Trump's 34% tariff gambit against China is the latest convulsion of a capitalist system in decay. For four decades, neoliberal orthodoxy gutted the US industrial base, outsourcing production to low-wage markets to maximize shareholder profits. The result is a financialized economy where Wall Street thrives while the real economy lies in ruins. Tariffs, sold as economic populism, are a naive attempt to reindustrialize the economy. However, this policy cannot work without massive public investment in factories, worker training, or supply chain sovereignty. All the tariffs can accomplish is to inflate consumer prices while enriching the same oligarchs who lobbied for outsourcing. The US now finds itself in a middle of a massive contradiction: protectionism requires a productive base, yet capitalists long ago abandoned production for speculation.

The US corporate aristocracy, living off cheap overseas labor and deregulated profit extraction, rejects the long-term industrial policy needed to revive manufacturing. Why? Because reinvesting in domestic production would require taxing capital, regulating markets, and empowering labor. All such policies would be anathema to the billionaire class. Meanwhile, the working majority, promised a renaissance of industrial dignity, will only see higher prices and stagnant wages. What we're really seeing here is class struggle masked as trade policy.

China's calculated response of export controls on key rare earth along with the reciprocal 34% tariffs reveals a strategic depth absent in the US. China is able to seamlessly coordinate industrial policy, resource control, and geopolitical aims. China made massive investments into making itself an essential global producer of rare earths which are vital for semiconductors, weapons, and green tech. Now, China is able to weaponize the very supply chains that western capitalism outsourced. Where the US sees trade as a ledger of deficits, China sees it as a battlefield of material dependencies.

The most likely outcome of the tariff war will be further erosion of dollar hegemony. The US pushes nations to look for alternatives by weaponizing the dollar and extracting seigniorage. At the same time, China's BRICS+ alliances and Belt and Road infrastructure offer a pragmatic path forward for countries that wish to retain their sovereignty.

The trade war is a symptom of capitalism's systemic crisis. As the multipolar world emerges, western workers will bear the brunt of new economic realities unless they are able to seize the means of production. The tariffs are mere tremors, the earthquake will come when labor finally rejects the logic of capital altogether.

Steve’s guest is noted economist L. Randall Wray, one of the early developers of modern money theory. As many times as this podcast has talked about MMT, it’s always topical. In fact, just last week, Elon Musk discovered 14 magic money computers in government agencies!

So, Trump had to hire the richest man in the world who hired who knows how many hundreds of young tech kids to discover what we’ve been saying for 30 years, which is that Congress appropriates money, and then the computers keystroke it into people’s accounts.

There’s no mystery about this at all, but they think they’ve discovered not only something that people didn’t know, but something that’s, oh, it’s so scary. It’s nefarious that the government uses computers to increase the size of people’s accounts. Well, that’s spending. That’s the way it’s done.

Clearly, this is a good time to revisit the valuable insights of MMT and look at the implications for building a society that serves its people.

This episode dives deep into the fundamentals, debunking misconceptions about government spending, the role of taxes, and the myth that the US government can run out of money, like a household.

Randy and Steve talk about changes in the economy due to financialization, and the difference between budget constraints and inflation constraints. Randy explains why we need to look at the history of debt in order to understand money. He talks about banking, including transactions between the Federal Reserve and the Treasury.

The conversation breaks down complex concepts into relatable terms, sometimes with a touch of humor.

Bullets:

• Western media outlets, Wall Street, and Silicon Valley are belatedly coming to the same conclusion: years of falling asset prices and cost of living has made China the most competitive economy in the world.

• Our top government officials, industry leaders, and columnists were predicting a collapse in China, because they completely misunderstood the long-term policy implications of falling costs across a modern economy.

• China was the only major economy to see long-term deflation in recent years, and the costs of housing, commercial rent, food, electricity, travel, and education were pushed lower because of soaring industrial productivity and efficiency gains.

• Now China is reaping the benefits of building a ruthlessly cost-competitive economy that dominates in most areas of manufacturing, raw materials sourcing, high technology, logistics, education, and health.

Warren Mosler, The Founder of Modern Monetary Theory (MMT), comes on 1Dime Radio to talk about MMT, what Elon Musk's DOGE (Department of Government Efficiency) gets wrong, Trump's tariffs, inflation, and an alternative for a better tax system.

https://en.wikipedia.org/wiki/Warren_Mosler

Relevant 1Dime playlist: Understanding Modern Monetary Theory (MMT)

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Near the start of this episode, Yeva Nersisyan talks with Steve about leftist economists who are still wedded to the belief that government spending relies on taxpayer money. She says if an academic on the left uses the ‘taxpayer dollar’ framing, then you cannot be surprised when the right uses it too – to say they’re saving taxpayer money, cutting wastefulness, cutting inefficiency. It’s why being consistent is so important. If one side can use it, the other side can too.

“It leads to the Elon Musks of the world using this taxpayer money trope to basically take a sledgehammer or a chainsaw to the public sector.”

Yeva and Steve revisit some basics of MMT, including the understanding that a government is not like a household.

Our own spending doesn’t really affect our own income. We’ll still get our wages, we will still have that, and then we will continue consuming, but consuming less and therefore end up with more savings.

But it doesn’t work for the economy as a whole. Because for the economy as a whole, if spending goes down, that means there is now less income, and less income means someone somewhere is earning less and therefore they have to cut their consumption and they also have to cut their saving. And it becomes this cycle where, okay, someone cut their consumption, now someone else is earning less or the grocery store is earning less, right? And now they have to fire their workers. Now their workers don’t have income and they are spending less, and so on and so forth.

Yeva and Steve go into other insights of MMT, including sectoral balances and the reality of the so-called national debt.

They unravel the absurd dynamics of current economic policy and look at the implications of proposed spending cuts by the Department of Government Efficiency, or DOGE. Fallout from the government’s ruthless abandonment of social programs will be disastrous.

Yeva Nersisyan is an associate professor of economics at Franklin and Marshall College in Lancaster, PA. She received her B.A. in economics from Yerevan State University in Armenia, and her M.A. and Ph.D. in economics and mathematics from the University of Missouri-Kansas City. She is a macroeconomist working in the Modern Money Theory, Post-Keynesian, and Institutionalist traditions. Her research interests include banking and financial instability, and fiscal and monetary theory and policy. She has published a number of papers on the topics of shadow banking, fiscal policy, government deficits and debt, and the Green New Deal. Nersisyan is currently coediting The Elgar Companion to Modern Money Theory with L. Randall Wray.

Find her work at <levyinstitute.org/publications/yeva-nersisyan>