US-China trade war: globalisation in retreat

On 14 May, the US Biden administration announced a volley of extreme tariff hikes on Chinese imports: quadrupling tariffs on electric vehicles (EVs) to over 100%; and doubling those on semiconductors to 50%. There are planned tariff increases on other imports including critical minerals, solar cells, steel and aluminium. The protectionist measures are a significant escalation of the US’s attempts to hold down the development of China’s advanced manufacturing industry. In FRFI 266 we wrote, ‘any rupture in US-China trade relations will have profound consequences… In the context of the global capitalist crisis, where competition for adequately profitable outlets for investment increases, a clash between a rising China and the dominant, but relatively declining, US became inevitable.’1 This fragmenting of the global economy is a symptom of the world capitalist crisis, which is forcing capital to retreat behind national borders; it signals a future of prolonged inflation, recession, rising nationalism and the threat of a new world war. Will Jones reports.

Car wars

The US is China’s biggest export market for all goods. $427bn of goods flowed into the US from China in 2023, while $148bn of goods flowed in the opposite direction. The new tariff measures will affect $18bn of US imports from China annually. They are targeted at Chinese industries where the US is beginning to lag behind, or could do so in the near future, notably in technology for the so-called ‘green transition’ away from a fossil fuel-based economy. A White House spokesperson stated, ‘[President] Biden is not willing to let [Chinese President] Xi Jinping hijack his plans for a made-in-America green transition’. BYD, the Chinese EV multinational, by 2023 had 22% of the global EV market share, overtaking the US’s Tesla to become the best-selling EV company in the world. This is thanks to BYD’s capacity to produce EVs more cheaply than its rivals.

BYD surpassed the German companies Mercedes-Benz and BMW in car sales including petrol-driven vehicles early in 2023. Europe is a burgeoning market for Chinese EVs: Schmidt Automotive Research found that Chinese brands like BYD, as well as brands such as Polestar that manufacture in China, accounted for almost 10% of the fully electric cars registered in western Europe in March 2024, up from 4% two years ago. The US ruling class fears being crowded out of key markets and hopes to catch up, with over $1 trillion announced in 2022 in federal funding for infrastructure and the technology sector. In the latest disbursement from this war chest, on 18 April 2024 the US government agreed a $6.1bn subsidy to Micron Technology Inc to produce advanced computer chips in New York and Idaho.

China accuses the US of breaking World Trade Organisation (WTO) rules against tariffs. The Biden administration’s justifications for the tariffs centre around the US’s enormous trade deficit in goods with China. The US accuses China of achieving this position through unfair play: stealing intellectual property; undervaluing its national currency; using ‘slave labour’, particularly in Xinjiang Province; and massive state subsidies. Yet slavery, theft and protectionism are precisely how capitalism became established in the US, Europe and elsewhere. Where tariffs cannot be legally justified, unilateral non-tariff barriers to trade based on ‘security’ or ‘human rights’ are used to evade international rules against protectionist measures. But the old rules are now just a formality. The inexorable shift to a new protectionism is driven by the global crisis of the capitalist system.

The period of ‘globalisation’

Following World War II, the world economy experienced a period of rapidly expanding trade as capitalists across the world shared in the rising profits; the General Agreement on Trade and Tariffs (GATT) in 1947 marked this shift, with an agreement between 27 countries to reduce or eliminate tariffs and encourage Free Trade.

The Chinese socialist revolution in 1949, led by the Communist Party of China (CPC), overthrew imperialism and restored China’s sovereign control over its development, rapidly developing industry, agriculture and the state infrastructure, initially with Soviet assistance; however, China was isolated from the capitalist states and (from the 1960s) the Soviet Union. Global trade slumped in the 1970s-80s as the extraordinary post-war boom gave way to capitalism’s inherent crisis of profitability. From 1976 under the leadership of Deng Xiaoping, China followed a process of ‘reform and opening up’, resulting in the resurgence of private property and capitalist exploitation. The US and the People’s Republic of China normalised their relations in 1979. In 1986, China joined the GATT. Foreign capital flowed into China, further industrialising the country. China became the ‘workshop of the world’, with a highly-disciplined industrial army largely composed of rural-to-urban migrants, having a working-age population in 1980 of 550 million.

Following the collapse of the USSR in 1989-1991, the world entered a period of rapid globalisation and imperialist expansion albeit on a shrinking western industrial base, characterised by a massively expanding parasitic financial services sector. This was formalised with the founding of the GATT’s successor, the WTO, which demanded from its members further liberalisation of trade relations, mass privatisation and low taxes. In 2001, China joined the WTO in return for cutting tariffs on imports and committing to respect intellectual property.

The value of goods imported to the US from China rose from $100bn in 2001 to more than $500bn in 2017. For much of the period since opening up, goods ‘made in China’ were lower in the value chain, as Western companies outsourced the manufacturing of components or cheap consumer products such as clothes and toys, then took the lion’s share of profits when the products reached affluent western consumers. The ‘workshop of the world’ reduced inflation for western countries, and therefore kept wages low and profits high for their corporations, preserving the social existence of their middle classes while western industry shrivelled up. From 2001-2007, prices of consumer goods in the US fell by 2% for each percentage point increase in China’s market share. This increased US households’ annual purchasing power by $1,500, with proportionally larger gains for poorer households.2 China also used its trade surplus with the US to purchase over $1 trillion of US treasury bonds, funding the US’s federal budget deficit.

The spectre at the feast

Western ruling classes gambled that the infiltration of foreign capital and products would open up cracks in China’s state-led economy and enable regime change or balkanisation. Yet China has not returned to the status of a semi-colony plundered by imperialists. The CPC maintained control over China’s state and ownership of key industries and banking; it succeeded in harnessing the imported capital, technology etc for national development using state planning. China has climbed the value chain and boasts increasingly advanced, high-skilled manufacturing sectors. The Chinese economy has quadrupled since the late 1970s to become the second or first largest economy in the world, depending on how it is measured. China’s native bourgeoisie has gone from strength to strength; China had 607 billionaires (in USD) in 2022, second only to the US’s 735. To escape the trap of underdevelopment in a world dominated by imperialist powers through such an independent, state-led capitalist development would have been next to impossible in a country that had never undergone a socialist revolution.

Following China’s accession to the WTO, the US’s trade deficit in goods with China grew from around $100bn a year in 2002 to $300bn in 2011 and peaked at $419.5bn in 2018 by which point China was the US’s number one trading partner in goods. Biden’s predecessor Donald Trump opened the trade war in 2018 with 25% tariffs on various Chinese exports to the US worth $50bn. China retaliated with its own tariffs. The deficit began to shrink. Biden, now losing in the polls against Trump for a second term in the White House, has chosen this moment to declare a long-awaited escalation of the trade war. Biden’s new tariffs are popular with sections of working class voters in the ‘Rust Belt’ where Trump has historically won votes. The United Auto Workers trade union approved of the tariffs, which it said would ensure ‘the transition to electric vehicles is a just transition’. In reality the tariffs will give relief to the fossil fuel industry as the ‘green transition’ is delayed.

Imperialist splits

On 13 September 2023, European Commission President Ursula von der Leyen stated that the ‘global market is flooded with cheaper electric vehicles’ the price of which ‘is kept artificially low’ thanks to China’s ‘huge state subsidies’. The Commission launched a competition probe into Chinese subsidies for EV manufacturers on 4 October 2023, due for publication in early July 2024. Biden’s tariffs will heap pressure on the EU to raise tariffs, as China’s EVs destined for the US will now be diverted to Europe. An analysis by Rhodium group predicted that tariffs of 40-50% (up from the current 10%) ‘would probably be necessary to make the European market unattractive for Chinese EV exporters’. However, the EU fears a trade war with China which was Germany’s top trading partner for eight years until it was overtaken by the US in 2024.

Chinese President Xi Jinping toured Europe in early May. He courted French and German leaders, prompting the Financial Times’ Gideon Rachman to warn that ‘Xi is probing for cracks in the EU and NATO’ (6 May 2024); French President Emmanuel Macron said in April 2023 that Europe should not get caught up in the US’s provocations against China over Taiwan, and has championed the notion of EU strategic autonomy.
While Britain no longer has much in the way of manufacturing industry to protect from Chinese competition, British imperialism’s strategic alliance with the US and the threat of competition from Chinese investment across the world compel the ruling class to take an increasingly aggressive stance. On 7 May the British media lit up with the story that 270,000 payroll records of armed forces personnel had been exposed by Chinese hackers; the British government admitted that there was no proof of Chinese state involvement, but could rely on the tabloids to scream about a ‘Chinese cybersiege’. On 19 May Britain’s foreign minister Grant Shapps said he was ‘extremely concerned’ about growing ties between Russia and China because ‘these are two countries that do not believe in democracy’. The Labour Party has plans to create a cross-department body to tackle ‘hostile states’ explicitly including China; it is committed to the AUKUS military alliance which seeks to encircle China.


An analysis by Barclays Bank in September 2022 warned that the period of globalisation appears to be giving way to an era of ‘deglobalisation’.3 The shocks to global trade of the Covid-19 pandemic and the war in Ukraine have accelerated the tendency towards the unravelling of global trade networks, especially for energy, driving high inflation which has punished the working class for years, reducing real wages. In 2020-22, global living standards fell consistently for two consecutive years for the first time in three decades, according to the UN. Human progress is being held back for the sake of private profit.

This shift towards protectionism exposes capitalism’s inability to continue developing the productive forces internationally. In the 1970s as the world returned to crisis conditions, the RCG argued that only socialism offers a way forward: ‘the development of the productive forces to the degree achieved today come about precisely because capital is driven beyond national barriers. Socialists see this as their starting point and recognise that capitalism is no longer progressive, and this has been the case since before the first imperialist war, because capital has itself become a barrier to the further development of the productive forces on this international basis...Internationalism has to be central to any programme of the labour movement in this period of growing capitalist crisis.’4 The same argument applies today.

1. Trevor Rayne, ‘China on top of the world’, FRFI 266 October/November 2018.
2. X Jaravel and E Sager (2019), ‘What are the Price Effects of Trade? Evidence from the US and Implications for Quantitative Trade Models’, CEPR Discussion Paper No 13902.
3. Christian Keller and Renate Marold, ‘Homegoing: The acceleration of deglobalisation’, Barclays Research, 28 September 2022.
4. Paul Bullock and David Yaffe, ‘Inflation, crisis and the post-war boom’, Revolutionary Communist No. 3/4 November 1979. Emphasis in original.