Is Trump trying to save China? His messy trade policy is a boon to Beijing

Populist and pro-labour conservatives need to embrace a harsh truth: so far, the Trump II experiment in reorienting the neoliberal trading order has gone seriously off the rails.

If you had to invent a way to discredit populist reform — to trick Americans into embracing unlimited free trade, dominance by Wall Street and Big Tech, and Chinese control of manufacturing — you couldn’t do a better than President Trump’s recent flip-flops around tariffs. As a bonus, Trump is also fueling a resurgence of free trade among other nations, even those traditionally critical of the trading regime, and encouraging them to align more closely with Beijing.

Trump doesn’t seem to have a clear strategy or goal, and has sought no clear path toward reviving domestic manufacturing. One day, he’s an ardent protectionist. The next day, he contradicts his own officials and strips tariffs in response to bond-market reactions. There are no consistent explanations, and no way for businesses to plan how to reshore, or even incentives to do so at all.

The backlash has been swift, and it’s only going to get worse.

One of us is a Left-leaning populist. The other one is a developmentalist social democrat. For years, we have, worked with American conservatives and policymakers worldwide to address deindustrialisation, monopoly power, and other scourges of the working class.

America’s basic problem is that the country imports a trillion dollars of stuff that we used to make. As a result, the United States has sabotaged its working and middle classes, while losing the domestic capacity to make the medicines, industrial goods, and electronics on which Americans depend. At this point, America, which has some of the best farmland in the world, is now a net food importer. America has no domestic merchant marine, and largely lacks shipbuilding capacity. Take away Wall Street, and the United States would look like a middle-income country propped up by asset values.

A significant portion of the rest of the world faces similar issues. By the Sixties and Seventies, most Latin-American nations had sizable industrial sectors and a growing urban middle class, supported by import-substitution strategies. However, these policies were dismantled after Wall Street’s massive loans to Latin-American governments, which left them vulnerable to shifts in US monetary policy and brought about a decade of financial crises. Instead of rethinking the region’s reliance on foreign capital, industrial strategies were abandoned, and much of Latin America became a commodity-exporting region.

It’s taken at least 45 years to get America into this same situation. Basically, American elites decided in the Eighties that high-value patents, design, and finance work was what the United States wase good at, and the grubby stuff could be done by foreigners. That was, of course, a huge and gruesome error, one that free-trade critics rightly decried. Opposition to free trade was a successful electoral strategy early on in Latin America, and leaders like Lula da Silva bolstered their popularity by opposing deals like the Free Trade Area of the Americas. Trump likewise rode anger over this status quo to the White House — twice.

And yet Trump never pointed out that the reason for offshoring wasn’t that foreigners screwed us, but that Wall Street did. The trillion dollars of foreign goods we buy is a trillion dollars Americans hand to Big Finance, which it then recycles into stocks and bonds. Those who benefit in this system aren’t just producers based in industrial export-oriented countries, but people who own and manage financial assets, as well as adjacent “services” industries like tech and consulting.

Moreover, by claiming that the world is taking advantage of America, Trump overlooks the fact that other countries that have embraced neoliberalism find themselves in a similar position and could serve as potential allies in reshaping the international economy. China’s strength isn’t just its manufacturing might, but its scale. The Chinese have a billion and a half people and an authoritarian government that can direct the economy in ways democracies can’t.

The response to the increasingly visible problems free trade has wrought, then, should have been to leverage our strengths into rebuilding some industrial capacity, working with other countries who could work with us to match some of the scale of Chinese production and markets, and develop a minimum set of standards to guarantee fair competition. That would have required rebalancing trade.

Tariffs have a role in that, but so does taxing or controlling those trillion dollars of capital that flows into the United States. And more important, so does industrial policy to actually reconstruct our domestic capacity. If we want manufacturing plants, we have to finance building them and skill up the workers who will work them.

During Trump’s first term, United States Trade Representative Robert Lighthizer managed part of a successful process to try to reorient production. Lighthizer had bipartisan support to renegotiate NAFTA, which was re-christened as the USMCA, including to add a facility-specific enforcement tool to punish corporations that bust unions so as to pay ultra-low wages to Mexican workers, undercutting American workers.

Lighthizer used tariffs strategically to reduce US over-reliance on Chinese imports. Trump’s tariffs in his first term generally didn’t hit products we couldn’t make here or that we couldn’t source from countries other than China. They were designed to move supply chains, and mainly didn’t hurt Americans exporters, who need to import intermediate goods.

Former President Joe Biden had tepid policies to reindustrialise America through gradual ratcheting up of tariffs combined with subsidies to construct factories and domestic capacity. It wasn’t enough, it didn’t move fast enough, and Wall Street had too much influence over the Biden administration. He also got zero help from populists on the Right, including Trump, who routinely lied about and mischaracterised what Biden was doing.

But the idea from the smarter strategists on the Left was to accomplish competently a renewal of US production, while building up relationships with countries with similar goals. By the end of 2023, the United States had the highest rate of investment in factory construction in 30 years.

In his second term, Trump could have brought this vision to completion. Instead, he tapped Howard Lutnick — a Wall Street man and a yes man — as an architect of trade policy. And the President launched on a confused and contradictory strategy.

First, he’s trying to liquidate all parts of the government that could help increase domestic capacity, such as trying to kill the Biden CHIPS Act that financed semiconductor production. Second, he’s undermining American alliances and credibility with nations that could help create the scale to counter Chinese manufacturing dominance. It might be hard to find a common strategy with many of these countries, but scale is what is needed, and they could have been brought along into a new global arrangement. Now, even Lula has come out against protectionism. And third, he’s flip-flopped on tariffs, while putting arbitrary levies on lots of stuff that we need to reshore production, like machine tools necessary to make the equipment to go into domestic factories.

Even his allies say it’s bad, albeit politely. Oren Cass of American Compass, in a laudatory post, noted severe problems in technocratic language: “Going literally ‘0 to 60’ with a country like China imposes large costs on American firms and consumers much more quickly than they can plausibly take the constructive actions we might want. That serves no one. Likewise, if we expect producers to lose access to foreign markets — especially China’s — it’s important for that not to happen faster than the removal of Chinese firms from the US and allied markets is creating new opportunities for sales.”

Late last week, as if to put a fine point on how little Trump cares about a coherent populist approach, the Elon Musk-led Department of Government Efficiency eliminated Manufacturing Extension Partnerships, one of the few tools the government offers to help business operations.

America is going to suffer very badly from what Trump has wrought, even if he pulls it all back now. The country will probably go into recession, and small businesses will be unable to replace Chinese supply because Team Trump just didn’t put the careful time, planning, and effort necessary to prepare for that. Meanwhile, Trump’s failure to be honest about the malign role of Wall Street and finance means America is ill-prepared for a trade-related financial crisis, should that occur.

The most prominent critics of Trump’s tariffs are Wall Street and China, two forces hardly beloved in the United States and abroad. Yet as a result of Trump’s failure, Americans may see industrial sovereignty as impossible and foolish, and both major parties could become even more closely aligned with Wall Street. Meanwhile, other nations are seeing in China a more reliable trading partner than the United States.

The damage could get still worse if the administration embarks on a Trumpian dealmaking spree. Forcing foreign nations to buy more American oil and gas won’t help US manufacturing, nor will targeting other countries’ efforts to tax Big Tech platforms or to boost access to generic medicine for their citizens. If a barrage of such “great deals” leads Trump to repeal the tariffs, America will still remember the reciprocal-tariffs episode as a failed experiment, and other countries will remain hesitant to strengthen their ties to the US economy.

Populist conservatives have been saying these things privately. But the moment calls for public honesty—to speak out about Trump’s calamitous failure to align his foreign economic policy with domestic governing capacity. If they don’t, Trump will continue down this reckless path and destroy the legitimacy of populism in the Republican Party, cheered all the way by those who should know better. More important, the costs to America and the rest of the world could be that we become low-wage commodity exporters in the Chinese century.

It would be funny, if it weren’t so tragic.