Losing Ground

The global financial crisis forced the Fed to introduce major bailout programs to save Wall Street investment banks and shadowy financial services from total collapse. At the same time, it drove interest rates down to zero, sapping the power of the dollar and making imports expensive. In a similar vein, the US Treasury later poured trillion of dollars into rescue plan programs, tax credits, and other benefits to limit the economic and social damage caused by the COVID-19 pandemic. This was a bacchanal for corporate America, but it also fuelled inflation.

The unrelenting competitive drive of China on a global scale reinforced the disintegrative tendencies of US primacy. China has been making headway since 2007–08, launching the Belt and Road Initiative and initiating a spree of asset acquisition and infrastructure construction across Asia, Europe, and Africa. At the same time, it became a crucial manufacturing link of hybrid production networks and supply chains, and its companies partnered up with leading Western corporations, only to outcompete them afterward.

Overall China is not “America’s head servant,” as some analysts used to argue. While US transnational corporations (TNCs) may still repatriate profits from operations on China’s Eastern coast, Chinese state-owned global enterprises compete head-on with those firms on a world scale, especially in fields such as semiconductors, biotechnology, the production of electric vehicles (EVs), and artificial intelligence.

Since 2003, China’s corporations, both financial and nonfinancial, have been on a continuous rising path in their sheer numbers as publicly traded companies, whereas the US record shows a protracted decline. The Industrial and Commercial Bank of China took the top spot on the Forbes Global 2000 list for seven years in a row from 2013 to 2019. Data sourced from the Shanghai Shenzhen CSI 300 Index show the heavy weight of Chinese corporations in the capitalization of global markets.

If we deduct the relatively low taxation regime in the United States from the calculations, then Chinese corporations are almost on a par with American TNCs. When it comes to high-tech, semiconductors, EVs, and commodities related to green energy, members of the circle around Donald Trump (especially this time around) believe that Chinese ascendance ultimately rests upon the vast reserves of rare earth elements and minerals (REEMs) it controls. Those materials are abundant in China, where they are extracted and refined, as well as in Africa, where China has already stepped in with significant investment projects and trade relations.

Sloppy management of global and domestic affairs by the Obama and Biden administrations made matters worse. The Trump circle argues that regulation measures imposed on Wall Street created a rigid business environment sapping profits and entrepreneurial culture. Proxy war in Ukraine, hoping to bring about a Russian defeat and restore transatlantic unity via the division of spoils, since both Ukraine and Russia are superrich in REEMs and hydrocarbons, did not work.

In practice, the war has ended up making Europe weaker and the China-Russia bloc stronger, not least because of the bloc’s influence on the Global South inside and outside the United Nations. High energy costs have had a shattering impact on German industry after the severing of the country’s energy link with Russia, with companies migrating either to China or the United States proper. Europe as a whole is in recession, while Russia’s economy has withstood the ravages of war and sanctions.

It appears that NATO’s eastward expansion and the positive results it can bring to Euro-Atlantic capitalism and the DWSR have reached their limits. Ukraine’s economy and infrastructure are in tatters. The second Trump administration is trying to change the catastrophic course of US hub-and-spoke neo-imperialism before it is too late.

MAGA means rebuilding American power by serving, first and foremost, the interests of the new US ruling class in Wall Street, not the rest. At the heart of the MAGA project is the restoration of dollar dominance and Wall Street high-tech business.

Fighting Back

The new administration has set about dismantling the bipartisan state apparatus built over decades. This includes redundancies for administrative personnel, especially those who are not on board with the MAGA project, and a shake-up of the health system. The steps taken represent a truly conservative radicalization of the American polity in order to strengthen the executive and reduce budget deficits at state and federal levels while promoting a massive upward distribution of wealth.

Cuts in health care and food stamps exceed $1 trillion. Washington’s contributions to international organizations are either being reduced or scrapped altogether as it withdraws from bodies like the World Health Organization. Elon Musk’s entirely new Department of Government Efficiency (DOGE) shows the real intention of Trump’s government, which seeks to strengthen ties between executive power in Washington on the one hand and the high-tech digital American corporations with their networks dominating Wall Street on the other.

Trump’s executive order setting up DOGE states that the objective, albeit temporary, is to carry out spending cuts and to modernize federal technology and software while maximizing governmental efficiency and productivity. According to Trump, this will eradicate unnecessary and unproductive regulations imposed by Barack Obama and Joe Biden on Wall Street.

When Trump signed the flagship Tax Cuts and Jobs Act into law in December 2017, the whole of Wall Street rallied behind his administration. During Trump’s first term in office, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite soared by 57 percent, 70 percent, and 142 percent respectively. Today all Wall Street investors are hoping for a repeat performance. It is no accident that many Wall Street operators, including finance titans Bill Ackman, Scott Bessent, and Stephen Schwarzman, endorsed and sponsored Trump’s return to power well before the November 2024 election.

From a political economy perspective, at the heart of those processes lies the issue of dollar dominance in global currency markets and international trade and investments — in other words, the ability of the US executive and the Fed to determine its price and gyrations both domestically and globally. Last year’s International Monetary Fund (IMF) data on the currency composition of official foreign exchange reserves pointed to an ongoing gradual decline in the dollar’s share of allocated foreign reserves. Rival currencies such as the euro, the yen, and the British pound made no serious advances, although China’s renminbi, South Korea’s won, and even cryptocurrencies did gain significant ground.

The Chinese state has advanced policies that promote the internationalization of the renminbi, including the establishment of a cross-border payment system, while piloting a central bank digital currency. Barry Eichengreen and his colleagues warned in an IMF-sponsored report published last year that the renminbi’s market-share gains match a quarter of the decline in the dollar share. This is significant, especially if one takes into account the fact that China still maintains capital controls, which limit the ability of its currency to take off in global capitalist market conditions.

Trump’s team has a derisive view of the “green transition” and “green energy” projects, viewing them as mock exercises sacrificing billions, if not trillions, of dollars on the altar of nonsensical “progressive” ideology. For them, the substance lies in the real stuff: oil, gas, and other hydrocarbons. It is no accident that the Saudi capital, Riyadh, was chosen as the site for negotiations between Russian and US emissaries over Ukraine.

Russia can no longer be excluded from the European security architecture. But Saudi Arabia matters too. Trump’s circle sees the embrace of the Saudi oligarchy by Russia and China as a threat because there is a serious underlying risk. The country with the largest oil reserves in the world and a “swing producer” in OPEC may stop investing its surplus dollars from the petroleum trade in Treasury bills.

The recycling of petrodollars has been a key tenet of the DWSR since the early 1970s, following an agreement between Henry Kissinger and the Saudis. Trump’s proclaimed tariffs, if not used as a threat, will drive up the value of the dollar, strengthening the DWSR. The yields structure of Wall Street market platforms can offset possible inflationary trends, since the price of bonds, especially short-term maturity bonds, will go up.

If there is more uncertainty and geopolitical risk, we can expect the DWSR to benefit, as investors will rush to invest securely in dollars guaranteed by the power of the American state. The liberal argument that Wall Street equity structures would be damaged makes no sense, as the experience of Trump’s 2018–19 tariffs showed: the negative impact was a blip, and tariffs did not negatively affect the performance of capital markets.

Selective tariffs also helped reduce the US trade deficit while boosting some sectors of domestic manufacturing. After all, Biden did not alter the tariff regime that his predecessor had imposed. All of the above, of course, is bad news for workers. Tariffs are nothing but a tax on the working class, enabling further tax cuts for high-tech corporate America without driving up the national debt.

All in all, Trump’s key effort is the strengthening of the DWSR under the aegis of new high-tech digital oligarchs. America’s global projection of power will follow from this effort.

Future Conundrums

Obviously, Trump is no Bolshevik. He has radicalized the American state, but this radicalization is premised entirely on supply-side principles serving the new oligarchy. The transatlantic economic and security bond is far too strong and deeply institutionalized, alongside hub-and-spoke arrangements that cannot be eradicated so easily.

Trump’s plan for Ukraine has many hurdles to overcome, such as the sanctions regime on Russia and the future of relations between Ukraine, NATO, and the European Union. The US government cannot order European states to abolish their sanctions, from which Russia suffers the most. A new version of Yalta may be in the offing over the medium to long run, with Russia included as an equal partner while China is recognized as an expanding high-tech powerhouse that should be contained. But this cannot happen straight away.

The interim will be fraught with conflict and instability. Europe may withhold $220 billion of Russian cash frozen in European banks and continue with sanctions even if the US loosens them. Washington may stop committing troops and hardware for the defense of Europe, simply because the Indo-Pacific theater and China represent the key challenges for US geopolitical and military hegemony.

Russia is fully acquainted with war and massive defense budgets, but Europe is not. There are now strident calls for Europe to dismantle its welfare systems in order to redirect money into defense budgets. This will not be an easy task, but if we assume it is carried out over the coming years, it would entail forms of “offshore balancing” for the United States, a position that some American realist theoreticians such as John Mearsheimer are keen on.

The passage from hub-and-spoke onshore arrangements to “offshore balancing” will be an arduous, long-term process with no guarantees for peace. Europe can include Russia in its security architecture without damaging US interests in Eurasia, but this will take time to materialize, if it ever does, not least because of bureaucratic, ideational, and institutional constraints that decades of transatlantic neo-imperialism have created. For the time being, Europe is the war party demonizing Russia the same way that the US demonized the Soviet Union during the Cold War.