The Trump Shock
There is a method to Trump’s “Liberation Day” tariff madness. The chaos and confusion is deliberate; the aim is nothing less than the controlled disintegration of the world economy.
The eyes of the world are on Donald Trump once again. The world’s most successful attention-seeker has us all transfixed. It’s a story that has been all too familiar since the real estate mogul-turned-demagogue launched his first presidential campaign nearly ten years ago.
On Wednesday 2nd April — branded “Liberation Day” by Trump — the President unveiled the highest tariff levels that the US has imposed on foreign trade since the early 1900s. Trump’s reality TV instincts were on full display as he declared that America had been “looted, pillaged and raped” by its trading partners — graphic language used by a President who is himself a convicted sexual predator. Not even Israel was exempt, as Trump singled out America’s allies for criticism: “in many cases, the friend is worse than the foe.” Trump declared that his plans would reverse decades of US economic decline and usher in “a new golden age” for Americans.
The President branded his tariffs as “reciprocal,” falsely claiming that he was retaliating against tariffs imposed by other countries on the US. The numbers did not add up. When questioned, the White House revealed that it had in reality calculated tariff rates by using a formula to estimate the trade imbalance between America and its trading partners. Countries whose exports of goods into the US significantly exceed their imports were thus given the highest tariff rates.
The majority of affected countries were hit with the base rate of 10% — including New Zealand, Australia and the UK — while others were singled out for higher tariff rates. The European Union was given a 20% tariff. Trump had already imposed a 20% tariff on Chinese goods earlier this year; on “Liberation Day” he added another 34%, bringing the total to 54%.
On April 3rd, Wall Street had its worst day of trading since the March 2020 Covid-induced crisis. Markets panicked, and so did economists; Trump’s actions were denounced as madness, stupidity and economic illiteracy. Fears rapidly emerged of a global recession, with prices expected to rise at the same time. This threatened to create the lethal combination of inflation and economic stagnation known as “stagflation.”
China retaliated on April 4th with tariffs on US imports. In response, Trump increased the US tariffs on China to a whopping 104%. A trade war is rapidly escalating between the world’s two largest economies.
Then on April 9th, an economic doomsday scenario began to develop. The interest rate on American government bonds started to rise at an alarming rate. Government bonds are assets sold at auction by nations in order to finance their debt. US Treasury bonds are supposed to be one of the safest assets in the world, as the federal government has historically held firm to its commitments to repay its debts. Seen as a “safe haven” during times of market turmoil, it is usually the case that when the stock market goes down, the bond market goes up in response.
The fact that these Treasury bonds were being sold rather than bought during a stock market crash indicated the beginnings of a crisis of confidence in the US government. The world economy is held together by its confidence in US financial institutions; if confidence were lost completely, nobody knows how far the markets could fall.
The bond market panic proved to be too much for the Trump administration to withstand. The President duly announced a 90-day pause on his “reciprocal tariffs” on every country except for Canada and Mexico — who received 25% tariffs separately and were not impacted by Liberation Day — and China, whose tariff rate he further increased to 125%. However, Trump left the 10% baseline tariff on all foreign trade in place.
This White House de-escalation caused the markets to rally and partially recover from the earlier crash. But the sense of relief induced by this 90-day pause is driven by the view that Trump intends to negotiate; the tariffs that remain in place are still the highest the US has imposed since the 1940s, the trade war with China was escalated further, and the President has indicated that the “reciprocal tariffs” may return after the 90 days are over.
It is too easy to mock the 47th President of the United States. It is too easy to assume that Trump is an idiot surrounded by fools and flatterers, and that all of his policies are motivated solely by narcissism fused with economic illiteracy.
Yet it is essential to ask: is there a plan behind any of this? Is there a method to this madness? To ignore the possibility that Trump and — perhaps more importantly — the people around Trump have a strategy would be a dangerous mistake to make. Top Trump advisors have already claimed that the 90-day pause was all part of the plan.
While the first Trump administration was indeed largely defined by chaos and incoherence, that was in the context of the fact that nobody expected the reality TV celebrity to beat Hillary Clinton in 2016. The policy agenda that Trump implemented in his first term was thus broadly in line with past Republican presidents.
But the Trump team did expect to win in 2024. They spent the last four years in opposition preparing for a second term in the Oval Office.
Trump and his nationalist advisors are not outsiders any more. They have won explicit support from sections of the billionaire class this time, particularly amongst the tech oligarchs of Silicon Valley. Trump’s 2024 campaign was bankrolled by the richest man in the world. The Republican Party, now fully under the control of the MAGA movement, has a plan to radically reshape the prevailing order of both America and the world.
Their aim is to use America’s status as the hegemonic global superpower to increase US economic power and prosperity. While from the outside the actions of the White House may look random and chaotic, we can be sure of one thing: inducing a sense of generalised chaos is deliberate. The Trump administration wants its opposition to be confused, in disarray, and unable to form a coherent response.
Opponents of Trumpism must cut through this outer layer of chaos if we want to understand what is going on. We can find the method in the madness by asking: who stands to gain from Trump’s actions?
Is America In Decline?
Since 1945, the United States of America has been the world’s dominant superpower. After the collapse of the Soviet Union in 1991, American power reached new heights, as the global capitalist system became uncontested. The doctrine of free trade and open markets was spread across the world — by force, in instances where Washington deemed it necessary.
In the 21st Century, the precipitous rise of China has made it the main rival to American hegemony. Yet China is currently nowhere near eclipsing the United States. The International Monetary Fund (IMF) estimates the US economy to be more than six times as large as the Chinese economy when adjusted for population size.
The US dollar remains the world’s ‘reserve currency’ — the currency that central banks across the world hold in significant quantities as part of foreign exchange reserves. US gross domestic product (GDP) accounts for more than a quarter of world GDP. American fears about “de-dollarisation” — a global shift away from usage of the US dollar as the reserve currency — and concerns about a declining US share of the world economy both need to be placed into context.
Whilst the dollar’s share of foreign exchange reserves has steadily declined since 2001, figure 2 demonstrates that it has merely returned to levels last seen in 1995 — at the height of America’s post-Cold War power.
Figure 3 shows the share of global GDP for the six largest economies in the world as of 2024. Whilst the US share has declined from its peak, this was inevitable in an increasingly competitive world market; the US regained ground in the 2010s and early 2020s. It is the European Union and Japan that should be worried about terminal decline.
Chinese economic growth is no longer rapidly outpacing the US. China’s economy grew faster than the US in every single year from 1995 to 2015. In 2016, the US grew faster than China for the first time in 22 years; it happened again in 2019; and in 2022-2024, the US grew faster than China for three consecutive years.
When discussing the possibility of China’s economy surpassing the US, it is worth remembering that similar rhetoric was used to describe the rise of Japan in the 1980s and early 1990s. At the time, Japanese economic success resembled what we see from China today. However, major demographic problems contributed to a monumental decline in the Japanese economy from the mid-1990s onwards. China’s one-child policy, in place between 1980 and 2016, has created demographic problems which could similarly threaten the country’s ability to grow at a fast enough rate to surpass the United States.
One significant difference between China and Japan is that the latter is a US ally. China on the other hand is politically independent from the US empire, meaning it has more room to manoeuver than Japan did.
In military terms, the US accounted for 37% of global spending in 2023, and spent more on its military than the next nine countries combined. China accounts for 12% of global military spending. The US maintains at least 750 military bases across the world; China has just one known overseas military base.
The US remains unparalleled in its economic and military dominance of the world. Talk of this being the “Chinese Century” is premature for the time being. The next few decades will be marked by the increasingly intense rivalry between these two great powers.
Whose Interests Does Trump Represent?
It may seem farcical for the population of the world’s only superpower to elect a President who complains endlessly about American decline and about his country being ripped off by foreigners. But whilst the US maintains a dominant position in the world economy, most Americans are not experiencing prosperity. Trump’s populist rhetoric speaks to growing anger against the elites of Washington DC and Wall Street.
Life for working class Americans is tough. Globalisation and the rise of China made many US multinational corporations rich — but this was at the expense of blue-collar working class communities, particularly in the ‘Rust Belt,’ whose well-paid jobs were shipped overseas and replaced with the choice of either unemployment or precarious, lower-paid work in the gig economy. The union movement that once represented these workers was deliberately decimated by the Reagan administration and its successors.
In 2008, Wall Street bankers crashed the global economy. Instead of being punished, the big banks were bailed out. At the same time, millions of working class people had their houses foreclosed after falling victim to predatory lending practices.
Inequality is out of control. Productivity keeps increasing, yet there are no corresponding increases in wages. The economy keeps growing, the rich keep getting richer, and 60% of Americans live paycheck to paycheck. The privatised health insurance system saddles people with unpayable debts if they are unlucky enough to need medical treatment they cannot afford.
America is in decline — in the eyes of the majority of the population. Whilst the Democratic Party preaches about “aspiration” and “abundance,” Trump is telling a different story — one which speaks to American workers whose views on their ruling elites range from hostility to outright hatred. The 2024 election saw Republicans surpass Democrats among low-income voters for the first time since 1960.
The idea that America has been “looted, pillaged and raped” by foreigners speaks to this widespread discontent. Trump constantly blames migrants for America’s problems; his xenophobic rhetoric scapegoats Mexicans in particular, in an attempt to shift the blame away from the rich and powerful who have profited from the economic system.
Yet his rhetoric about American workers suffering due to “horrible” trade deals does have truth to it. His promises to bring manufacturing jobs back to the US strike a nerve in the Rust Belt states that were once the heartland of American industry. Those states handed Trump the presidency in both 2016 and 2024. Traditionally loyal Democratic voters could not forgive the party that had played a pivotal role in sending their jobs overseas.
The Trump administration does not have the best interests of the American working class at heart. The President is a former real estate mogul and a member of the billionaire class. He has publicly joked with Elon Musk about hating unions. The 2018 Trump tax cuts constituted the largest tax break in history for the American super-rich. The administration intends to make these tax cuts permanent, as they are currently set to expire this year.
The three richest men in the world were given positions of high honour at the President’s second inauguration. Musk, CEO of Tesla and SpaceX, was joined by Amazon CEO Jeff Bezos and Meta CEO Mark Zuckerberg. Joining them were the CEOs of Apple and Google. The wealth and power of Silicon Valley elites has multiplied exponentially in recent decades; they are the biggest winners of the globalisation era. While Trump may pose as the champion of the ‘little guy,’ he has aligned himself with the tech oligarchy.
Once Trump was in office, Musk was swiftly granted free reign to take a chainsaw to federal agencies that promote the interests of working class Americans. The cuts unleashed by the Department of Government Efficiency in recent months have already made Musk hugely unpopular; the long-term effects will be devastating. Congressional Republicans are set to double down, signalling plans to cut to Medicare, Medicaid and Social Security in their upcoming budget.
Not all of the capitalist class supports Trump. There are a plethora of billionaires who support the Democrats, including Bill Gates, Warren Buffet and Michael Bloomberg. Financiers on the New York Stock Exchange generally supported the Democrats over the Republicans even before the ‘Liberation Day’ crash; the depiction of the Democratic Party as the party of Wall Street is not inaccurate.
To say that US politics is a battle between Silicon Valley Republicans against Wall Street Democrats is somewhat of an oversimplification; but there is some truth to this idea. There is a division within the capitalist class. Finance capital generally prefers stability, and is appalled by Trump’s agenda. On the other hand, corporate monopolies such as Tesla, Amazon and Meta are insulated from market competition by their sheer size, and are willing to back Trump in taking risks to achieve future gains — to a point.
The recession and inflation that Trump’s trade war is almost certain to unleash will hurt working class Americans who were already reeling from the cost-of-living crisis. The trade war will also hurt struggling small business owners. The narrative that Trump is the champion of the ‘little guy’ is often extended to include the notion that he is the champion of ‘family capital’ against ‘global capital.’ In practice, small- to medium-sized family-owned businesses will be decimated by a major economic crisis.
Workers, small businesses, and Wall Street traders whose fortunes depend on short-term investments all stand to lose from the coming recession. Only the major monopolies that are ‘too big to fail’ — and can rely upon government bailouts if the going gets too tough — are in a good position to capitalise.
The Twin Deficit Problem
Trump and his advisors have grave concerns about the structural economic challenges that they believe pose a threat to America’s dominant position in the world. They entered office with the belief that drastic action must be taken to preserve US hegemony into the future and combat the rise of China. They have a plan; the trade war is just the start.
Economists generally believe that a government must run a budget surplus if it wishes to run a current account deficit, and vice versa. A budget surplus means that the government’s income is higher than its spending; a current account deficit means that the value of the country’s imports from overseas is higher than the value of its exports to foreign markets.
The US has long defied this conventional wisdom by running twin deficits. Its huge federal budget deficit is fuelled by colossal military spending, and has increased in recent decades as a result of giant tax cuts for the rich implemented by Republican administrations. Meanwhile, the large current account deficit has been driven by the decline of US manufacturing — see figures 4 and 5.
With brief exceptions in the 1990s, the US has run continuous deficits on both its federal budget and its international trade since 1982. This means that America has been taking on a large amount of debt, while pumping out dollars for the rest of the world to hold in reserve.
Trump and his advisors believe that America’s declining share of world GDP makes these twin deficits unsustainable. They believe that rising debt and the decline of US manufacturing put the nation in a vulnerable position in future economic crises. They are concerned that China will be able to take advantage of this vulnerability in its quest to replace America as the world’s leading superpower.
The Mar-a-Lago Accord
Trump’s belief that past presidential administrations signed “bad deals” that allowed foreign nations to get rich by “ripping off America” goes beyond rhetorical attacks on his rivals. Trump has been attacking US trade policy for decades, lamenting the loss of America’s manufacturing base. During his first term, he famously declared: “if you don’t have steel, you don’t have a country!”
The President and his advisors see trade and defence policy as inherently linked. They believe that:
The role of the US dollar as the world’s reserve currency has led to the dollar being overvalued, and that this is the primary cause of America’s current account deficit.
US allies are taking America for granted, assuming that the US with its colossal military budget will come to their aid if they are attacked, and are therefore able to spend less on their own defence.
Trump is not proposing to stop using the dollar as the reserve currency — in fact, he has threatened to punish countries which abandon the dollar. Nor is the President interested in reducing the military budget; in a joint press conference with Benjamin Netanyahu on April 8th, he floated the idea of increasing military spending to $1 trillion. This would represent an increase of $108 billion.
Enter Stephen Miran. In November, swiftly following Trump’s election victory, Miran authored a paper entitled ‘A User's Guide to Restructuring the Global Trading System.’ The paper set out an audacious plan to realign the world economy in the interests of the United States. While denying multiple times that the essay was “policy advocacy,” Miran outlined the following key aims for the second Trump administration:
Force a devaluation of the US dollar to make American exports more competitive and wipe out the trade deficit. In order to force this devaluation, other countries must be made to sell their reserves of US dollars — boosting the value of their currencies relative to the dollar — and instead buy long-term US Treasury bonds.
Force US allies to increase military spending.
Encircle and isolate China both geopolitically and economically to forestall its rise. One of Miran’s proposals here is to construct a “tariff wall” around China.
Trump’s team clearly liked what Miran had to say. In December, Trump named Miran as his nominee for chairman of the President’s Council of Economic Advisers. The nomination was confirmed by the Senate in March.
It will not be easy for the Trump administration to force America’s trading partners, including its major geopolitical rival, into accepting this proposed realignment of the world economic order. The most telling part of Miran’s proposal is how he intends to bring about this realignment.
Miran urges his readers to “recall that President Trump views tariffs as generating negotiating leverage for making deals.” He continues: “It is easier to imagine that after a series of punitive tariffs, trading partners like Europe and China become more receptive to some manner of currency accord in exchange for a reduction of tariffs.” Referencing the 2018-2019 US-China trade war initiated by Trump in his first term, Miran states: “Because tariffs are a negotiating tool, the President was mercurial in their implementation — the uncertainty over whether, when, and how big adds to leverage in a negotiation, by creating fear and doubt.”
Miran cites Scott Bessent — now Trump’s Treasury Secretary — who has proposed the idea of splitting the world into zones. Countries in the green zone will continue to benefit from US military protection, and in return must increase their own military spending and conform with what the Trump administration considers to be “fair trade” policies — ie, trade policies which benefit American interests. These countries would receive reductions in tariffs. Countries in the orange zone risk losing American protection and facing higher tariffs. Countries in the red zone are threatened with high tariffs and open hostility from the American empire.
In this light, Trump’s dramatic unveiling of the global tariff regime on Liberation Day begins to make sense. Trump forcing the entire world to nervously watch his reality show theatrics was deliberate. The chaos and uncertainty we are seeing in financial markets, the frantic speculation in the world’s media, is deliberate. Fear and doubt is the aim.
The same logic applies to Trump’s infamous February meeting with Volodymyr Zelenskyy. Trump and Vice President JD Vance bullied and berated the Ukrainian President in front of the world’s media. Zelenskyy was made into an example for other American allies — past US commitments no longer matter. Fall in line with Trump’s demands or you will be cast aside, no matter how high the stakes.
The Zelenskyy incident highlighted another key demand we can expect to see from the Trump administration: that other countries give the US favourable access to resources, in particular rare earth minerals necessary for the manufacture of weapons, electric vehicles and other technologies. China is ahead of the US in the race to secure access to these crucial resources, and American tech giants are concerned.
There are other points of economic leverage that the Trump administration holds over foreign governments besides tariffs. Another key bargaining chip Miran suggests could be weaponised in negotiations is access to central bank liquidity swaps, otherwise known as “swap lines.”
Adam Tooze’s 2018 book Crashed: How a Decade of Financial Crises Changed the World documents how central banks in many countries have become dependent on “swap lines” with the US Federal Reserve in the wake of the 2008 financial crisis. The US dollar is seen as the safest currency in the world, and access to dollars becomes urgently necessary in times of market turmoil in order for governments to stave off any risk of potential insolvency. During the 2008 meltdown, the Eurozone crisis of the early 2010s, and later in the 2020 Covid panic, the Federal Reserve made swift agreements with central bankers across Europe, the Americas and the Asia-Pacific region to guarantee unlimited access to dollar reserves. Among the many central banks that made use of this agreement was the Reserve Bank of New Zealand.
The global financial system has become so fragile in the last two decades that significant sections of the world economy are entirely dependent on the Federal Reserve to stave off collapse in times of crisis. The US government has huge leverage over all governments that it has swap line agreements with. With Trump now in office, and Miran as his chief economic advisor, the US will be both willing and able to weaponise this position to extract concessions from US allies. A global economic meltdown will place maximum pressure on all these governments who risk going bankrupt without assistance from the US central bank.
Tariff-free access to the US market; security guarantees from the US military; emergency provision of US dollars from the Federal Reserve. These are three powerful tools with which the Trump administration can blackmail other countries. All American trading partners are threatened — and the more reliant you are on the US, the more leverage Trump holds.
In 1985, the Reagan administration made an agreement with representatives of the British, French, Japanese and West German governments to devalue the dollar. This was achieved by America’s four main allies selling their own dollar reserves in order to boost the value of their own currencies. This agreement was known as the “Plaza Accord.”
Miran wants to bring about a “Mar-a-Lago Accord.” But 40 years on from the amicable agreement made at New York’s Plaza Hotel, Miran does not believe that America’s allies — let alone its rivals — will be as willing to agree to dollar devaluation. US trading partners benefit from their ability to import goods to the US at discounted rates as a result of a strong dollar.
Some economists believe that the Plaza Accord was the beginning of the end for Japan’s economic rise. China meanwhile is the direct target of Trump’s aggressive attempt to restructure the world economic order; the President and his advisors actively hope that a dollar devaluation will burst debt bubbles in China and bring about a period of Chinese decline similar to what Japan has experienced since 1994.
This is why Miran does not believe an amicable deal on dollar devaluation is possible. He does not believe the US can afford to play nice this time to secure its interests. The Mar-a-Lago Accord can only be achieved through chaos and fear. Trump is therefore cast in the role he was born to play: the man who bullies the entire world to put America first.
As well as drawing upon the lessons of the Plaza Accord, Miran invokes the memory of Bretton Woods, the 1944 conference which agreed upon the international framework of rules which would govern finance and trade for the western world in the wake of the Second World War. Yet to understand what the Trump administration is doing today, we need to look back not to 1944, but to how the Bretton Woods system came crashing down 27 years later.
Blood on the Floor
Yanis Varoufakis is the former Finance Minister of Greece. He is a renowned left-wing economist, and leader of the pan-European Democracy in Europe Movement 2025 (DiEM25). On “Liberation Day,” Varoufakis wrote an article for the DiEM25 website highlighting the striking parallels between Trump’s actions and the actions of the Nixon administration in 1971.
Varoufakis quotes John Connally, who was President Richard Nixon’s Treasury Secretary. Connally’s words to Nixon in 1971 are eerily reminiscent of the rhetoric used by Trump and his team.
“My philosophy, Mr President, is that all foreigners are out to screw us and it’s our job to screw them first.”
In saying this, the Treasury Secretary was trying to convince the President to trigger “a controlled disintegration of the world economy.” Connally succeeded. On 15 August 1971 Nixon unilaterally withdrew the US from the gold standard. The economic order that had created such stability during the postwar economic boom was shattered. The US dollar became a floating currency, and the capitalist world entered a series of crises that would last for over a decade. The term “stagflation” was coined in the wake of the Nixon Shock.
Writing for the Guardian on Monday, British economist James Meadway cites an example from later in the 1970s as another precedent for Trump’s “Liberation Day” actions. Meadway draws attention to the Volcker Shock of October 1979, when Federal Reserve chairman Paul Volcker hiked interest rates first to 13%, then 17%, and later to 19% in order to curb inflation. Volcker’s aim was to engineer a recession that would dramatically increase unemployment, weakening the bargaining power of the trade unions and therefore allowing employers to cut wages. Workers were made to pay for the crisis of stagflation unleashed by Nixon.
The Volcker Shock permanently weakened the labour movement, and set the model going forward for central banks to use interest rates to control inflation by increasing unemployment and weakening workers’ bargaining power. Knowing the chaos his rate hikes would inevitably unleash, Volcker reportedly took the editorial team of the Wall Street Journal out to lunch to ask them: “When there’s blood all over the floor, will you guys still support me?” With their constant rhetoric about the need for short-term pain for long term gain, Trump and his advisors echo Volcker’s sentiment; this time, the financial press does not seem so convinced.
It was through these shocks delivered by Nixon and Volcker in the 1970s that the era of neoliberalism was born. The fabled power of the “free market” was unleashed. The decline of the labour movement, the end of full employment and decades of stagnant wages were three hallmarks of this transition. Attacks on the public sector followed, through policies of deregulation, privatisation and austerity. The tax burden was shifted from the rich to the poor, and the welfare state was undermined. An explosion of poverty and inequality was the inevitable result.
The free market economic model was replicated in country after country. Sweeping neoliberal reforms were introduced in Aotearoa between 1984 and 1993, initiated by Labour Party Finance Minister Roger Douglas, and continued by his National Party successor Ruth Richardson. As a result, we experienced the fastest increase in inequality of any advanced economy across this period.
The era of neoliberalism came with it the era of globalised free trade. This meant a race to the bottom as multinational corporations sought to produce goods as cheaply as possible. Wages were further depressed in advanced economies. The rise of China and the expansion of the US trade deficit were facilitated by this globalisation of capitalist production. The seeds were sown for the rise of Trumpism decades later.
From economic crises to natural disasters to wars, the capitalist class and its political representatives in governments across the world have spent the last five decades exploiting crisis after crisis in order to force through neoliberal policies which make the rich richer and the poor poorer. Naomi Klein’s 2007 book The Shock Doctrine: The Rise of Disaster Capitalism charts this conscious and deliberate exploitation of societal shocks to implement otherwise unpopular policies. It is no coincidence that the Global Financial Crisis, the Eurozone crisis, the 2020-2021 Covid crisis and the following cost-of-living crisis all saw the rich get richer while working people struggled. The Trump Shock will have the same effect.
The neoliberal era produced the conditions that enabled Trump to gain popularity with angry American workers in the Rust Belt. Trump rails against the world that Nixon and Volcker created, all while engineering a shock of his own that will further impoverish the people he claims to represent.
Will the Trump Shock Achieve Its Aims?
Trump’s trade war is disaster capitalism in action. His tariffs will not protect American workers — the return of stagflation will rapidly worsen the social crisis that already exists for millions upon millions. The austerity being unleashed by congressional Republicans and by the Department of Government Efficiency will add insult to injury.
Even if Trump’s negotiations successfully bring manufacturing jobs back to the US, this will not necessarily raise living standards for the US working class. Trump, Musk and the oligarchy that governs America are fiercely anti-union. Industrial capitalists will pay their workers as little as they can get away with, regardless of which country they move production to. If manufacturing workers collectively bargain for higher wages and better conditions, it will be in spite of the Trump administration and the Silicon Valley billionaires, not because of them.
Trump is an enemy of US manufacturing workers. His plan is designed to boost the profitability of US industrial capitalists, and to guarantee the long-term dominance of America in the world system.
With these objectives in mind, the question becomes: will the Trump Shock succeed?
Trump will drive a hard bargain, and he holds a dangerous amount of leverage. American security guarantees, whether economic guarantees from the Federal Reserve or defence guarantees from the US military, are not something that allied nations can easily replace. Tariff-free access to the US market is similarly vital — America has the largest consumer base in the world. Retaliatory tariffs from US trading partners are an idle threat — in a trade war, the country with a current account deficit is in a stronger position by default.
Trump and his inner circle are clearly willing to accept blood on the floor of the stock market in the short term; they don’t give a damn about the pain that will be felt by American workers. However, yesterday’s bond market panic and the resultant 90-day pause of some tariffs proved that the administration is still sensitive to signs of a full-scale economic meltdown, and willing to compromise if the US government itself faces a crisis of confidence.
Whilst his negotiating position may have been weakened by the events of April 9th, Trump’s pressure on US trading partners is already working. The White House has claimed that more than 50 countries have already reached out to try and renegotiate the tariffs that have been imposed on them. European countries are raising their defence spending in line with Trump’s demands. The German government has taken the historic step of breaking its strict debt rules in order to fund rearmament; the Labour government in Britain meanwhile has decided to stick to its fiscal rules and instead cut benefits for disabled people.
In her forthcoming 2025 budget, New Zealand Finance Minister Nicola Willis will face the same trade-off. Christopher Luxon and Judith Collins announced a $12 billion defence package this week — with markets in turmoil, the money will either come from fresh cuts or from borrowing.
Trump will threaten and cajole nations to pick the side of the US in its rivalry with China. He will attempt to strangle China’s export-based economy by bringing other countries into a “tariff wall.” The European Union was already considering tariffs against China; now faced with a flood of discounted Chinese goods originally intended for sale in the US, Europe may be dragged into this trade war whether it likes it or not.
America sees the South Pacific as a key battleground in its attempt to encircle China. New Zealand will face mounting pressure to join the AUKUS alliance. We will be asked to pick a side between our second and third largest trading partners. Expect to see increased fearmongering about the supposed threat China poses to Pacific nations.
The global economy is weaker than it was in 1971. The Nixon shock came at the end of the so-called “golden age of capitalism,” the longest sustained boom in the history of the system. Today economic growth is feeble across much of the world, particularly the advanced economies.
In Crashed, Tooze details how the US and China barely managed to hold the world economy together in the aftermath of 2008 through Federal Reserve swap lines and the huge Chinese stimulus package. Tooze raises concerns that the two countries will not be able to repeat this trick twice. This is doubly true if the next crisis is caused by the escalating trade war between the world’s two largest economies.
Trump’s brute-force approach, hitting this fragile world economy with a sledgehammer, is an incredibly dangerous move. If capitalism goes into meltdown and the US and China are unwilling or unable to cooperate and revive the system, a second Great Depression could occur. Trump’s controlled disintegration of the world economy could spiral out of control very quickly. We caught a glimpse of what this spiral could look like on April 9th.
In domestic terms, the US President is in a uniquely powerful position right now. He is empowered by a right-wing majority on the Supreme Court which is willing to extend his authority and immunity, seemingly without limit. He has a fanatical following among the MAGA faithful. But the rest of his coalition is more fragile.
Support for the administration among the billionaire class is already wavering. Hedge fund manager Bill Ackman was until recently a Trump loyalist; he is now warning of an “economic nuclear winter.” Apple is suffering particularly heavy losses on the stock market due to the dependence of its supply chain on China; executives will not be happy. A libertarian group backed by Charles Koch and Leonard Leo is suing to stop the tariffs. The Republican Party exists to further the interests of American billionaires. If the billionaire class collectively turns on Trump, he could be forced into a humiliating climbdown.
At a ground level, American voters are about to feel a huge amount of economic pain. They are likely to revolt against Republicans in the 2026 midterm elections, and in the next presidential election. Congressional Republicans must be panicking.
Until now, there was a crucial factor insulating the Trump administration from backlash among congressional Republicans worried about losing their seats: Elon Musk’s fortune. So long as Musk was willing to pay unlimited amounts of money in primaries to defeat any Republican who spoke out against the administration, senators and congressmen alike were cowed into silence.
But Musk’s money alone cannot dictate election results. The Tesla CEO is so unpopular right now that his recent attempt to sway a Wisconsin Supreme Court election spectacularly backfired. His support for Republican candidates may end up harming their electoral chances.
There are also growing signs that Musk himself is opposed to the tariff regime. This weekend he publicly called for a free trade zone across Europe and America. On Twitter, he called Peter Navarro “dumber than a sack of bricks.” Navarro is President Trump’s senior counselor for trade and manufacturing.
If Musk abandons Trump, the huge political capital currently wielded by the President in policy making and negotiations could evaporate. Congressional Republicans could even ally with Democrats to pass a bill removing the President’s power to influence trade policy altogether.
Yet we cannot rule out the possibility that frantic negotiations will occur and Trump will be able to pull off his most audacious power play. If so, it will mean strengthening the US economy at the expense of others. This will intensify economic problems and sociopolitical tensions across the rest of the world.
Decades of neoliberal assaults on the living standards of working people have led to huge sociopolitical tension in Europe, Latin America and elsewhere. Australia and New Zealand escaped the 2010s as relatively stable countries amidst an increasingly unstable world, but both countries — especially Aotearoa — are now headed in the same direction.
Both scenarios: a second Great Depression, or a realignment of the world economy in favour of the US — will intensify these pressures. Countries already at boiling point, with far-right parties on the rise, could tip over the edge; the likes of Aotearoa, at an earlier stage on that path, will rapidly accelerate down it.
The most terrifying aspect of these scenarios is the increased threat of world war. Great power conflict and the rise of the far-right both gave rise to Trumpism; both tendencies will be accelerated by Trump’s trade war, and both tendencies increase the likelihood of real war.
The proxy war between Russia and NATO taking place in Ukraine is symptomatic of this trend already emerging; the genocide in Gaza is another symptom of a world in crisis. As climate change and the development of new technologies such as AI compel capitalist states to compete more ferociously over food, water, energy, rare earth minerals and other resources, the drive toward armed conflict grows stronger still.
A full-scale war between two nuclear-armed states is unimaginable, yet the possibility gets stronger as Trump forces Europe, Australia and New Zealand to increase military spending and adopt a more hostile approach towards China. There is a terrifying risk that Trump’s aggression could be the spark that ignites the greatest catastrophe in world history.
Economic crisis, extreme inequality, trade wars, real wars, the rise of the far-right, not to mention climate change — these are all symptoms of a system in deep crisis. As long as we live in a world governed by competition rather than cooperation and solidarity, the ruthless logic of great powers imposing their will upon the rest of the world will continue to wreak havoc.
It is more vital than ever for the left to understand these dynamics, so that we can prepare to organise and fight back. A better world is possible — if, and only if, we change the system.
I will further discuss the possible effects of Trump’s trade war in a follow-up to this essay. See below for recommended readings.
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Welcome to my Substack! Thanks for reading.
My name is Elliot Crossan, and I am a socialist writer and activist based in Tāmaki Makaurau Auckland. I am the Chair of System Change Aotearoa, an ecosocialist campaign group. You can check out our website here.
I am a freelance writer, and I intend to make all posts on this Substack free. The goal of my writing is to help bring about political change — to contribute to the movement for workers’ rights, indigenous rights and climate justice. If you are able to support me financially, any contribution would be greatly appreciated — but I have no plans to publish anything behind a paywall.
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Recommended Reading
This essay draws a lot on the following sources, and in particular on the work of Yanis Varoufakis and James Meadway. Meadway is the host of the excellent Macrodose podcast, a must-listen for informed analysis of the global economy from a left-wing perspective.
To better understand the world economic system that Trump is currently attempting to reorder, I highly recommend the following books:
The Shock Doctrine: The Rise of Disaster Capitalism (2007), by Naomi Klein
Crashed: How a Decade of Financial Crises Changed the World (2018), by Adam Tooze
The Global Minotaur: America, Europe and the Future of the World Economy (2011), by Yanis Varoufakis
A Brief History of Neoliberalism (2005), by David Harvey
Stolen: How to Save the World from Financialisation (2019), by Grace Blakeley
You can read Stephen Miran’s paper here: A User’s Guide to Restructuring the Global Trading System (2024).
For a deep-dive analysis of Miran’s paper and the geopolitical context behind it, I recommend the podcast episode Trump’s Economic Revolution by Tom McTague and Helen Thompson, hosts of These Times.
For weekly analysis of the political economy of Aotearoa New Zealand, I recommend following Bernard Hickey’s Substack The Kākā.
Wow, this is a stunning piece of work Elliot! Very much looking forward to your follow-up essay!
An excellent piece Eliot, well researched and persuasively argued