Trump’s trade war with China has engulfed the world, and his target has shifted to include even the closest allies of the United States. The trade war will almost certainly lead to greater isolation of the U.S. and possibly a global recession. But the insanity of Trump’s America First policies is not without precedent. They represent a section of ruling class opinion that stretches well back into the 20^th century. 

It has never been a matter of principle for the U.S. to embrace free trade; its objective has been to dominate, never to create fairness through any purported rules-based order of multilateral trade. The U.S. capitalist class has long sought supremacy over the world economy. Trump’s policies reflect a recognition that it is losing its grip, particularly on China.

Trump’s policies are not new; tariffs have been tried before. What’s remarkable about them is the inability to consider their consequences or learn from past mistakes. It appears that the past is repeating itself.

A Step Back in Time

The 1920s were a turbulent time for the United States. Many of the returned servicemen from WW1 faced unemployment and struggled to deal with the traumas they faced. The country was recovering from the Spanish flu (which started in the U.S.) Trade unionism was growing, and sections of it becoming more radical, striking for the eight-hour day, hammering industrial output.

The Russian Revolution sparked fears in the ruling class that radicalism could spread to the U.S., which was becoming more urbanised, and a new youth culture was burgeoning, embracing Jazz and a renaissance of Black literature and art.

Conversely, the political atmosphere was mostly politically conservative. The Republican Party almost completely dominated politics and was increasing its popularity in the segregated South. The Klu Klux Klan was resurgent and spread racial violence. The age of prohibition started in 1920.

The Harding Republican government of the early 1920s saw organised labour as a conspiracy against business. By the end of the decade, Republicans had control of the House, the Senate, the Supreme Court, and the presidency. Their economic policies were a disaster.

The Great Depression of 1929 to 1939 is studied in detail. But it is the slump of 1920-21 and responses to it that set the stage for the later depression. Harding’s government, which he pitched as a “return to normalcy,” was chaotic—there was no centralised response to stimulate economic growth or to alleviate the effects of growing unemployment.

In response to falling wages, 500 000 coal miners and, later, 400 000 rail workers went on strike in 1922. Harding met this discontent by cutting income tax—for the rich. In another portent for the future of the Republican party, Harding launched the Emergency Quota Act, which restricted immigration.

But it is his tariff acts that had the biggest impact. In 1922, the Harding presidency oversaw the passage of the Fordney-McCumber Tariff, which dramatically raised tariffs on imported goods. This tariff was aimed at protecting American industries and farmers (an important constituency for the Republicans) from foreign competition, but it also led to retaliatory measures from other countries and ultimately hindered international trade.

The U.S. was moving away from global entanglements, and its ruling class adopted an “American First” mindset. Woodrow Wilson first used the term “America First” in his 1916 campaign, which pledged to keep America neutral in WWI. It was soon adopted to mean putting American business first.

By the early 1930s, in response to America’s tariffs, most of the world embraced protectionism, freezing global trade. Far from protecting U.S industries, the tariffs cut U.S. industry from important world markets.

A Roller-Coaster Ride

As inequality rose during the 1920s, so did a frenzy of stock market speculation, with whole layers of new investors trying to strike it rich. Many investors bought stocks on margin, borrowing money to purchase shares, sometimes putting down as little as 10%. There was a widespread belief that the market would continue to rise.

The Roaring Twenties roared loudest and longest on the New York Stock Exchange. Share prices rose to unprecedented heights, and the Dow Jones Industrial Average (DJIA) increased sixfold. After prices peaked, economist Irving Fisher proclaimed, “Stock prices have reached what looks like a permanently high plateau.” As the Federal Reserve noted, “the epic boom ended in a cataclysmic bust.” On October 28, now known as Black Monday, the stock market went into free fall.

Panicked investors engaged in a sell-off that resulted in a 13% drop in the DJIA. The Dow Jones Industrial Average reached its lowest level on July 8, 1932, plunging 89% from its peak in September 1929—marking the most severe bear market in Wall Street history. It would take until 1954 for the market to recover and return to its 1929 high.

The American dream turned into a nightmare. Overnight, people’s wealth was obliterated. The 1929 stock market crash had a severe and lasting impact on primary commodity prices, which fell dramatically in the wake of the financial collapse.

As the global economy contracted, industrial production slowed, and consumer purchasing power plummeted. Demand for commodities like wheat, cotton, coal, and metals fell steeply, causing prices to collapse. 

In 1930, they continued their policies of raising tariffs with the ill-famed Smoot-Hawley Tariff Act. The tariffs targeted 20 000 foreign goods. Republicans were about to learn a lesson about unintended consequences (which they later forgot). 

Over 25 countries, including Canada and Australia, retaliated with their own tariffs, effectively severing their trade relationship with the United States. Each retaliation was a lightning strike to the world economy. In 1932, Canada held a summit to strengthen trade relationships within the Commonwealth, but global trade had already been strangled by then. Historians and economists such as Robert S. McElvaine argue the depression lasted until 1939.

The tariffs exacerbated the Great Depression, and as tax revenues dried up, governments plunged into unprecedented levels of debt. As economist Paul A Samuelson notes, “Cynics were delighted at the spectacle of a country trying to collect debts from abroad and at the same time shutting out the import goods that could alone have provided the payment for those debts.” Reciprocating tariffs destroyed any chance of a speedy economic recovery.

Between 1929 and 1934, global trade volume plunged by approximately 65–66% as exports and imports collapsed. As businesses and farms defaulted on loans, banks—already weakened by stock‐market losses—failed in large numbers. This credit contraction further choked off investment and consumption, reinforcing the downturn.

Unemployment in the United States reached unprecedented levels. By 1933, approximately 13 million people were unemployed, representing about 25% of the labour force. In certain cities, the impact was even more severe; for instance, unemployment rates in Cleveland reached 50%, while rates in Toledo, Ohio, were as high as 80%.​

The consequences left an indelible mark on humanity, scarring it with the rise of fascism. Germany was hit particularly hard. Forced to pay reparations to France, Belgium, the U.K and Italy, it was heavily financed by U.S. loans. President Herbert Hoover had little choice but to place a moratorium on Germany’s war debts in 1931, but this did not stop the desperate descent into fascism.

History has shown that tariffs are a risky game. Today’s economy is far more complicated and integrated than the world economy of the 1930s. Trump’s tariffs are almost certain to lead to an economic downturn that could make the Great Depression look like a mild inconvenience.

However, there is a key difference between the 1930s and today. China. In the 1930s, no global south country could rival the U.S. for geo-political power. China’s rapid development has changed the world and rattled the ruling class of the United States. The trade war, this time, has the potential to be more potent than that of the 1930s because it is a duel for supremacy, not simply to gain comparative advantage, but to survive.

China Strikes Back – and Says It How It Is

The tariffs against China inevitably result from China deepening trade ties with its allies, rivals and, in some cases, adversaries such as the EU. Chinese officials are repeatedly calling for the international trading system to be preserved and are labelling the U.S. a global disruptor. On a three-day trip to Vietnam, Chinese President Xi Jinping published an article in Vietnam’s Nhân Dân newspaper calling on Vietnam to “resolutely safeguard the multilateral trading system, stable global industrial and supply chains, and open and cooperative international environment”.

He added what should be obvious to everyone: a “trade war and tariff war will produce no winner, and protectionism will lead nowhere”. Despite the U.S attempting to destroy Vietnam and through military intervention over fifty years ago, the two countries have since built a stable trading relationship. That is until Trump unleashed unilateral tariffs against the world on Liberation Day. 

Trump has hit Vietnam with a tariff of 46% of all goods, which it is seeking to renegotiate. Like many other developing countries, it is caught in a tug-of-war. Xi’s visit was planned before the announcement of tariffs. The isolationist policies of Trump will likely draw Vietnam and China closer together. Still, Vietnam may also restrict trade with China if it can gain access to the U.S. market on more favourable terms. 

While other countries have sought to negotiate with Trump, China has held firm, leading to a bout of reciprocal tariffs. The total tariffs against China have reached 145%, while China has imposed a levy of 125% on U.S goods and restricted exports of critical minerals, escalating the standoff.

Trump was the first to blink by instituting a 90-day pause and an exemption from the steepest tariffs on electronic goods such as iPhones. Trump played down the retreat by stating on Truth Social, “NOBODY is getting ‘off the hook’,” underlining the fact that 20% tariffs will remain on high-end electronics. 

But there is no denying the impact on the United States. Being deprived of China’s vast domestic market, the absurdity of not having a plan to bring back industries that relocated to China, and the addition of huge manufacturing costs for companies that use parts made in China can only lead to a major economic crisis.

Powerful sections of the U.S. ruling class have turned on Trump, even those who supported his presidency. For instance, billionaire Bill Ackman stated the U.S. is “heading for a self-induced, economic nuclear winter,” while Boaz Weinstein observed, “the avalanche has really just started.” These statements from Wall Street heavyweights further undermine investor confidence. The trade war has accelerated the sell-off of corporate bonds and could trigger a wave of bankruptcies. 

China is unlikely to back down; it can’t. At some point, the tariffs will become absurd, but Xi must stand firm if he is to gain credibility on the world stage. And he must because the U.S. has important technological advantages over China. 

Although China has made significant progress, it has yet to achieve parity with the U.S. in semiconductors. Due to export restrictions, China is blocked from acquiring EUV (Extreme Ultraviolet) tools necessary to make high-end semiconductors. Their achievements in semiconductors are not yet scalable or efficient enough to compete with the technology of the U.S. and its allies. Further, the countries that sell the lithography machines used in advanced chip making, such as the Netherlands, are restricted from selling to China.

This is crucial because semiconductors hold the key to strategic power. Chips are in everything: phones, computers, missiles, satellites, AI systems, electric vehicles, data centres—you name it. Control over semiconductors means control over the digital age.

Whoever leads in chips can build smarter weapons and defence systems, run more powerful AI and surveillance tools, and dominate tech sectors like cloud, quantum, 5G, and biotech. Given it has lost much of its manufacturing capability, the U.S must have an edge technologically so it maximises the effect of its military power.

The manufacture of semiconductors is directly related to military superiority. Modern warfare is increasingly electronic and automated. Missiles, drones, fighter jets, and radars rely on advanced chips. AI-powered warfare (think battlefield automation, threat prediction) requires huge processing power. If a country falls behind in chip tech, it risks having inferior weapons and slower decision-making tools in future conflicts.

The dependence on this technology cannot be overstated, but there are also other sectors that rely on U.S. technology, such as aviation, aerospace and heavy industrial equipment. Whilst the development of China in recent years is startling, it does not have parity in many essential parts of industry that are key drivers of economic growth.

China Has Vulnerabilities – and Opportunities.

Several political, economic, and strategic challenges China faces in its standoff with Trump’s America are cause for concern. Any action it takes is not guaranteed to succeed. Its trade imbalance limits the effects of its retaliation. China imports far less from the U.S. than the U.S. imports from China, so equivalent tariffs will not have the same bite.

China’s economy is also under pressure. Its property sector is in crisis, and it is experiencing slowing GDP growth and high youth unemployment. Retaliatory tariffs could worsen inflation, dampen workers’ confidence in spending their income, and lead to an economic slump.

It is highly likely that the Chinese people support Xi and the Communist Party of China (CPC) in their conflict with the U.S, but the country is not immune from social conflicts. While living standards have steadily improved over the last 40 years, the future is not assured. 

China is deeply embedded in global supply chains. The tariffs will disrupt those supply chains and push foreign firms to relocate from China to where labour is cheaper (Vietnam or India). They will hurt China’s long-term role as the “world’s factory”, possibly leading to mass unemployment.

China will lose foreign investment. If there’s one thing investors hate, it’s uncertainty. China does not have a lay-down misère and must play its cards carefully. It must build as many strategic alliances as possible.

With the 2^nd largest economy in the world, it retains some significant advantages. It is not as exposed to the U.S. market as it was in 2018 when Trump first launched a trade war against it. Already, it has halted purchases of primary produce from the U.S, which has the political implications of aggrieving farmers – a focal point of the last global trade war.

There are many political factors that favour China. Trump’s unilateral approach of imposing tariffs without any prior consultation makes China a more valuable and trusted trading partner. For one thing, once the dust has settled, it will be clear (if it is not already) that Trump has overplayed his hand. Trump’s isolationist approach will logically lead to isolation.

China’s approach of defending the multilateral trade system may buy it time. Allies of the U.S., South Korea and Japan are already engaged in trade discussions with China and its possible other countries will break ranks from the U.S. to do the same. The Global South may formalise more institutional forms of trade that are aligned with China.

Many commentators predict that the scale of China’s economy will enable it to stimulate domestic consumption, which currently makes up just 39% of its GDP. In contrast, consumer spending in the U.S. accounts for about 68–70% of GDP. But behind these figures lies a complex web of unequal exchange. The reality is China has very limited leverage to shift its economic model away from reliance on foreign investment and exports and toward improving social conditions for its population. Any attempt to do this will be difficult, given that China only has GDP per capita of $13 000. 

While nothing should be taken for granted, it is most likely that China will survive the political turbulence of the trade war more effectively than Donald Trump’s hard-right regime. The CPC enjoys widespread popular support in China. A 2020 Harvard University study found that Chinese citizens’ trust in their government had increased each year since 2003 “virtually across the board.” ​

China’s state-directed economy and its centralised planning mean it can prepare for all the worst-case scenarios that the U.S can throw towards it. It can implement economic reforms without the gridlock of a congress captive to big business. Its state-owned enterprises can absorb losses and remain afloat during the worst of hardships. 

The state is better able to prepare its people for struggle, ensuring their basic needs are met, that they are educated and given a sense of purpose, and bound together by a national unity that looks beyond their current circumstances. This conflict raises many questions, and at this conjuncture, it is insufficient to label China as authoritarian; rather, it requires diligent study. 

Will China deepen its turn towards socialism, or conversely, will it turn towards free market policies to stimulate economic growth? What is the relationship between the state, the CPC, and the working class? Will China gain the upper hand, and what impact will this have on consciousness in the West if it does?

China holds a clear advantage in being able to navigate through the social chaos Trump has unleashed and appear as a benefactor, even to the American people. It is not China’s countermeasures that will hurt Americans; it is Trump’s own tariffs. There is no way the U.S. can easily replace all the factories that it offshored over the last 40 years; neither is it desirable for it to manufacture consumer commodities with relatively low profit margins. In any case, what factories are restored in the U.S. will be heavily automated with little provision for employment opportunities.

New supply chains can’t be built overnight. The rise in prices of consumer goods will be a sledgehammer to its economy, causing cascading political and social crises. To any decent-thinking person, Trump’s trade war is completely farcical and a disaster.

The last trade war, also initiated by the U.S. was a disaster for it and the world, leading to a rise in fascism and the continuation of world war. The stakes are higher this time. The world’s economy is much more integrated. The productive forces of capitalism have increased almost exponentially, unleashing forces of destruction that imperil all humanity.

This is not just a matter of defending multilateral trade and restoring equilibrium. There is a world to win.