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Trump China and the coming crisis

Marxist Analysis · 2026-05-13

Core Argument

The article argues that Trump's trade war with China is accelerating the onset of a new economic recession, and that the instruments of bourgeois economic management — particularly the Federal Reserve's control of interest rates — are incapable of resolving the underlying contradictions. Trump's political imperative to delay recession until after the 2020 election is directly at odds with the economic consequences of his own trade policy. The Federal Reserve is being pressured into a return to near-zero or negative interest rates, but this merely repeats the post-2008 pattern of inflating asset prices rather than stimulating productive investment. The central thesis is that no monetary policy, however aggressive, can prevent the next downturn, and that the working class will bear the social costs.

Theoretical Grounding

The analysis draws on the Marxist theory of capitalist crisis as an inherent, cyclical feature of the system — not a malfunction that can be corrected by state intervention. It situates itself within the tradition that understands central banks as instruments for managing the contradictions of capitalism on behalf of the ruling class, but which cannot abolish those contradictions. The article implicitly invokes the Marxist distinction between productive and fictitious capital: low interest rates after 2008 inflated stock markets and asset prices rather than driving real investment and growth. This is a concrete illustration of the tendency toward the overaccumulation of fictitious capital in the absence of sufficient surplus value extraction in production.

The piece also engages critically with Keynesian and post-Keynesian frameworks, including Modern Monetary Theory, dismissing them as attempts to revive the conditions of the postwar boom — conditions which, from a Marxist perspective, were historically specific and non-reproducible. The argument sits firmly in the tradition of orthodox Marxism that rejects reformist illusions in the capacity of bourgeois state institutions to manage capitalism into permanent stability.

Conjunctural Relevance

The article was written in November 2019, just months before the COVID-19 pandemic triggered the sharpest economic contraction since the Great Depression. Its analysis of yield curve inversion — the first since 2007 — proved prescient. The specific conjuncture it addresses is the intersection of three dynamics:

  1. The trade war: Trump's tariffs on Chinese goods disrupted global supply chains and raised costs for US capital, creating a drag on growth that conflicted with his electoral need to project economic strength.

  2. Monetary policy exhaustion: The Federal Reserve had already kept rates near zero for years after 2008, and the gradual normalisation begun in 2015 was being reversed. The article notes that the European Central Bank had already moved into negative territory, and that Trump was explicitly demanding the same for the US — including the unprecedented scenario of banks paying to park reserves.

  3. The political cycle: Trump's demand for rate cuts was openly linked to refinancing the national debt (inflated by his tax cuts) and delaying recession until after the 2020 election. The article identifies the contradiction between the short-term political needs of a faction of the bourgeoisie and the longer-term requirements of capitalist accumulation.

The article also notes China's currency depreciation below a longstanding threshold in response to US tariffs, indicating the beginnings of competitive devaluation — a classic feature of inter-imperialist rivalry in a downturn.

Where the Argument Continues

The article is a relatively short conjunctural analysis and does not develop a full theory of crisis or imperialism. The argument continues in several directions within the IDOM corpus and broader Marxist tradition:

  • The nature of the 2020 recession: The article predicts a downturn but does not anticipate its specific trigger (the pandemic). Later IDOM articles analyse how COVID-19 interacted with the pre-existing crisis tendencies, and how the state response — massive bailouts and money-printing — further inflated fictitious capital.

  • The trade war as inter-imperialist rivalry: The article touches on US-China tensions but does not develop a full analysis of the geopolitical dimension. This is taken up in other IDOM pieces on the new Cold War and the strategic competition between the US and China.

  • The limits of monetary policy: The article asserts that no monetary policy can benefit workers, but does not elaborate on the alternative — the revolutionary strategy for seizing control of the economy. This is developed in the broader theoretical literature of the RCI, including texts on the transitional programme and the role of the workers' state.

  • The fate of the Fed's independence: Trump's open pressure on the Fed is noted but not explored in depth. Later articles track the erosion of central bank independence as a feature of the current period of intensified class struggle and state intervention.

Connections

  • Marx, Capital Vol. 3: The theory of the tendency of the rate of profit to fall and the counteracting factors, including the role of credit and fictitious capital.

  • Lenin, Imperialism, the Highest Stage of Capitalism: The analysis of inter-imperialist rivalry and the export of capital, relevant to the US-China trade war.

  • Trotsky, The Death Agony of Capitalism and the Tasks of the Fourth International: The transitional programme and the rejection of reformist economic management.

  • IDOM articles on the 2008 crisis and its aftermath: The article builds on earlier analyses of the post-2008 regime of low interest rates and quantitative easing.

  • IDOM articles on Modern Monetary Theory: The article briefly dismisses MMT; other pieces engage with it more thoroughly as a reformist illusion.

  • Against the Stream episodes on the trade war and the Fed: The podcast series develops the political and economic analysis in greater depth, including interviews and debates.

Key Quotes

  1. "Yield curve inversion has been a predictor of every significant recession since 1950, indicating that a new downturn is likely in the next few years."

  2. "The economic costs of Trump's trade war with China mean that two of Trump's political priorities—delaying a new recession and winning his trade war—are at odds with each other, and he's looking to the US Federal Reserve to square the circle for him."

  3. "In monetary terms, 2008 marked the beginning of an unprecedented period of near-zero interest rates. However, this did more to inflate asset prices, including the stock market, than to promote real investment and GDP growth."

  4. "The social costs of the next recession will be borne first by the working class. There's no monetary policy that will magically benefit workers and no optimal level of sustained economic growth under capitalism that will reverse the exploitation of workers that drives that growth."

  5. "'New' economic ideas such as Modern Monetary Theory do not meaningfully break from the Keynesian economic logic of the postwar boom—conditions that have long expired."

  6. "The way out of the crisis lies in overthrowing private ownership of the key levers of the economy, not in manipulating the bourgeois central banks."