Yves here. Get a cup of coffee. This is an important piece by Hudson, giving another important historical long view, here on the use of trade as a tool of colonial exploitation. However, I feel compelled to put on my stickler hat and offer some quibbles.
First is the use of the term “free trade”. We live in a system of managed trade. Imported goods still have to hew to safety and often specific content standards. And there are also non-tariff trade barriers. The Japanese don’t like American beef or rice, seeing them (correctly) as inferior. I am particularly leery of the word “free” used in connection with economic arrangements because it has been so successfully propagandized by libertarians (see for instance the Milton Friedman book, “Free to Choose” and his related PBS series as a sign of how long this campaign has been on). I would have been happier with a definition of the term “free trade” and less reliance on the word “free” which has come to carry undue baggage.
Second is that China, correctly served up as a repudiation of neoliberal economics, was not treated by Western interests, here the modern multinationals that have policy sway, as a typical resource-rich colonial extraction project. The US had the WTO ignore its own requirements to admit China in the early 2000s. I saw among my colleagues (as in small scale company owners) and McKinsey clients the rush to open up factories in China, as in make capital investment. The motive was not solely to exploit Chinese labor but also to take advantage of China’s huge consumer market as the China got richer. As far as I can tell, Western product successes in China have been mixed and are going into reverse (see the closure and cutbacks of Western auto production facilities, for instance).
Third is that China now has significant household debt for a country at its level of development (62% of GDP) as well as considerable local government debt, so the “debt containment” story is not as clear cut as Hudson indicates. See these 2024 posts for more detail:
“On a Relative Scale, There’s a Strong Case that Financialization Is Worse in the PRC than the US”
China’s Local Government Financing Vehicles (LGFVs): Ponzi Finance on Steroids
China’s lenders are nearly all internal (a few Chinese companies have sold bonds in the US), so China has not compromised its sovereignity with foreign debt. But it is much more financialized than the focus on its manufacturing prowess would lead most to believe.
Fourth, now that I live in Southeast Asia, I have found that there is considerable resentment in the region about China’s exploitative investment and export practices. See for instance: Thai economy put at risk by surge in zero-dollar exports and Complaints target ‘zero dollar’ steel factory.
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 The Destiny of Civilization
Industrial capitalism was revolutionary in its fight to free Europe’s economies and parliaments from the hereditary privileges and vested interests that survived from feudalism. To make their manufactures competitive in world markets, industrialists needed to end the land rent paid to Europe’s landed aristocracies, the economic rents extracted by trade monopolies, and interest paid to bankers who played no role in financing industry. These rentier incomes add to the economy’s price structure, raising the living wage and other business expenses, thus eating into profits.
The 20th century saw the classical aim of clearing away these economic rents rolled back in Europe, the United States and other Western countries. Land and natural-resource rents in private hands are still rising and even receiving special tax advantages. Basic infrastructure and other natural monopolies are being privatized by the financial sector, which is largely responsible for carving up and de-industrializing economies on behalf of its real estate and monopoly customers who pay out most of their rental income as interest to bankers and bondholders.
What has survived from the policies by which Europe’s industrial powers and the United States built up their own manufacturing is free trade. Britain implemented free trade after a thirty-year fight on behalf of its industry against the landed aristocracy aimed at ending the protectionist agricultural tariffs – the Corn Laws – enacted in 1815 to prevent opening the home market to low-priced food imports, which would have reduced farming rents. After repealing these laws in 1846 to lower the cost of living, Britain offered free-trade agreements to countries seeking access to its market in exchange for these countries not protecting their industry against British exports. The aim was to deter less industrialized countries from working up their own raw materials.
In such countries Europe’s foreign investors sought to buy rent-yielding natural resources headed by mineral and land rights, and basic infrastructure headed by railroads and canals. This created a diametric contrast between rent-avoidance in the industrial nations and rent-seeking in their colonies and other host countries, while European bankers used debt leverage to gain fiscal control of former colonies who had won independence in the 19th and 20th centuries. Under pressure to pay the foreign debts that were run up to finance their trade deficits, development attempts and deepening debt dependency, debtor countries were obliged to relinquish fiscal control of their economies to bondholders, banks and creditor-nation governments pressing them to privatize their basic infrastructure monopolies. The effect was to prevent them from using revenue from their natural endowments to develop a broad economic base for prosperous development.
Just as Britain, France and Germany aimed to free their economies from feudalism’s legacy of the vested interests with rent extraction privileges, most of today’s Global Majority countries need to free themselves from the rent and debt overhead inherited from European colonialism and creditor control. By the 1950s these countries were being called “less developed” or, even more patronizingly, “developing.” But the combination of foreign debt and free trade has blocked them from developing along the balanced public/private lines that Western Europe and the United States followed. The tax policy and other legislation of these countries has been shaped by U.S. and European pressure to observe international trade and investment rules that perpetuate geopolitical domination by Western bankers and rent-extracting investors to control their national patrimony.
The euphemism “host economy” is appropriate for these countries because the Western economic penetration of them resembles a biological parasite feeding off its host. Seeking to maintain this relationship, U.S. and European governments are blocking attempts by these countries to follow the path that Europe’s industrial nations and the United States took for their own economies with their 19th-century political and fiscal reforms that empowered their own takeoff. Without these countries adopting fiscal and political reforms aimed at developing their own sovereignty and prospects for growth on the basis of their own national patrimony of land, natural resources and basic infrastructure, the world economy will remain bifurcated between Western rentier nations and their Global Majority hosts and held subject to neoliberal orthodoxy.
The Success of China’s Model Poses a Threat to the Neoliberal Order
When U.S. political leaders single out China as an existential enemy of the West, it is not as a military threat but for offering a successful economic alternative to today’s U.S.-sponsored neoliberal world order. That order was supposed to represent the End of History, succeeding through its logic of free trade, government deregulation and international investment free of capital controls, while detouring away from industrial capitalism’s anti-rentierpolicies. We can now see the absurdity in this self-satisfying evangelical view that has emerged just as Western economies are deindustrializing as a result of the dynamics of their neoliberal finance capitalism. The vested financial and other rentier interests are rejecting not only China but the logic of industrial capitalism as described by its own 19th-century classical economists.
Western neoliberal observers have closed their eyes to recognizing the ways in which China’s “socialism with Chinese characteristics” has achieved its success by a logic similar to that of the industrial capitalism advocated by classical economists to minimize rentier income. Most late 19th-century economic writers expected industrial capitalism to evolve into socialism of one form or another as the role of public investment and regulation increased. Freeing economies and their governments from control by landowners and creditors was the common denominator of the social-democratic socialism of John Stuart Mill, the libertarian socialism of Henry George focusing on the land tax, and the cooperative mutual-aid socialism of Peter Kropotkin as well as Marxism.
Where China has gone further than earlier socialist mixed-economy reforms has been in keeping money and credit creation in the hands of government, along with basic infrastructure and natural resources. Fear that other governments might follow China’s lead has led U.S. and other Western finance-capital ideologues to view China as a threat by providing a model for economic reforms that are precisely the opposite of what the 20th century’s pro-rentier, anti-government ideology fought against.
The foreign debt overhead owed to U.S and other Western creditors and enabled by the 1945-2025 international geopolitical rules designed by U.S. diplomats at Bretton Woods in 1944 obliges Global South and other countries to recover their economic sovereignty by freeing themselves from their foreign (mainly dollarized) banking and financial burden. These countries have the same land-rent problem that Europe’s industrial capitalism faced, but their land and resource rents are mainly owned by multinational companies and other foreign appropriators of their oil and mineral rights, forests and latifundia plantations who extract resource rents by emptying out the world’s oil and mineral resources and cutting down its forests.
Taxing Economic Rent Is a Precondition for Economic Sovereignty
A precondition for Global South countries to gain economic autonomy is to follow the advice of the classical economists and tax the largest sources of rental income – land rent, monopoly rent and financial returns – instead of letting them be sent abroad. Taxing these rents would help stabilize their balance of payments while providing their governments with revenue to finance their infrastructure needs and the related social spending needed to subsidize their economic modernization. That is how Britain, France, Germany and the United States established their own industrial, agricultural and financial supremacy. This is not a radical socialist policy. It always has been a central element of industrial capitalist development.
Recapturing a country’s land and natural-resource rents as its fiscal base would enable it to avoid taxing labor and industry. A country would not need to formally nationalize its land and natural resources outright. It simply needs to tax the economic rent over and above actual “earned profits,” to cite the principle of Adam Smith and his 19th-century successors that this rent is the natural tax base. But neoliberal ideology calls such taxation of rent, and the regulation of monopolies or other market phenomena, an intrusive interference into the “free market.”
This defense of rentier income inverts the classical definition of a free market. The classical economists defined a free market as one free from economic rent, not as one free for the extraction of economic rent, let alone as freedom for creditor-nation governments to create a “rules-based order” to facilitate foreign rent extraction and stifle the development of financially- and trade-dependent host countries.
Debt Remission as a Precondition for Economic Sovereignty
The fight by countries to free themselves from their foreign debt overhead is much harder than Europe’s 19th-century fight to end the privileges of its landed aristocracy (and less successfully, of its bankers), because it is international in scope and is now confronted by a creditor-nation alliance to maintain the system of financial colonization created two centuries ago as former colonies sought to finance their independence by borrowing from foreign bankers. Starting in the 1820s, newly independent countries from Haiti, Mexico and Latin America to Greece, Tunisia, Egypt and other former Ottoman colonies won nominal political freedom from colonialist control. But to build up their own industry they had to take on foreign debt – on which they almost immediately defaulted, which enabled their creditors to establish monetary authorities in charge of their fiscal policy. The governments of these countries were turned into collection agents for international bankers by the late 19th century. Financial dependency on bankers and bondholders replaced colonial dependency, obliging debtor countries to give fiscal priority to foreign creditors.
World War II enabled many of these countries to accumulate substantial foreign monetary reserves as a result of supplying raw materials to the belligerents. But the postwar order designed by U.S. diplomats based on free trade and free capital movements drained these savings, and obliged the Global South and other countries to borrow to cover their trade deficits. The resulting foreign debts soon came to exceed the ability of these countries to pay – that is, to pay without surrendering to the destructive IMF demands for austerity that blocked the investment needed to raise their productivity and living standards. There was no way that they could meet their own development needs to invest in basic infrastructure and provide industrial and agricultural subsidies, public education and health care, and other basic social spending such as characterized the leading industrial nations. This still remains the case.
Their choice today therefore is between paying their foreign debts – at the cost of blocking their own development – or claiming that these debts are odious and insisting that they be written off. At issue is whether debtor countries will gain the sovereignty that is supposed to characterize an international economy of equals, free of foreign post-colonial control over their tax and trade policies as well as their national patrimony.
Their self-determination can only be achieved by joining together in a collective front. Donald Trump’s tariff aggression has catalyzed this process by drastically reducing the U.S. market for exports from debtor countries, preventing them from obtaining the dollars to pay their bonds and bank debts, so these won’t be paid in any event. The world is now busy de-dollarizing.
The need to create an alternative to the U.S.-centered postwar order was expressed in 1955 at the Bandung Conference of Non-Aligned Countries meeting in Indonesia. But they lacked a critical mass of self-sufficiency among themselves to act together. Attempts to create a New International Economic Order in the 1960s faced the same problem. Countries were not industrially, agriculturally or financially strong enough to “go it alone.”
Today’s Western debt crisis, de-industrialization, and coercive weaponization of foreign trade and financial sanctions under the dollarized international financial system, capped by the America First tariff policy, have created an urgent need for countries to collectively seek economic sovereignty to become independent from U.S. and European control of the international economy. The collective BRICS+, with Russia and China taking the lead, have just begun talking about making such an attempt.
China’s Success Has Made a Global Alternative Attainable
The great catalyst for countries to take control of their national development has been China. As indicated above, its industrial socialism has largely achieved the classical aim of industrial capitalism of minimizing rentieroverhead, above all by publicly creating money to finance tangible growth. Keeping money and credit creation in state hands via the Peoples’ Bank of China prevents financial and other rentier interests from taking over the economy and subjecting it to the financial overhead that has characterized Western economies. China’s successful alternative for allocating credit avoids making purely financial gains at the expense of tangible capital formation and living standards. That is why it is viewed as an existential threat to the current Western banking model.
Western financial systems are overseen by central banks that have been made independent from the Treasury and government regulatory “interference.” Their role is to provide the commercial banking system’s liquidity as it creates interest-bearing debt, mainly for the purpose of making wealth financially by debt leveraging (asset-price inflation), not for productive capital formation.
Capital gains – rising prices for housing and other real estate, stocks and bonds – are much larger than GDP growth. They can be made easily and quickly by banks creating more credit to bid up prices for buyers of these assets. Instead of the financial system being industrialized, Western industrial corporations have become financialized, and that has occurred along lines that have deindustrialized the U.S. and European economies.
Financialized wealth can be made without being part of the production process. Interest, late charges, other financial fees and capital gains are not a “product,” yet are counted as such in today’s GDP statistics. Carrying charges on the rising debt overhead are transfer payments to the finance sector, by labor and businesses out of wages and profits earned by actual production. That shrinks the income available for spending on the products produced by labor and capital, leaving economies debt-ridden and deindustrialized.
b>The Strategy of Creditor-Rentier Nations to Prevent Withdrawal from Their Global Control
The broadest strategy to block countries from avoiding the rentier burden has been to wage an ideological campaign from the educational system to mass media. The aim is to control the narrative in a way that depicts government as an oppressive Leviathan, an inherently bureaucratic autocracy. Western “democracy” is defined not so much politically as economically, as a free market whose resources are allocated by a banking and financial sector independent of regulatory oversight. Governments strong enough to limit financial and other rentier wealth in the public interest are demonized as autocracies or “planned economics,” as if shifting credit and resource allocation to the financial centers of Wall Street, London, Paris and Japan does not result in an economy planned by the financial sector in its own interest, with the aim of creating monetary fortunes; its aim is not to improve the overall economy and living standards.
Global Majority officials and administrators who have studied economics at U.S. and European universities have been indoctrinated with a value-free (that is, rent-free) pro-rentier ideology to frame the way they think about how economies work. This narrative excludes consideration of how debt polarizes economies by growing exponentially at compound interest. Also excluded from mainstream economic logic is the classical contrast between productive and unproductive credit and investment, and the related distinction between earned income (wages and profits, the main components of value) and unearned income (economic rent).
Beyond this ideological campaign, neoliberal diplomacy uses military force, regime change and control of the main international bureaucracies associated with the United Nations, the IMF and World Bank (and a more covert network of non-government organizations (NGOs)) to prevent countries from withdrawing from today’s pro-rentierfiscal rules and pro-creditor laws. The United States has taken the lead in using force and regime change against governments that would tax away or otherwise limit rent extraction.
It should be noted that no early socialists (except anarchists) advocated violence in pursuit of their reforms. It has been the vested interests, unwilling to accept loss of the privileges that are the basis of their fortunes, who have not hesitated to use violence to defend their wealth and power against attempts at reform to check their privileges.
To be sovereign, nations must create an alternative that enables them to be in charge of their own economic, monetary and political development. But American diplomacy views any attempt to enact the necessary political and tax reforms and strong government regulatory authority as posing an existential threat to U.S. control over international finance and trade. This raises the question of whether it is possible to achieve reforms and a strong public economy without war. It is natural for countries to wonder whether they can achieve economic sovereignty without a revolution such as the Soviet Union, China and other countries fought to end their domination by their foreign-supported landlords and creditors.
The only way to protect economic sovereignty against military threats is to join an alliance for mutual support, since individual countries can be isolated in the way that Cuba, Venezuela and Iran have been, or destroyed like Libya. As Benjamin Franklin put matters: “If we don’t hang together, we will hang separately.”
American writers characterize the attempt of other countries to join together to achieve economic sovereignty as a civilizational war. While this is indeed a civilizational contest, it is the United States and its allies that are waging aggression – against countries trying to withdraw from a system that has provided the United States and Europe with a huge inflow of economic rents and debt service from host countries subject to U.S.-backed diplomacy.
How U.S.-centered financial colonialism replaced European colonial occupation
After World War II the era of settler-state colonialism gave way to financial colonialism, with the international economy dollarized under U.S. leadership. The Bretton Woods rules established by 1945 enabled multinational corporations to keep economic rents for land, natural resources and public infrastructure out of domestic fiscal reach. Governments were reduced to the role of acting as collection agents for foreign creditors and as protectors of foreign investors from democratic attempts to tax rentier wealth.
The United States was able to weaponize world trade by monopolizing oil exports through U.S. and allied oil companies (the Seven Sisters), while U.S. and European agricultural protectionism and World Bank “aid” policy steered food-deficit countries to focus on tropical plantation crops instead of grain to feed themselves. President Bill Clinton’s 1994 NAFTA free-trade agreement with Mexico swamped its market with low-priced U.S. farm exports (highly subsidized by strong government support). Mexican grain production plummeted, leaving it food-dependent.
To block governments from taxing or even fining foreign investors to recover compensation for damages to their countries, today’s rentier powers have created Investor-State Dispute Settlement (ISDS) courts requiring governments to compensate foreign investors for increasing taxes or imposing regulations that reduce foreign-owned income.[1] This blocks national sovereignty, including by preventing host countries from taxing the economic rent of their land and natural resources owned by foreigners. The effect is to make these resources part of the investor-nation economy, not their own.[2]
Other nations permitted the United States to dictate the post-World War II order, with it promising generous aid to support free trade, peace and post-colonial national sovereignty as spelled out in the United Nations Charter. But the United States squandered its wealth on military spending abroad and financial wealth addiction at home. That has left America’s post-industrial power based mainly on its ability to harm other countries with chaos if they do not accept the U.S. “rules-based order” designed to extract tribute from them.
America imposes protectionist tariffs and import quotas at will, and subsidizes agriculture and key technologies as potential global high-tech monopolies while forbidding other countries from implementing such “socialist” or “autocratic” policies to become more competitive. The result is a double standard in which the U.S. “rules-based order” (its own rules) replaces adherence to international law.
America’s agricultural price support policy initiated under Franklin Roosevelt in the 1930s provides a good example of U.S. double standards. It made farming the most heavily subsidized and protected sector. It became the model for the European Economic Community’s Common Agricultural Policy (CAP) introduced in 1962. But U.S. diplomacy opposes the attempts of other countries, especially Global South countries, to impose their own protectionist subsidies and import quotas aimed at achieving self-sufficiency in basic food production, while U.S. “aid lending” and the World Bank have (as indicated above) supported the exportation of tropical plantation crops by Global South countries by lending for transportation and port development. U.S. policy has consistently opposed family-owned farming and land reform throughout Latin America and other Global South countries, often with violence.
Moves Toward a Multipolar World Order
It is not surprising that inasmuch as Russia has long been America’s main military adversary, it has taken the lead in protesting against the unipolar U.S. order. Advocating a multipolar alternative to the U.S. neoliberal order in June 2025, Foreign Minister Sergey Lavrov described the post-colonial economic subjugation of the countries that achieved political independence from colonialist rule in the 19th and 20th centuries but which are now facing the next task needed to complete their liberation.
Our African friends are paying more and more attention to the fact that their entire economies are still largely based on siphoning off natural resources from these countries. In fact, all value added is produced and pocketed by the former Western metropoles and other European Union and NATO members.
The West is using illegal unilateral sanctions, which increasingly become the harbinger of a military attack, as this has happened in Yugoslavia, Iraq and Libya and is now happening in Iran, as well as the instruments of unfair competition, initiating tariff wars, seizing other countries’ sovereign assets and taking advantage of the role of their currencies and payment systems. The West itself has actually buried the globalization model, which it developed after the Cold War to promote its interests.[3]
Marco Rubio made the same point in the U.S. Senate hearings to confirm him as Donald Trump’s Secretary of State, explaining that “the postwar global order is not just obsolete, it is now being used against us.”[4]
Violating the rules of foreign trade and investment that the United States itself dictated in 1945, and yet another instance of America resorting to the “rules-based order” of its own rules, President Trump’s unilateral tariffs aimed both at shifting the new Cold War’s military costs onto other countries, which are expected to buy American arms and provide proxy armies, and at reviving America’s lost industrial power by forcing countries to relocate industries to the United States and to permit U.S. companies to extract monopoly rents by controlling the leading emerging technologies.
The United States aims to impose monopoly rights and related rentier privileges uniquely favorable to itself on the entire world’s trade and investment. Trump’s America First diplomacy demands that other countries conduct their trade, payments and debt relationships in U.S. dollars instead of their own currencies. The U.S. “rule of law” is one that permits unilateral U.S. demands to impose trade and financial sanctions dictating how and with whom foreign countries can trade and invest. They are threatened with economic chaos and confiscation of their dollar reserves if they do not boycott trade and investment relations with Russia, China and other countries refusing to submit to U.S. control.
America’s leverage to obtain these foreign concessions is no longer industrial leadership and financial strength but its ability to cause chaos for other countries. Claiming to be the indispensable nation, America’s ability to disrupt trade is ending its former international monetary and diplomatic power. That power originally was based on its holdings of the world’s largest monetary gold reserves in 1945, its status as the largest creditor nation and industrial economy, and after 1971 its dollar hegemony, arising in large part as a result of its financial market being the safest for other nations to hold their official monetary reserves.
The diplomatic inertia created by these former advantages no longer reflects the realities of 2025. What U.S. officials do have is the ability to disrupt the world’s trade, supply chains and financial arrangements, including the SWIFT system for international payments. The U.S. and European confiscation of $300 billion of Russia’s monetary deposits has darkened America’s reputation for financial safety, while its chronic trade and balance-of-payments deficits threaten to disrupt the international monetary system and free trade that made it the major beneficiary of the 1945-2025 world order.
In keeping with the principle of national sovereignty and non-interference in other countries’ internal affairs that underlay the creation of the United Nations (the basic principle of international law grounded in the 1648 Peace of Westphalia), Russia’s Foreign Minister Lavrov described (in his speech cited above) the need “to establish foreign trade mechanisms [that] the West will be unable to control, such as transport corridors, alternative payment systems and supply chains.” As an example of how the United States had paralyzed the World Trade Organization, which it had created on the basis of free trade at a time when America was the world’s leading export power, he explained:
When the Americans realized that the globalized system they had created – one built on fair competition, inviolable property rights, the presumption of innocence, and similar principles, and which had allowed them to dominate for decades – had also begun benefiting their rivals, primarily China, they took drastic action. As China started outplaying them on their own turf and by their own rules, Washington simply blocked the WTO’s Appellate Body. By artificially stripping it of a quorum, they rendered this key dispute settlement mechanism inactive – and it remains so to this day.
The United States has been able to block foreign opposition to its nationalist policies by having veto power in the United Nations, IMF and World Bank. Even without such power, U.S. diplomats have been able to block United Nations organizations from acting independently of U.S. wishes by refusing to appoint leaders or judges not primarily loyal to U.S. foreign policy.[5] The world no longer is to be governed by international law but by unilateral U.S. rules subject to abrupt change depending on the vicissitudes of American economic or military power (or loss thereof). As Russia’s President Vladimir Putin described this new state of affairs in 2022: “Western countries have been saying for centuries that they bring freedom and democracy to other nations,” yet “the unipolar world is inherently anti-democratic and unfree; it is false and hypocritical through and through.”[6]
America’s self-image depicts its long dominant world position as reflecting its democracy, free market and equality of opportunity that has enabled its power elite, in their view, to acquire their status by being the economy’s most productive members through their management and allocation of savings and credit. The reality is that the United States has become a rentier oligarchy, one that is increasingly hereditary. Its members’ fortunes are made mainly by acquiring rent-yielding assets (land, natural resources and monopolies) on which they make capital gains, while paying most of their rent as interest to their bankers, who end up with much of these rents and have become the new oligarchy’s leading managerial class.
Summary
The real conflict over what kind of economic and political system the Global Majority will have is just gaining momentum. Global South countries and others have been driven so deeply into debt that they have been obliged to sell off their public infrastructure to pay its carrying charges. Recovering control of their natural resources and basic infrastructure requires the fiscal right to impose an economic-rent tax on their land, natural resources and monopolies, as well as the legal right to recover environmental cleanup costs caused by foreign oil and mining firms, and to implement financial cleanup costs (i.e., write offs and cancellation) of the foreign debt burden imposed by creditors who have not taken responsibility to ensure that their loans can be paid under existing conditions.
U.S. evangelistic rhetoric describes the imminent political and economic fracture of the world economy as a Conflict of Civilization between democracies (countries that support U.S. policy) and autocracies (nations acting independently). It would be more accurate to describe this fracture as a fight by the United States and its European and other Western allies against civilization, assuming civilization entails, as it seems it must, the sovereign right of countries to enact their own laws and tax systems for the benefit of their own populations within an international system that has a common set of basic rules and values. What Western ideologues call democracy and free markets has turned out to be an aggressive rentier-financial imperialism. And what they call autocracy is a government strong enough to prevent economic polarization between a super-rich rentier class and an impoverished population at large such as is occurring within the Western oligarchies themselves.
[1] I provide the details and discussion in Chapter 7 of The Destiny of Civilization (ISLET, 2022).
[2] The Saudi oil company Aramco, for instance, was not a corporately distinct corporate affiliate but a branch of Standard Oil of New York (ESSO). This legal nicety meant that its income and expenses were consolidated into the parent company’s U.S. balance sheet. That enabled it to receive a tax credit for the “depletion allowance” for oil, rendering the company effectively free of U.S. income tax, although it was Saudi oil that was being depleted.
[3] Foreign Minister Sergey Lavrov’s remarks and answers to questions at the 11th Primakov Readings International Forum, Russian Foreign Ministry, Moscow, June 24, 2025, https://mid.ru/en/press_service/video/view/2030626/.
[4] Marco Rubio, Testimony of January 25, 2025, https://www.foreign.senate.gov/imo/media/doc/6df93f4b-a83c-89ac-0fac-9b586715afd8/011525_Rubio_Testimony.pdf.
[5] The International Atomic Energy Agency (IAEA) charged with keeping nuclear proliferation in check is the most recent notorious case in point. Its leader Grossi provided U.S. and Israeli intelligence with the names of Iranian scientists who were killed, and details of the Iranian nuclear refinement sites that were bombed. U.S. veto has prevented almost the entire United Nations from condemning Israeli attacks on the Palestinian population. And when the International Criminal Court (ICC) brought charges against Benjamin Netanyahu for being a war criminal for waging Israel’s genocide against the Palestinians, U.S. officials demanded the judge’s removal.
[6] Vladimir Putin, speech of September 30, 2022 upon the signing of treaties on the accession of Donetsk and Luhansk people’s republics and the Zaporozhye and Kherson regions to Russia, http://en.kremlin.ru/events/president/news/69465.
Contra Yves’ quibble, Dr. Hudson does attempt to qualify the term “free trade” as “not the free trade of the classical economists”, but her larger point stands: “free trade must be shorn of its artificial halo of “freedum”.
My proposal for disrupting the echolalia is to consistently beat on the contradiction between “free trade” vs “fee trade”. A similar treatment is needed for “free press”. There I sometimes speak of “the fief press”, but that term is too esoteric for popular discourse.
The mind’s eye impression/halo of “free” could be overcome by going back to the old-fashioned bilateral or multilateral trade terminology. The propagandists never rest.
Just a note on clarification. Yves is quite right about today’s US-managed trade not being “free trade.” But my analysis is about the early 19th-century British imposition of free trade –meaning no protectionism by other countries — creating an exploitative process. My book Trade, Development and Foreign Debt describes this.
Yves is quite right about China suffering from personal debt — largely to buy housing whose prices include land rent, which the classical economists hope to get rid of. My arguments in China are precisely making this point (without much official support, I must confess). I try to emphasize Vols. II and III of Capital where Marx deals with this. My point HERE is that preventing rentier income must be a priority for a successful BRICS takeoff — including that of China.
Michael, big fan of your work from China, but your characterization that the Chinese economy is free from financialization and rentier income is not quite correct. They simply took another form: in China, the local governments are the landlords, and this has caused very complicated problems that are quite different from the ones faced by Western neoliberal economies.
As you know, the Chinese economy is highly decentralized. The central government grants a lot of autonomy to the local governments to drive local economic development, and in turn, the central government sets the national priorities by controlling the career promotion of local officials. A main KPI is GDP numbers, which explains why Chinese officials are so obsessed with reaching certain GDP targets.
The over-reliance of land revenues by the local governments has become a huge problem in China today, where land premium still maintained an average of >30% of local government revenues today (in some cities like Guangzhou, a key manufacturing hub that is now experiencing slowed export, that proportion is more than 40%). Local government expenditures have been heavily curtailed due to the implosion of the property market, and deflation has made their loans harder to service, after having taken out massive amount of loans for infrastructure building over the past decade.
This antagonistic/oppositional relationship between the central and local governments can be traced back to the reform and opening up era since the 1970s. Initially, local governments only had to pay a fixed amount of fiscal tax. However, with the rise of light export industries in the coastal provinces in the Southeast, those regions began to accumulate a disproportionate amount of wealth and GDP, but only small proportion of their income had to taxed by the central government.
This eventually evolved to those wealthy provinces exempting corporate taxes altogether and even began to share their wealth together with the private corporations. Meanwhile, by 1993, the central government received only ~20% of tax revenues, while still having to finance for state-owned enterprises (SOEs) and many large scale investments across the country.
To counteract this unequal tendency, the 1994 Tax Sharing Reform was introduced to rectify such imbalance of power. Under this new arrangement, 75% of value-added tax (the most important form of tax revenues in China) would go to the central government, and are then re-distributed downward to the provinces again. More importantly, the new policy would relegate investment and SOE financing to the local governments.
The first provinces to suffer under 1994 Tax Sharing Reform were the Three Northeastern Provinces (东北三省) where the heavy industry SOEs were centered. The large scale investments and operation budgets required for their heavy industries prompted the local governments to privatize those SOEs, and the resulting “reforms” led to mass layoffs and the ensuing economic crisis in the 1990s. It is estimated that between 1996 and 2002, more than 60 million workers were laid off under the privatization wave, and would not be reversed until China joined the WTO in 2001.
Perhaps more importantly, the new tax sharing policies drove local governments to seek for non-tax revenues to finance themselves, and this is where land revenue and property market came into play. After the 2008 GFC erupted, the slump in the export economy, in conjunction with the central government’s push for infrastructure building (the 4 trillion yuan stimulus) drove many local governments into speculating land prices by borrowing massively, first through the shadow banks (LGFVs) and from 2015 onwards, by issuing government bonds themselves to build endless amount of housing and infrastructure to raise their GDP numbers. Many local officials made the career promotions of their lifetime during this period, until the inevitable implosion that started in late 2019.
The reckless (over-)investment has caused local governments to rack up debt that, because there is no debt cancellation mechanism in China, has become increasingly difficult to service. This is why the Chinese government has been pushing hard to save the plunging property market to ensure that there is no mass mortgage defaults, which would have caused significant a chain reaction to the financial sector and the local governments that rely on such land premium, and in turn, the industrial sector that relies on local governments subsidies. As a result, the home purchasers will continue to spend more and more of their savings into the property market to save the economy at the national level. This explains, in part, the deflation and the difficulty of raising consumption demand in China today.
As you can see, wealth is still being transferred to the financial sector, just not in the same way that occurred in Western neoliberal economies. Without a complete reform of the relationship between central and local governments, relinquishing the adherence to Western neoclassical economic theory, reducing the reliance on export revenues and instead raising wages/job guarantee through new currency issuance MMT-style, and formulating mechanisms for debt cancellation, it is unlikely that China will be able to form the alternative that can meaningfully challenge Western neoliberal hegemony.
Thanks for this amazing primer!
Indeed, thanks! Really good information.
Thank you for laying out the problem in a historical context, and suggesting a path forward too. I can only hope your central government is not captured by neoliberal acolytes, as ours appears to be.
Looking forward to an article on the new stablecoin, the impact on exchange rates, inflation and trade.
Thanks as always for publishing Michael Hudson’s work. Generalizations are necessary to frame some of the bigger issues, before we can investigate further and more deeply. And generalizations are imperfect. We have to start somewhere though.
Most people, I’m guessing, are still deer in headlights. And perceiving people feel the deadness of this system, if they simply feel. Michael’s work is a good antidote to that horrible feeling.
Yves makes the point about financialization plaguing China too, however, it is not a problem they cannot address in their current system. Unlike the U.S., they have not irreversibly(?) deindustrialized their country’s economy with nothing to replace the lost industry work except mostly lousy service sector work, which is now being replaced by AI.
(We’ll have to see about that AI plan but I’m sure that plan was envisaged a long time ago.)
Elsewhere Michael addresses the difficulties China has navigating the mixed economy model they are pursuing, while keeping a dominating global finance network and architecture useful, but not powerful enough to wreck their economy. He is quite prolific and willing to repeat himself, thankfully.
China might not always be making the ‘right’ decisions because it is not as autocratic as westerners like to believe it is? Why do they send their young people to learn neoliberal economics? It’s a double-edged sword for them. The students come back having responded to U.S. higher education brainwashing either for or against what they experienced in the U.S., and perhaps, it is to be hoped, with more interesting ideas that undercut the damages of the system that has failed the so-called West. Allowing for the double-edged sword’s potential to cut, at minimum, two ways, means there is likely a more healthy ‘debate’ in practice in China about how to do the best for their people while navigating a massive global crisis that has been brewing for years and may (or may not) be peaking soon.
We certainly cannot say that the U.S. is a healthy place for debate and a safe place to express differences of opinion, where censorship and dubious ‘science’ reign and where economics hocus-pocus still enjoys (undiscovered-in-plain-sight) Wizard of Oz status.
No country is perfect in democracy. We have to ask different kinds of questions but for now this generalization is not Michael’s. It is the west framing up the countries that don’t do as they are told, and possibly the beginning of world war if the west continues, as it must.
As we posted earlier this week, China is in the midst of a second bout of deflation which officials from Xi on down acknowledge as serious and something they need to address. The first bout was ~2012 to 2016, and for reasons we explained, easier to address then than now. And China so far has not taken as serious action as before, even though this instance looks at least as severe.
One of the big causes of this deflation is the unwind of the housing bubble, which is still not completed, and that was due to financialization, via local government debt (not much in the control of the central government) and shadow banking (wealth management products).
And manufacturing is not a magic bullet, see Japan’s bubble aftermath. China clearly has excess industrial capacity, as in overproduction. But cutting that down would be an additional deflationary force.
I do not disagree at all with your point about financialization based on the specific Chinese housing bubble, which I want to understand more fully. What I am saying is that their model does not autocratically proscribe neoliberal policies that led to the U.S housing crisis c. 2008. They seem to allow for experimentation within the model ‘capitalism with Chinese characteristics.’ Lessons may or may not have been learned, but also we here have not learned from those lessons either. But here the architecture of neoliberalism remains intact because it serves a limited, special highly protected(!) class. The curtain has been pulled back, but they and their self-dealing policies continue to prevail. Do we think that is true of China?
What exactly are these “Chinese characteristics” as you see them?
I guess refers to the fact that political power is paramount and that the decisionmaking will not be under the sway of the budding oligarchs. They should be just happy to be allowed to exist. A little bit like in Putin’s Russia, although over there, according to John Helmer, the oligarchs have much more sway.
Is this assuming oligarchs are only defined by “entrepreneur” (or business oriented) wealth and power?
Thank you, Kouros. That is the main point. Oligarchs everywhere, but where is there any attempt to contain them, or limit their power to act unilaterally and in total self-dealing freedom? Not the U.S.
I think we need to look at how each country deals pragmatically with its oligarchs, if it has them? If not, why not?
The U.S. just witnessed an embarrassing interlude of brotherly love between Trump and Musk, both oligarchs, waging war inside the White House—ignoring the legislative and judicial branches of government—on the remnants of social programs that began in the 1930s after Wall Street went big belly-up in 1929. We see that Trump and Musk, oligarchs, are not interested in adjusting the programs to help the people who labor, or try to labor, and they want the money they save to go to their friends and associates, to finance their personal projects.
Roosevelt acted in the 1930s to attempt to stem the tide of revolution as a servant and member of the elite powers club.
That was when organized labor was organized. Much scarier than today when organized labor and the aspirational middle class have been atomized into hard-to-unite identity niches, or see each other in ‘allyship’ based on accepting subjective identity differences that have zero to do with their commonality as people who cannot exist without laboring—or being paid to pretend to labor, or not to labor.
Adam and Eve, if you will, had to labor. Tech bros and WEF acolytes are pretending that no one needs to labor anymore.
Someone will still have to grow the food and harvest it when they depopulate the earth to their satisfaction. Lots of stuff will still require laborers laboring.
And I find it interesting to compare how organized labor then acted in conciliatory ways towards the elite power club, a lot like China is acting towards the west, today, with the apparent hope that some kind of compromise could be reached. Putin has done it too.
But that compromise is what we, as peaceful humans, are always trying to do, to avoid war. I mean the humans who are not hoarding their outrageous and ultimately useless wealth. The ‘normies’ who try to find community together without the really strange ideologies being foisted on us today.
Actually China has been refining the “with Chinese characteristics” nature of their policies for years, starting with “Socialism,” Mikel. To differentiate what they are doing from other countries, since the 1990s—someone correct me if necessary. What you ask is a dissertation-type answer to the question that I am not qualified to answer as I am not a China economy specialist. Wrong fork in the road taken years ago, perhaps.
Referring to it as “Chinese characteristics” makes it sound like something exotic and foreign to those in the West – when some of those “characteristics” are not foreign ideas in the West.
Abandoned principles, ideals, or certain policies? Yes, in many examples. But it doesn’t do much good to make them seem like foreign concepts – even if it’s just just a turn of phrase.
Your points are just. This is where a specialist who has attended to the original conceptual introduction of “with Chinese characteristics” can follow it up from then until now: how it actually worked in China, from its inception, and then compare it, specifically, to other countries with mixed economies.
The thing is, what compares to China? What other country has the same “characteristics?” I think one has to try to understand it on its own terms first.
Or, as David Harvey put it: “neoliberalism with Chinese characteristics” ;)
The Tao is often described as being both immanent and transcendent, present in everything yet also beyond human comprehension.
If you try to comprehensively describe the “with Chinese characteristics”, you would have riuned it.
What we need to do is to make that “with Chinese characteristics” into a “with western characteristics”. It was tried before. Athens solved the systemic problem by relying on sortition…
Thanks for the great post, intro and comments, and thanks for the clarification Dr. Hudson.
Side note on Japan importing California rice: It is interesting that partly due to shortages and price increases, cheaper Calrose variety of rice has become more popular to import in Japan. I assume it is cheaper because of ag subsidies?
“…Sales of Calrose have grown tenfold from last year,” said a spokesperson for Nippon Brice, The Japan Times reported…”
Read more at: https://capitalpress.com/2025/04/10/amid-shortages-california-rice-gains-traction-in-japan/
The article also mentions that once Japanese chefs and consumers try it, they actually like the Calrose variety.
The article mentions much higher fertilizer and fuel costs, I wonder if the sanctions and Japan and other countries being prevented from doing business with Russia has anything to do with that? It sounds like Japan has import quotas as well.
It is perhaps worth adding that there has been a scandal around the rice shortage because it was govt policy to plant less, leading many to question whether the shortage was engineered for some unscrupulous pols to profit.
It wouldn’t be the first time this happened, as there have been “rice riots” in Japanese history when merchants hoarded rice and speculated on the price.
Regarding the current rice supply scandal, there has been a shakeup in JA and a sort of takeover attempt as conservatives have escalated their attacks over the past year, apparently because JA also has a large bank which they want to privatize and loot.
Higher fuel costs may be due to Japan going with sanctions, but in fact Japan doesn’t receive so much from Russia, e.g., only about 9% of all LNG has been coming from Russia with the majority sourced by Australia and Malaysia.
As for Calrose, my sense is that the majority of Japanese now see USian AG products as inferior and are only buying them as a desperate, last resort. There is a fair bit of advertising for US pork and beef — even on trains —, but most every Japanese person I know, and especially women, don’t trust the quality.
Ppl will buy USian AG products before they will buy stuff from Fukushima prefecture, but that’s not saying much.
It’s seemed likely to me for some time, that non Western countries are going to think to themselves “why are we sending put natural resources/manufactured goods/agricultural produce to these people in exchange for USD that are becoming worth less and less”. At some point they are going to cut off the tangible goods from the West.
Mikel
Perhaps “chinese characteristiscs ” refers to the lifting up of 8 million of its people out of poverty in a couple decades?
“American characteristics” might refer to the penury of imposed austerity on its people?
https://www.compassion.com/poverty/global-poverty-definition.htm/
“Global poverty is defined as the number of people worldwide who live on less than $2.15 a day.”
And, in these times, this metric doesn’t really bode well for people in any country.
Is there any combination of countries that could cause grave damage to the Western institutions by defaulting on their debts (by prior agreement among themselves)? Is the only downside that they would be unable to borrow more money? It seems like some of the heavier hitters among the BRICS+ countries could backstop the participants in a cooperative debt default like this to compromise the power of the West. I also wonder if there are any sanctions (however illegal) that could be put on Western countries to turn the tables on their usual economic extortion tactics. The Arab oil boycotts were amazingly effective at damaging the US economy, so I wonder why, since then, other countries keep putting up with Western aggression and don’t retaliate in kind.
“It seems like some of the heavier hitters among the BRICS+ countries could backstop the participants in a cooperative debt default like this to compromise the power of the West.”
That could be a plan. People will have to watch BRICS+ budget priorities and see where it leads.
The Wild Wild West throws a wrench in the development of such ideas with all the global chaos. It has the heavy hitters thinking more about military spending and production.