’ analogous to the neo-liberal shock tactics involved in dismantling the Soviet system. Just as that system peaked in the 1960s but then degenerated into sclerosis so the neoliberal system was degenerating into unsustainability. Just as the Soviets failed to understand their own mounting degeneracy so neo-liberals failed to understand the unsustainable nature of globalism. In both cases the reasons were the same – there were too many interests with a stake in the system to reform it as it went along and too much ‘ideology’ getting in the way of policy.

What of the other geostrategic developments that we should keep an eye on while most liberals are being seduced into horror and panic over America’s neo-mercantilist revolution? Trump is using ‘shock tactics’ not only in the economic sphere but elsewhere. These should perhaps be more worrisome simply because they involve potential conflicts that could materially disrupt trade routes (the flow of material goods including food) and because they involve the potential use of nuclear weaponry. The one that stands out at the moment is the conflict with Iran which we see as intensifying precisely because Israel is becoming exhausted in its own defence. The Ukraine War now looks like an expensive victory for Russia but European politics is also turning the war and Ukraine into an unstable mess that could drain the EU and destabilise it from within. The confrontations between the US and China around Taiwan are in danger of becoming confused with national Chinese responses to the tariff war.

To conclude, although the Trump tariff revolution might run into the sand on an internal US economic crisis and on political reaction at the mid-terms and eventually be reversed if Trump (or perhaps Vance) is defeated at the polls at the next Presidential Election, we would not count on complete reversal for the very simple reason that the fundamentals of trade deficits and American national debt required action even under the rules of the previous world order. The irony would be that a shift to back to the old order is only functionally possible if the beneficiaries of that order understand that they might have to burn down their ideological village to rebuild it – that is, to negotiate globally better terms of trade (meaning a rethinking in favour of tariffs or restrictions) and deal with the debt overhang. In that sense, even if Trump loses, he will have partially at least won. The interesting aspect of the case will then be what sort of polities emerge elsewhere to negotiate these terms.