Supporters of the global free-trade regime that has been built up over the past 25 years like to think of themselves as capitalists. Benevolent capitalists, perhaps — ones who have only the interests of the world’s poorest workers and their own nations’ least wealthy consumers at heart — but capitalists nonetheless. So why is the biggest beneficiary of their world order in fact the last of the great, deadly serious Communist states — the People’s Republic of China?


Trump’s tariffs, far from being the end of the liberal economic order, may be the one thing that can save it. That order, after all, to an embarrassing degree depends upon America’s dominant position in the world. After the second world war, America helped to rebuild the industrial economies of friends and former foes alike. Even as American goods flooded Europe — or at least those corners of the Continent that could afford them — Washington dedicated extraordinary quantities of taxpayers’ dollars to other countries’ needs. The Marshall Plan was only a fraction of the real cost, which included above all the military support that America supplied. Building a welfare state is much easier when someone else is picking up your national defence tab. American motives were not entirely altruistic, but it was a good deal for Europe, and East Asian allies too.


By the 1980s, though, the system started to crack. American industry had been so far ahead for so long, and had grown so large and so lazy, that it began to lose its competitive edge. Japan and Germany, the old foes who were the greatest beneficiaries of the American order, continued to rely on Washington’s defence largesse even as they began to compete as peers — or more than peers — with American industry. Washington itself, meanwhile, seeing the benighted state of many domestic manufacturers, decided that a dose of international competition was the cure. China took note. So did American firms that decided they could maximise their shareholder revenue and their executives’ compensation by dismantling their own production chains: they could lay off an expensive American workforce and hire a cheaper one in Mexico or Asia; and they could outsource the components of their products — cell phones, computers, cars, even fighter jets — to specialist manufacturers in countries whose governments and business elites jointly put a priority on the most high-value and technical kinds of manufacturing. While the American business elite fascinated itself with chatter about brands and intellectual property and making products cheaper all the time, savvier countries focused on being able to do the making best. Meanwhile, US taxpayers continued to be on the hook for Cold War allies’ defence, even though the world economic conditions and domestic industrial advantages that had allowed America to be so generous had long since evaporated.


No one can blame Europe or Japan for taking advantage of a system that lets them have it both ways for as long as it lasts: a system that lets them shift the burden of defence — any state’s first imperative — on to a friendly hegemon, even while working assiduously to tear apart the hegemon’s industry.


The present broken world economic system will continue to empower China relative to the US for as long as China lets it run. President Xi Jinping would be happy to see it run forever — or at least until it reveals that America is no longer strong enough to be plausible as even a nostalgic hegemon. At that point, China will have won a world war without firing a shot.


The tariffs shock American elites because they show that Trump does not believe in the myth of infinite American power — so vast that the moment of supremacy after the second world war need never end — and they endanger the elite’s scam of getting rich off chopping up and selling American industry. European leaders are shocked that their free ride might come to an end: they cannot continue to receive a subsidy from Washington — in the form of defence — while they chip away at the American economy that makes the subsidy possible. And China is shocked that the self-liquidating superpower of the West might not be so self-liquidating after all.


Trump’s instincts are correct. No major country on earth can successfully retaliate against America in a trade war, for the simple reason that America has trade deficits with them all. America has proven more than once that its large and rich internal market can support itself, and if consumer prices rise, there is a point up to which a marginally more expensive flat-screen TV is worth the higher price in exchange for more Americans making those TVs in the first place. The calculation isn’t simply an economic one, but a strategic one too. Steel is a place to start because it shows in clear terms how the entire global economic scam works. China subsidises its industry and produces so much steel that the world price falls. This is uneconomical, but strategically smart. Allies of the US lower prices accordingly — sometimes they have their own elaborate forms of indirect protection, and sometimes they simply re-import Chinese steel — and the US steel industry, once the world’s leader, shrinks. American industries that depend on steel then come to depend more on imports, and ultimately on the Chinese subsidy for the global market. When American steel production has been weakened enough — it’s not an industry that can be rebuilt in a day — China can cut its subsidies, watch prices rise, and gain tremendous leverage over everyone who needs steel, including the steel-using industries of what was once the world’s sole superpower, the United States: no longer a nation of power producers, but one of dependent consumers.