Michael Hudson: Trump’s Trade Threats Are Really Cold War 2.0

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year.

President Trump has threatened China’s President Xi that if they don’t meet and talk at the upcoming G20 meetings in Japan, June 29-30, the United States will not soften its tariff war and economic sanctions against Chinese exports and technology.

Some meeting between Chinese and U.S. leaders will indeed take place, but it cannot be anything like a real negotiation. Such meetings normally are planned in advance, by specialized officials working together to prepare an agreement to be announced by their heads of state. No such preparation has taken place, or can take place. Mr. Trump doesn’t delegate authority.

He opens negotiations with a threat. That costs nothing, and you never know (or at least, he never knows) whether he can get a freebee. His threat is that the U.S. can hurt its adversary unless that country agrees to abide by America’s wish-list. But in this case the list is so unrealistic that the media are embarrassed to talk about it. The US is making impossible demands for economic surrender – that no country could accept. What appears on the surface to be only a trade war is really a full-fledged Cold War 2.0.

America’s Wish List: Other Countries’ Neoliberal Subservience

At stake is whether China will agree to do what Russia did in the 1990s: put a Yeltsin-like puppet of neoliberal planners in place to shift control of its economy from its government to the U.S. financial sector and its planners. So the fight really is over what kind of planning China and the rest of the world should have: by governments to raise prosperity, or by the financial sector to extract revenue and impose austerity.

U.S. diplomacy aims to make other countries dependent on its agricultural exports, its oil (or oil in countries that U.S. majors and allies control), information and military technology. This trade dependency will enable U.S. strategists to impose sanctions that would deprive economies of basic food, energy, communications and replacement parts if they resist U.S. demands.

The objective is to gain financial control of global resources and make trade “partners” pay interest, licensing fees and high prices for products in which the United States enjoys monopoly pricing “rights” for intellectual property. A trade war thus aims to make other countries dependent on U.S.-controlled food, oil, banking and finance, or high-technology goods whose disruption will cause austerity and suffering until the trade “partner” surrenders.

China’s Willingness to Give Trump a “Win”

Threats are cheap, but Mr. Trump can’t really follow through without turning farmers, Wall Street and the stock market, Walmart and much of the IT sector against him at election time if his tariffs on China increase the cost of living and doing business. His diplomatic threat is really that the US will cut its own economic throat, imposing sanctions on its own importers and investors if China does not acquiesce.

It is easy to see what China’s answer will be. It will stand aside and let the US self-destruct. Its negotiators are quite happy to “offer” whatever China has planned to do anyway, and let Trump brag that this is a “concession” he has won.

China has a great sweetener that I think President Xi Jinping should offer: It can nominate Donald Trump for the Nobel Peace Prize. We know that he wants what his predecessor Barack Obama got. And doesn’t he deserve it more? After all, he is helping to bring Eurasia together, driving China and Russia into an alliance with neighboring counties, reaching out to Europe.

Trump may be too narcissistic to realize the irony here. Catalyzing Asian and European trade independence, financial independence, food independence and IT independence from the threat of U.S. sanctions will leave the U.S. isolated in the emerging multilateralism.

America’s Wish for a Neoliberal Chinese Yeltsin (and Another Russian Yeltsin for That Matter)

A good diplomat does not make demands to which the only answer can be “No.” There is no way that China will dismantle its mixed economy and turn it over to U.S. and other global investors. It is no secret that the United States achieved world industrial supremacy in the late 19th and early 20th century by heavy public-sector subsidy of education, roads, communication and other basic infrastructure. Today’s privatized, financialized and “Thatcherized” economies are high-cost and inefficient.

Yet U.S. officials persist in their dream of promoting some neoliberal Chinese leader or “free market” party to wreak the damage that Yeltsin and his American advisors wrought on Russia. The U.S. idea of a “win-win” agreement is one in which China will be “permitted” to grow as long as it agrees to become a U.S. financial and trade satellite, not an independent competitor.

Trump’s trade tantrum is that other countries are simply following the same economic strategy that once made America great, but which neoliberals have destroyed here and in much of Europe. U.S. negotiators are unwilling to acknowledge that the United States has lost its competitive industrial advantage and become a high-cost rentier economy. Its GDP is “empty,” consisting mainly of the Finance, Insurance and Real Estate (FIRE) rents, profits and capital gains while the nation’s infrastructure decays and its labor is reduced to a prat-time “gig” economy. Under these conditions the effect of trade threats can only be to speed up the drive by other countries to become economically self-reliant.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Hayek's Heelbiter

    “prat-time.” Very Freudian and very on target, esp. in the British sense!

  2. Ignacio

    I wonder to what extent the next non trumpian president will be able to change 90 or 180 degrees on foreign policy or if the military industrial complex, that by itself is one of the most important economical organizations of the world and the most powerful in terms of military power, will keep the course unaltered. I think that this question must be in the table in all EU countries. Whether Trump is a short-lasting rarity or if this new cold war against the ROW will go on. I think of the industrial-military complex like a tumor that is draining too much energy from the rest of the US.

    1. Redlife2017

      See Obama’s “Pivot to Asia” for the answer to your first question. Democrat or Republican they will push up against China. It’s not really a surprise. I read this amazing book in university in the mid-90s by a neo-Realist: Systems in Crisis – New Imperatives of High Politics at Century’s End by Charles Doran It’s a bit maths heavy, but it is all about understanding the historical cycles of history. And in summary: this will not end well. We are doing exactly what any power past its peak (and 2nd peak as well) does. We are not managing our decline well and will fight it out. This is beyond Democrat or Republican, as anyone at the apex of the US state will not want to see power diminish (don’t smash the rice bowls problem). It’s the way it always works…

      Trump, in his own ridiculous way, may end up helping speed up the process – making it so fast that we don’t have time to do anything too bloody stupid like a world war. But please see this wonderfully updated fiction book for the possible future of stupid: Twilight’s Last Gleaming by John Michael Greer

        1. Ignacio

          Anyway, although Doran may be rigth I wouldn’t be so deterministic on the basis of history.

          1. Anarcissie

            It is a fact, though, that US foreign policy has been rather consistent at least since World War 2. I was reading Kennan’s memoirs 1925-1950 recently and it was remarkable how everything that was going to happen and be done was set forth towards the end of that period. With the end of the Soviet Union the poles of the world shifted, and Kennan no longer applies, but the US has not changed and its imperialism has gone from a response to certain conditions to a deep, institutional addiction that is anything but a response to the world. The most likely terminal process would seem to be defeat and dissolution.

      1. The Rev Kev

        A good book that. You do wonder about the plausibility of how it all ends at the finish of the story.

      2. MyLessThanPrimeBeef

        A power in decline…

        The rise and fall of great powers – as one power recedes, another steps forward to take it place.

        Unfortunately, that new power will also see its own decline in due time. And in a rush to become a great power, it’s very human to not have a plan to ‘manage the decline well.”

        No exit plan, to borrow a concept from the lessons learned about the Vietnam War.

        Perhaps the kindest thing to do is to prevent Being from rising, so that it will not fall.

    2. Carolinian

      I wonder to what extent the next non trumpian president will be able to change 90 or 180 degrees on foreign policy or if the military industrial complex, that by itself is one of the most important economical organizations of the world and the most powerful in terms of military power, will keep the course unaltered.

      Tulsi Gabbard is at one percent in the polls as reported by Water Cooler. Says it all. Eisenhower warned us but nobody listened. The MIC is at the heart of the country’s corruption by giving the illusion of great power but a power (nuclear) that can only be exercised by bringing on our own destruction. Otherwise our military is a 90 lb weakling that doesn’t win wars but won’t give up fighting them. The country desperately needs an antiwar, anti imperialism movement but that’s the last thing either party or the country’s media elite want to happen.

      The only faint hope is that Trump is bluffing about all of it. Maybe he really does want that Peace Prize.

      1. Amfortas the hippie

        ^^^”…our military is a 90 lb weakling that doesn’t win wars but won’t give up fighting them…”^^^
        i think it’s even crazier than that. if they’ve defined “winning” in the last 50 years, I missed it.
        the case can be made that “winning” isn’t the goal of all this at all.
        more like destabilisation and chaos in the service of confusing whatever it is we’re actually “doing” over there….hiding the rampant rapine and hegemony defense in the fog and all but universal darkness.
        without a free press worth the name, how are we to know?

        1. polecat

          Gotta keep that MIC grift engine serviced, and running .. whatever the costs to the consum—— er, former CITIZENS !

    3. Cynthia

      I suppose by “ROW,” short for “Rest of the World,” you are mainly referring to China, Russia, Iran, and to a lesser extent Syria and Venezuela. Yes, I too think this “new Cold War” against the ROW will remain unchanged even if a Democrat is elected president. This is why there’s really and truly no difference between Democrats and Republicans. They are both on the same page on the only two issues that really oughta matter to all Americans: the economy and our never-ending, unprovoked wars of aggression, be they cold or hot, covert or overt. All other issues are merely child’s play dressed in lots of layers of window dressing. And even when Democrats or Republicans do address these far less important issues, which are commonly referred to as social issues or politically referred to as wedge issues, they often confine their actions to mere rhetoric.

      However, if you get your news and views from the mainstream press, you would never know about this total and complete lack of difference between our two political parties. What’s worse, they never question, much less challenge either party’s actions or words against our so-called enemy on the world’s stage, be it China, Russia or Iran. The mainstream press takes what the White House, the Pentagon, or Congress says about one of these enemies and not only repeats it verbatim, but often times blows it way out of proportion— something that Washington loves to hear, and perhaps rewards them handsomely via the revolving door between government and the press.

      Which is why we have not only been reduced to having a uniparty government, but reduced to having a uniparty press as well. Resultantly, diversity of thoughts, ideas and even facts have become nonexistent in government, as well in the press. Apparently, they are acutely aware of this particular problem in terms of diversity and have learned to use identity politics to create an illusion that diversity of thoughts and ideas is still very much alive and well in government and the press.

      Unfortunately, the mainstream public has still fallen for this big, fat lie that diversity of color, gender and sexual orientation naturally results in diversity of thoughts and ideas. Nothing could be further from the truth. If anything, by putting more people in positions of power, whether in government or the press, who are clearly and decisively more diverse in terms of skin color, gender or sexual orientation only keeps diversity of thoughts and ideas stagnate, if not reduces it even further. People need to stop buying into this false narrative touted by government and the press that diversity of skin color, gender or sexual orientation results in diversity of thoughts and ideas. Until then, thoughts and ideas will continue to become less diverse.

    4. Robin Kash

      I wonder if the M-I-C has become the industrial heart of the US economy. High cost production, short shelf-life for products, steady customer. Our interventions and outposts pour US dollars into foreign coffers that is recirculated though purchases of US Treasuries.

  3. Which is worse - bankers or terrorists

    China also will not give in because state capitalism models will not simply cede power to New York and London. What is the personal economic incentive for the leaders to do that?

    1. workingclasshero

      A signifacantly large minority or small majority of the ccp are already lobbying for opening the the chinesse state banking system to u.s. or allied ownership thereby subvering their own sovereign control over thier economy.why do you think they opened u.s. bussiness schools to all those chinesse students?from the american perspective it’s just a matter of time.

  4. Louis Fyne

    Look Trump isn’t a saint, but if consider yourself an “environmentalist,” you want more tariffs—-anything to dent/strangle/discourage the 8,000+-mile supply chain that gets tube socks from cotton fields in Africa to factories in Pakistan to your local Mega-Lo Mart (or cars or electronics or tube steel, etc.) when all of those things can be at least “more-sourced” within the US (or EU if you’re European).

    Just saying that Trump can help achieve one’s ends even if he is opposite the political spectrum from someone.

    1. Kevin McCormick

      Trying to turn a pig’s ear into a silk purse (if that is the saying). Meanwhile methane release, pesticide/herbicide overload, and opium saturation continue unabated. IMHO, we don’t need more consumerism “things” produced here, we need a new economic and social model that respects the environment and counts human well-being as the measure of success.

        1. Robert Valiant

          We need to de-grow. I’ve never seen an economic model that presents a path. I think de-growth will occur independent of human economic engineering.

          1. juliania

            There is plenty of ‘growth’ possible in the areas of fixing this country’s woefully deficient infrastructure – I’m not even talking about the inevitable increase of jobs in the alternative energy field. Look at what has already happened in the nation’s food belt – there’s an area that needs improvement, is crying out for help!

            Its all how you measure growth. Growth doesn’t have to mean Wall Street growth; in fact, it shouldn’t. It should mean growth in terms of the needs of the upcoming generations for secure adequate living conditions for themselves and the unfortunates among them: opportunities, education, a positive outlook on the ways this country is benefiting the world.

            Instead we get ignorance, stupidity and greed.

  5. Bob

    It seems to me that the Chinese Belt and Road plan is in direct competition to the US plan of domination of world via financialization.

    We provide financial manipulation (as per Birmingham’s water system, Greece’s austerity, and the curious looting of the Malaysia fund) without producing any real goods.

    And for the richest among us times are good. For the rest, well they didn’t work hard enough.

  6. Susan the other`

    This doesn’t make sense using the old trade and economics expectations. I’m not a fan of Trump, except that I enjoy watching him poke all the pols in the eye. But I just can’t imagine anybody being so egotistical and vacuous that they strut around making their own absurd demands and expect cooperation from equal partners. Which is why I keep thinking that an international body of serious reformers have planned the way forward to save us from ourselves, from climate change, overpopulation, atomic bombs, environmental devastation and pesticides. You know the list; it is very seriously bad. So only if it is possible that this is a pre-planned slowdown of our and China’s economy, does it makes sense. It does not make sense if anybody compares it to previous economics, productivity, profit, investment, blablablah – then it does look like suicide by narcissism. So Xi can tell the Chinese – look what we have been forced to do because those Americans want to control the rest of the world; and Trump can say look what I have done for middle America and pretend like he’s labor’s best friend. Trump’s behavior is too absurd to believe. So I think the goal is to reduce manufacturing by 30% globally. As quickly as possible. But I’m an optimist with no evidence at all.

  7. rc

    Hudson has been a legitimate critic of US deindustrialization that occurred with multinational CEO’s and their bought-and-paid-for politicians being completely fooled by the Chinese Communist Party. Now he defends the CCP because the US demands what the US champions of ‘engagement’ believed would happen. No kidding. The US should now know the Chinese were never going to reform and never will as along as the hardliners are in control there.

    Trump is the only President in decades to take an economic stance against the CCP. It is ham handed, slow and lacks aggressiveness. But it exceeds anything done in fifty years. The West needs to completely disengage from China. The CCP’s goal is to eliminate the US as an entity with any power. If you look at US DoD policy for many years, it was one of friendly cooperation and respectful military exchanges. Things changed when the assessment of Chinese intentions were obvious.

    This does not excuse executives and politicians in the US. The predatory model across so many US economic sectors is inexcusable. Crumbling infrastructure is ridiculous. In reality, the US can reform providing universal healthcare at dramatically lower cost, expand public financed educational attainment of college, technical training and apprenticeships to 16 years and rebuild its infrastructure. This should not constrain the MIC. Due to the extreme inefficiency caused by corruption and capture all of these can happen without blowing up budgets. Hudson will likely tell you that we can attain deleveraging or an effective debt jubilee through monetary reform via MMT, public banking or the Chicago Plan.

    We need to radically reduce the power of our oligarchs and become the best country we can be. We also ought to think deeply if China is a competitor or an adversary / enemy. They have written about their ambition and their belief that the US is a tyrant. I think it is prudent to think of them as an enemy and prepare accordingly.

    1. 1 Kings

      So we, the US, in the Middle East, South and Central America, Africa, Europe and the freaking South China sea are not tyrants?

      1. MyLessThanPrimeBeef

        I believe it’s for that reason that cannabis is illegal in China, and likely will stay that way for a while.

        It is seen as dangerous over there.

    2. Thuto

      The US DoD policy being “one of friendly cooperation and respectful militarily exchanges”? Extraordinary claims require extraordinary evidence. If you don’t mind please share some examples of this rather benign military policy in action because I suspect the people of the occupied lands of Iraq, Syria, Afghanistan don’t share your assessment of the US (mis)adventures into their lands as “friendly and cooperative”.

    3. James

      Much better to think of China as a friend, one close enough to tell us the most uncomfortable of truths. The US is a tyrant, and has been acting increasingly so since acquiring the bomb at the end of WWII. Rather than view them as competitors, we should view them as our creditors and inheritors, because in both cases, they already are.

    4. Statos

      “…the US can reform providing universal healthcare at dramatically lower cost, expand public financed educational attainment of college, technical training and apprenticeships to 16 years and rebuild its infrastructure. This should not constrain the MIC. Due to the extreme inefficiency caused by corruption and capture all of these can happen without blowing up budgets.”

      The MIC does not care one whit about budgets. They are currently at 50 percent of discretionary funds in the US Treasury. Their goal is 100 percent. All they have to do is deep six Social Security and Medicare, et. al.

      Their greatest fear is an educated, healthy, well fed, well housed domestic population enjoying full employment. If the American polity were at that point, they would question military spending on endless wars against fabricated enemies. They would question who exactly is benefitting from those expenditures. Then they would twist shut the spigot of cash that the MIC and their investors depend on for unfettered growth.

  8. The Rev Kev

    I doubt that Trump will want to push China so far that he gets a flat refusal to his deal and all those tariffs blow up his re-election chances next year. But I do not think that the same can be said of the advisors surrounding him who are playing a deeper geopolitical game – and who regard Trump as a disposable asset. I think that their game is to maintain US dominance into the 21st century in the face of a rising China even if it divides the world into large competing trading blocks as a consequence.
    The demands of the deal are totally impossible for China to carry out (https://www.scmp.com/economy/china-economy/article/3009413/us-demand-china-commits-reforms-writing-threatens-scupper) without pushing it into a subservient role to the US. So I wonder if Trump actually realizes this or is just playing the whole thing as like a real estate deal as done by a huckster. He may know New York but that experience may make him unfit to judge peoples from other nations.
    So the question arises as to which country has more resilience. One based on trade and goods and expertise or that based on the financial sector and rent-collecting as Hudson has pointed out. I doubt that western elites will give up any of their power to reform their countries, re-build their industries & infrastructure, and invest in the training & welfare of their people. China has major problems in their own right but at least they are investing in their country’s future.

    1. Chauncey Gardiner

      Wondering to what extent the Asian financial crisis and a balance sheet recession in China are the salient model given the high reported level of non-performing loans within China’s banking system and China’s reliance on trade with the U.S. to support the renminbi’s peg to the US dollar?

  9. James

    An escalation of Cold War 2.0 maybe, but the war’s been going on at least since Bush the Lesser’s administration, and their infamous declaration of Global War on Everything in the wake of their ham-handed 9-11 caper. Trump, tactless savage brute that he is, is just laying all the cards on the table for everyone to see. Legitimacy’s nowhere to be found in DC in this century.

  10. MyLessThanPrimeBeef

    Trump’s trade war or his trade war threats.

    One thought (and we have seen it commented here) is the trade war should be coupled with an industry policy. The assumption here is that trade war is needed or good, and so, it is not Trump’s trade war per se, but it is something dictated by the situation we are in ( which, is perhaps the case, as we have not seen any Democratic presidential candidnates coming out strongly against it…as far as I know…though they have been silent about coupling that with an industry policy).

    1. Ashburn

      I have to disagree that all Democratic candidates are silent about an industrial policy. Although Bernie Sanders may not call it as such, his policies certainly do. Medicare for All, a Green New Deal, breaking up the TBTF banks, massive infrastructure program, postal banking, free public college tuition, and higher taxes on the rich and corporations all add up to massive reengineering of the US economy.

      1. MyLessThanPrimeBeef

        Specifically linking those to tariffs is what is being sought for this particular thought.

  11. readerOfTeaLeaves

    At stake is whether China will agree to do what Russia did in the 1990s: put a Yeltsin-like puppet of neoliberal planners in place to shift control of its economy from its government to the U.S. financial sector and its planners. So the fight really is over what kind of planning China and the rest of the world should have: by governments to raise prosperity, or by the financial sector to extract revenue and impose austerity.

    At this point, with tax havens, dark money, and offshore purchases of agricultural resources and property, the US is economically and socially weaker than it would be if our economic metrics and pricing structures were more robust.

    Surely the Chinese watched the looting of Yeltsin’s era, and will not repeat that mistake: it was too economically and politically costly.

  12. Jeremy Grimm

    I take heart from the last sentence of this post: “Under these conditions the effect of trade threats can only be to speed up the drive by other countries to become economically self-reliant.” I hope other countries will become economically self-reliant, and the US also. Peak Oil should be large writing on the wall for our narrow far-flung supply chains and de-industrialization. The temperaments of ocean waves in the soon to be climate should help underline and brite-hi-lite this large writing. I only hope it isn’t too late to start rebuilding US industry — assuming we might have a government that might recognize that as a priority. Otherwise — our fall could be needlessly painful.

    1. John k

      We can’t continue demanding oil to the extent we drive up the price. We have to slash demand such that price is too far below the cost of production, leaving the poison in the ground. Certainly high fossil taxes combined with renewable subsidies would help to bring this forward.
      E cars, renewables, grid storage, etc all have to arrive quickly.

  13. TG

    One is reminded that the current “trade war” is NOT about trade between the US and China. It’s about who profits from, and who controls, US industries that have been moved to China.

    The American elites abandoned over two centuries of economic nationalism, and decided to ship the core of nation’s industrial base to China, so they could make a quick profit. They probably imagined that the Chinese would remain a docile source of cheap labor, like Mexico (not that American elites actually bother to think ahead any more). The Chinese had other ideas. Now the American elites are starting realize what they’ve done. The industries are not coming back to the US, that’s a done deal. The issue is whether the American elites will profit from them, or will the cash and power shift to the Chinese elites. Why do you think that when China ‘retaliates,’ they don’t block imports from the US? No, they retaliate by harassing US-owned operations in China. Think about that.

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