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US-China trade war who holds the cards

Marxist Analysis · 2025-04-03

Core Argument

The article argues that the US-China trade war is not a contest the US can win, despite appearances. The central thesis is that Trump's aggressive tariff strategy misunderstands the symbiotic nature of the US-China economic relationship and overestimates Washington's bargaining power. The US holds a massive trade deficit and is dependent on Chinese manufactures and components that cannot be quickly or cheaply replaced. China, while facing serious internal contradictions (overproduction, debt, slowing growth), holds structural advantages: it is the dominant supplier for over a third of US imports, its manufacturing ecosystem is irreplaceable in the short to medium term, and the US economy would suffer catastrophic shortages and inflation if severed from Chinese goods. Crucially, the article identifies the US's deeper vulnerability: its $36 trillion national debt and the dollar's reserve currency status rest on a "confidence trick" that the trade war itself is undermining. Capital flight, rising bond yields, and the erosion of faith in US stability threaten a financial crisis far more dangerous than any short-term disruption to Chinese exports. The argument concludes that neither side can "win" within the logic of capitalism, but that China holds the better hand, and the real outcome will be intensified crisis and class anger.

Theoretical Grounding

The analysis is grounded in classical Marxist political economy, particularly the categories of overaccumulation and the contradiction between production and realisation. China's crisis is identified as one of chronic overproduction — its solar cell production capacity alone exceeds double global demand — which is the concrete expression of a capitalist system that has driven productive forces beyond the limits of the world market. The article draws on Lenin's theory of imperialism as the highest stage of capitalism, treating both the US and China as imperialist powers locked in a rivalry for markets, spheres of influence, and raw materials. The "world is not big enough for the imperialist powers of America and China" is a direct echo of Lenin's analysis of interimperialist conflict.

The analysis of the dollar's reserve currency status and US debt is rooted in Marx's categories of fictitious capital and credit money. The US is described as surviving on a "confidence trick" — borrowing from the countries that sell it goods to buy more goods from those same countries. This is a concrete application of Marx's insight that credit can temporarily suspend but not resolve the contradictions of capitalism, and that the accumulation of fictitious capital (government bonds, stock market valuations) becomes increasingly detached from the real economy. The article traces how the trade war threatens to puncture this bubble, turning the dollar from a "safe haven" into a source of crisis.

The article also deploys the Marxist concept of the relative decline of a hegemonic power. The US is not simply making mistakes; it is acting out of a structural weakening of its competitive position on the world market. The trade war is an attempt to arrest this decline through political means, but it only accelerates the underlying processes. This situates the analysis within the tradition of Marxist theories of imperialism and hegemonic transition, from Bukharin and Lenin through to contemporary theorists of US decline.

Conjunctural Relevance

The article was published in April 2025, during the immediate aftermath of Trump's "Liberation Day" tariffs (3 April 2025). It engages with very specific conjunctural data:

  • Trade figures: China's trade surplus with the US was $295 billion in 2024; the US national debt stood at $36 trillion (124% of GDP).
  • Market concentration: Goldman Sachs data shows that for 36% of US imports from China, China supplies over 70% of American demand; the reverse figure is just 10%.
  • Manufacturing dependence: The article cites the Financial Times on Tesla becoming less competitive than BYD due to tariffs on imported components, and estimates that moving 10% of Apple's supply chain from China would cost $30 billion and take three years.
  • Financial markets: The dollar fell after Liberation Day; US bond yields rose at the fastest pace since the 1980s; Japanese pension funds began selling US Treasuries; Canadian and Danish pension funds announced withdrawal from US markets.
  • Geopolitical context: The article notes that Biden's export restrictions (on semiconductors, AI technology, etc.) had the unintended consequence of pushing China to develop indigenous alternatives, strengthening its hand. The war in Ukraine is cited as having weakened Europe and, by extension, US imperialism.

The article explicitly rejects the liberal narrative that Trump's tariffs are a "bizarre unforced error" by a madman. Instead, it situates them as an acceleration of objective processes: the relative decline of US capitalism, the exhaustion of the neoliberal globalisation model, and the intensification of interimperialist rivalry. The conjuncture is defined by the fact that both powers are simultaneously dependent on each other and locked in a conflict neither can win.

Where the Argument Continues

The article is a snapshot of a rapidly unfolding conjuncture. It leaves several questions open:

  • The deal: The article predicts a deal will eventually be reached but does not specify its likely terms. The argument continues in subsequent IDOM analyses of the tariff negotiations, the "pause" on certain tariffs (e.g., smartphones), and the shifting balance of concessions.
  • The dollar's fate: The article identifies a "dollar confidence crisis" but does not resolve whether it will lead to a full-blown financial crisis, a managed devaluation, or a new Bretton Woods-style arrangement. This is a live question in ongoing Marxist analysis of the world economy.
  • Class struggle: The article ends by pointing to rising class anger in the US and the need for a working-class alternative, but does not develop this concretely. The argument continues in IDOM articles on the American working class, the labour movement, and the political crisis of US capitalism.
  • China's internal contradictions: The article notes China's overproduction and property crisis but does not explore how these might interact with the trade war. This is developed in other IDOM pieces on the Chinese economy and the crisis of the Chinese model.

Relevant texts in the corpus include: "The US-China trade war: a Marxist analysis" (earlier IDOM article), "The dollar crisis and the end of the American century", and "China: imperialist power or semi-colony?". Against the Stream episodes on the trade war and the global economy also continue the argument.

Connections

  • Lenin, Imperialism, the Highest Stage of Capitalism: The theoretical foundation for understanding US-China rivalry as interimperialist conflict.
  • Bukharin, Imperialism and World Economy: On the contradiction between the nationalisation of capital and the internationalisation of production.
  • Marx, Capital Vol. 3: On the tendency of the rate of profit to fall, overaccumulation, and fictitious capital — the categories underlying the analysis of China's overproduction and US debt.
  • Michael Roberts, The Long Depression: For the empirical and theoretical framework of the crisis of profitability and the long downturn.
  • Radhika Desai, Geopolitical Economy: For the concept of the dollar's "exorbitant privilege" and the relationship between currency hegemony and imperial decline.
  • Yanis Varoufakis: The article explicitly engages with and critiques Varoufakis's claim that the country with the trade surplus is weaker — a useful point of contrast for understanding the Marxist position.

Key Quotes

  1. "A trading relationship such as that of the US and China, i.e. the relationship at the heart of the world economy, is a symbiotic one: each depends on the other."

  2. "The US economy, and by extension, the world economy, has for decades been surviving on a kind of confidence trick. So long as it can keep borrowing to keep its market the centre of the world economy, it can keep borrowing to keep its market going. The moment that trick no longer works is like the moment Wile E Coyote looks down and realises he has run off the edge of a cliff."

  3. "It was not a bizarre unforced error, but an acceleration of objective political and economic processes well under way, which reflects the dead end of capitalism in general and, in particular, the relative decline of US imperialism."

  4. "China's manufacturing expertise, technology, infrastructure, and skilled labour mean that there is simply no alternative supplier for manufactures, whether of finished consumer items like iPhones, or of capital goods and parts."

  5. "The world is not big enough for the imperialist powers of America and China. From being a source of growth for the world, their relationship now threatens the entire world capitalist system."

  6. "When the US working class sees that the much hyped 'America First' programme means not the return of well paid jobs and 'a new golden age of America' as Trump recently promised, but either a serious economic crisis or an embarrassing capitulation to China — or some combination of the two — they will be even more angry than before."