this post was submitted on 24 Jan 2026
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How many times do I have to say on Hexbear that we are going to see a renewed status quo between the US and China as the final outcome?
The reason is that Trump’s main goal is to reduce the US trade deficit, and despite the vast bilateral trade imbalance between US and China, post-Covid China is simply struggling to bring up its domestic consumer market to allow China to import more from the others. Arguably, China is having its own very difficult issue to deal with, which is deflation, and I remind everyone that deflation is much more dangerous than inflation and a worse situation to be in.
Like, what is the US going to do? Force China to buy American goods at such cheap price that the US companies might as well be making losses? China simply does not have the capacity to import from the rest of the world now. The most the US can do is force China to appreciate the RMB exchange rate but it is still not going to work - Japan after Plaza Accord still did not yield re-industrialization of the US, and the average Japanese household of the 1980s was much more wealthy (adjusted to real terms and prices of the era) compared to the average Chinese household today.
The real target has always been Europe, because this is the region where the households are actually wealthy enough to absorb American exports. This is why the Ukraine war fits perfectly into the US imperial project.
To understand how we come to this, we really need to grasp the principal contradiction of American capitalism. This is really the most important lesson from reading Mao. If you cannot see this from the perspective of class analysis, geopolitics is not going to make sense beyond “big powers vying for global domination”.
Why does Trump care so much about the US trade deficit? To answer this question, we need to understand the nature of dollar hegemony first.
The principal contradiction that the US capitalism is facing is this - how can it maintain its global financial hegemony while years of de-industrialization have caused growing domestic dissent and rising populist sentiment from its own working class that has become disillusioned and disenfranchised by the neoliberal capitalist system?
The 2008 crash has permanently shut the upward social mobility for most American “middle class” households. The dream of a “temporarily embarrassed billionaire” has evaporated before most of them. The vast majority of wealth generated during the economic recovery under Obama went to the top 1%. The massive wealth inequality and entrenchment of social classes resulted since the neoliberal era of the 1970s have finally manifested in the explosive popularity of the Bernie Sanders movement on the left, and Donald Trump’s MAGA movement on the right, during the 2015 primary elections.
There is a faction within the US imperial regime that believes that the US long-term de-industrialization is caused by the global reserve currency status of the dollar (see Stephen Miran’s arguments on depreciating the dollar) and wants the US to give up its dollar hegemonic status. This reasoning is not correct, of course, because the US government can always run the fiscal policy to re-industrialize itself and raise the living standards of its own working class irrespective of its dollar status as the global reserve currency, but that would directly oppose the neoliberal project itself (you can even call it socialism lol):
Hence, the US capitalism is now caught in a spiraling contradiction: how to maintain the hegemony of its financial capital while also suppressing the growing dissent from its own population who are becoming disillusioned by the system?
Well, a strategy here is for the US to start shifting its dollar export mechanism: from exporting the dollar by running persistent trade deficit to exporting dollar through foreign investment. This will allow the US to retain its dollar hegemony while reducing its trade deficit at the same time.
How to get there? First, you need to control the European market, where is actually wealthy enough to absorb American exports. This is being achieved through the Ukraine war, by cutting off their cheap energy sources from Russia, by manipulating the global energy prices through geopolitical maneuvers.
Second, make the rest of the world dependent on US foreign investment money. This is being achieved through Biden’s hiking the interest rates (which caused a global dollar liquidity shortage) in response to rising inflation, and now Trump’s global tariffs (which leveraged China’s vast export industrial capacity to redirect its export flows to the other exporter countries e.g. dumping its surplus export goods to the EU and Southeast Asia). As these countries can no longer absorb the surplus goods from China, with failing domestic industries that cannot compete against Chinese competitors, they will become vulnerable to foreign financial bailouts (e.g. IMF bailouts).
So the end result is most likely this:
The rare XHS effort-post outside of the news mega, today we are blessed
This is an interesting analysis, thank you.
There are some wildcards that could throw off the (imo, rational) historical trajectory that you detailed:
How likely any one of these factors is, probably not that likely. Any crystal ball is likely to be cloudy for a while though.
I don’t disagree. I am just laying out the dynamics of the inherent contradictions of American capitalism. Whether it will go down a certain path and whether it will succeed are entirely different questions, and the new contradictions that will emerge in doing so. It’s like trying to model the weather - we know a lot about how air movement and pressure systems cause precipitation, but we can only forecast it (with some level of accuracy) no more than a few days out. It is a non-linear complex system.
From what I’ve read recently, they’re pushing data centers to many countries at the same time. So it goes along xhs thesis about expanding FDI making other markets captive to US interests.
I think the other points are a bit optimistic. But point 6 seems to always be underestimated whether catastrophic weather phenomena or pandemics.
Point 7 is interesting because the factions within the trump admin are often in opposition in methods and outcomes. So the incompetence and the hubris can lead to failures in their goals.
I do think that corporate sway over policy which may contradict admin, social breakdown due to pullback of welfare and basic services, and internal political fracturing and strife within the US are more wildcards that could radically change outcomes.
This is a great point. Private corporations hold a lot of control over the US state proper, which could undermine the state’s functional purpose of managing the common bourgeois class interest, as individual capitals influence one-sided decisions at the state level which are self-destructive in the long term. But idk, corporations also got in line behind Trump real quick this second term, so even that feels like cope as I’m writing it. Guess only time can tell how competent these fascists are.
While corporations especially Silicon Valley ones did fall in line, trump still seems sensitive to markets which appear to have forced him to back off from certain positions. So maybe it would be better to say markets instead of corporations would sway the admin.
Socialism with burger characteristics
I don't completely agree with this assessment.
Yes, the US could also use fiscal policy to re-industrialize itself. But this would not change the dynamic which leads to a trade deficit for the US. The basic process regarding currency hegemony is, as Steve Keen puts it, as follows
Thus, if the US would re-industrialise, that wouldn't change the structural position of the dollar with regards to other currencies: it would remain relatively too strong. As a result, it would only lead to a more prosperous population in both the US and the rest of the world (as there are simply much more products being produced), but it wouldn't change the fact that the US will remain an importing nation.
Keen is very good as a heterodox economist (way better than the neoclassical economists) and his Debunking Economics book was foundational to my own understanding on economics many years ago.
However, he does not understand how international trade works - Keen believes that when a country earns trade surplus (say, China earns USD by selling stuff to the US), that foreign currency actually leaves the original currency zone (USD leaving the US banking system). This faulty understanding of the monetary system was fully exposed during his debate with Warren Mosler back in 2018. Bill Mitchell wrote an entire blog post debunking this misconception on trade. It still amazes me that even very smart people can have such fundamental misunderstanding about the topics within their own field of study.
Keen even admits that his Minsky software is based on the European central banking model, which does not reflect how fully monetary sovereign system actually works. In his model, the state (currency issuer) is merely one of the players rather than the principal actor that dictates how the financial system actually runs, as MMT has laid out very nicely.
His double-entry book keeping stuff is very good though when it comes to understanding how the financial flow operates in between the institutions.
I have read the blog post you linked to, but I do not understand its relevance to my initial claim. The claim is:
(a) a country with currency hegemony will always be a net importer, as other countries need its currency (e.g. because fossil fuels can essentially only be purchased in that currency).
(b) as a result, the goods produced by that country with currency hegemony are relatively expensive and uncompetitive on the world market
(c) the industrial production apparatus of a country with currency hegemony will therefore disappear in the long term, and with it that country's capacity to enforce its general hegemony.
This is also clearly evident in the dynamics between the US and China: China is building an impressive production apparatus, while the US has developed a “rust belt”. This is a consequence of the currency hegemony in the US.
In my opinion, the blog post you link to does not even disagree with that claim, as it states:
That last sentence is crucial. After all, it is not just about that individual worker, but also about the factory where he used to work, which no longer exists.
In other words, maintaining a current account deficit has led to the closure of a factory in the US and the opening of a corresponding factory in China. So, in China, the infrastructure necessary for hegemony is being built up, while in the US it is being dismantled.
(Fiscal policy could potentially lead to the build-up of additional production capacity in the currency hegemon, but that would not change that country's position vis-à-vis other countries. This might work in the short term, but all other countries still have the same need for dollars. As a result, they will produce even more to sell to the US, so that the relative position of the countries remains the same, albeit at a higher level of prosperity now.)
It can also be said with more certainty that imports are a benefit if the country has a full employment policy, which the US does not.
It gets treats from China well in excess of what it gives to China and rest of the world, that the US de-industrialized itself in doing so is a political choice.
Without a full employment policy, loss of exports for the exporting country means
It will lose employment, capitalists may not invest with lower demand.
A balance of payments squeeze (basically the amount of resources a country can command abroad) will occur, since many exporting countries can't get more than they give.
With a full employment policy, (1) wouldn't occur, since the state will provide employment and invest as needed. (2) however would be a constraint which is part of the reason why many exporting countries, particularly smaller ones can't decouple from the US.
For the importing country, imports can displace local production within a market economy. However, it doesn't mean the state can't counter it. After all, imports basically mean China is giving the US stuff for free while taking its own electronic entries.
If US wants, it can continue to produce cars, if the quality is as good as Chinese it can set prices to match Chinese ones. If its worse, it can sell the cars at a discount over Chinese ones. The state can set prices this way to keep its industry, the industry may run losses in money terms, but it gives the country self-sufficiency and employment. The US by allowing imports without a full employment policy basically crushed worker bargaining.
There is no need for China to build up the trade surplus (accumulation of dollar-denominated assets) in order to build its industries. As Mosler said, the shipment of Chinese goods to the US could all sink at sea and it does not affect one bit for the monetary situation in China, because as a monetary sovereign state, the Chinese government can always create the RMB (its own currency) needed to drive investment.
The reason China accumulates dollar-denominated assets is because it is following the IMF export-led growth strategy, that in order to keep their government deficit down, they have to first accumulate foreign assets to offset the deficit spending by the government. So, Chinese labor and resources are converted into real goods and services that Westerners enjoy, before they are allowed to invest domestically after earning the foreign revenues.
Keen does not understand that the US dollars (or dollar-denominated assets) do not “leave” the US currency zone when China earns it, so in his model, China is accumulating those assets while the US has to lose them. This failure in understanding the monetary logic is behind his entire argument.
Put another way, MMT asserts that the Chinese government does not have to balance its budget per the IMF. It simply has to run up the deficit (like the Americans do) to keep its industries working and workers employed, but this time, instead of an export-oriented model, Chinese labor and resources will be used to fulfill the demands of its domestic economy. Similarly, the US does not have to de-industrialize itself to preserve the reserve currency status of the dollar, because the US government can always run the fiscal policy to ensure full employment, social welfare and free healthcare to all its citizens without losing the dollar hegemony.
Btw, which text of Jia Genliang are you referring to? I can't find anything from that person about Europe. Thanks!