The United States has, by now, sent letters to 21 of its trading partners in dribs and drabs, listing tariff on their exports to the US starting August 1, if they fail to agree to US diktats. The first letters went to its big trading partners Japan and South Korea, announcing a 25% tariff. In 2024, US goods trade with them was approximately $228 billion and $197 billion respectively. Some minor trade partners face stiffer tariffs; Laos and Myanmar face a 40% tariff while their trade with the US is $844 million and $734 million respectively.These tariffs are supposedly based on the ‘reciprocal tariffs’ announced on April 2, 2025. These are far higher than the average tariffs of around 2.5% that prevailed before Trump took office. Further, nations have been threatened with even higher tariffs if they retaliate. Tariff on copper, for instance, is proposed at 50%. These are ‘protectionist’ tariffs, not reciprocal.The other part of Trump’s plan is the ‘Big Beautiful Bill’ which passed by a narrow margin. The Senate passed it with the US vice-president casting his vote and the House passed it 218 to 214. Reluctant Republican Congressmen and Senators were arm twisted to secure the win.MAGAThe objective of the Bill and the ‘protectionist’ tariffs is to help Trump achieve his stated agenda of making America great again (MAGA).Why again? The US has been the world super power in military, diplomatic and economic terms. The evocative MAGA slogan was used during the 2024 elections. It appealed to the US public which has experienced a psychological blow since the pandemic. The US experienced the largest number of deaths, leading to insecurity in the populace and an economic downturn, high inflation and scarcity of good jobs. Workers did not want to do the service sector jobs that were the most impacted by the pandemic, leading to a shortage of labour in restaurants, markets, and so on. Sectors like information technology revived quickly, leading to rising inequality. All this heightened disquiet in the public and Trump’s slogan attracted them.The slogan also appealed to the public because the blame for their problems was put on the rest of the world. China, India and Mexico were stealing the good jobs that were earlier with the workers in the US. The high trade deficit of the US is given as proof of other countries taking advantage. Migrants are blamed for draining the US economy and growing crime. This creation of an ‘other’ appealed to the insecure public. Facts did not and do not matter to Trump’s supporters.Who is exploiting whom?The per capita GDP in the US in 2024 was $85,809.9. Though tiny economies like Monaco and Singapore have a higher income, among the major economies, US is at number 1. Germany is at $55,800.2 and Japan at $32,475.9. The world’s average comes to $18,800, China is at $13,303.1, Mexico at $14,157.9 and India at $2,696.7. So, the countries supposedly stealing jobs are struggling to reach the world average, though China is close.The reality is that the US has been taking advantage of the rest of the world. It has been living beyond its means and enjoying a high standard of living. Its consumption is subsidised by the rest of the world which provides it with cheap goods and services. It can buy what it wants and does not have to pay for it.Its excess buying from the rest of the world results in a high US trade deficit. But it does not have to pay back because it gets an equal amount of investment or loan when the rest of the world buys treasury bonds and holds dollars. There is a dollarisation of the world economy since the dollar is globally accepted as a safe asset. This boosts investment and growth.For instance, China has a huge trade surplus with the US and much of the foreign exchange it accumulates (though the share is declining) is held as US treasury bonds. This is like a shopkeeper giving a customer more and more loans to increase their consumption, but they do not have to pay it back. So, their standard of living becomes way better than what their income would allow.Wages in India and China are low compared to the US. In India, most workers earn less than Rs 10,000 per month according to the E-Shram portal, that is about $4 per day. In the US the federal minimum wage is $7.25 per hour. But in many states it is $15 an hour and in automobile sector it is between $18 to $36 per hour. So, at the minimum wage, an American worker gets Rs 5,000 per day. However, a typical American industry worker earns in a day what an Indian worker earns in a month. Chinese workers also earn far less than US workers. So, the high standard of living in the US is at the expense of the Indian and Chinese workers.New division of labourThe high wage differentials determine the cost of production of goods and services where the technology used is similar, like in automobiles or steel production. Thus, China, India and Mexico outcompete the US producers in the sectors that use low and intermediate technologies. So, the production of such items has shifted out of the US, leading to a high trade deficit and loss of employment in the US. But, US consumers get these items of day to day consumption much cheaper than if these items were produced in the US.The surplus from production that should have accrued to the exporting countries is appropriated by multi-national companies from the US and other advanced countries. Thus, not only are wage differentials high between the advanced countries and the developing world, but poverty persists. This is driving migration from the poorer to richer countries like the US and Europe.Migration is also aggravated by the wars and unsettled conditions in many parts of the world. Migrants are not only looking for better living conditions but also for safety of their families. The advanced countries’ interference in other countries over the years has destabilised them and led to failing states torn apart by civil wars, like in Sudan, Somalia, Ethiopia, Libya, Syria, Afghanistan, Iraq, Colombia, Central America, and so on. So, US immigration is also linked to its foreign policy which has sought to dominate the world. The US has the largest number of military bases in the world and has been in the largest number of wars globally since the World War II.Wages and inflationMigrants in the US, legal and illegal, provide cheap labour. They work at less than the minimum wages; especially in agriculture and menial services. In the ‘Big Beautiful Bill’, $168 billion is earmarked for immigration enforcement. Funds are allotted to building the wall, recruiting more ICE agents, building detention centres and deporting migrants. If 1 million migrants are deported annually, not only would output fall, wages and prices are likely to rise due to labour shortages.Further, the Bill while continuing direct tax concessions granted during Trump’s first term, is proposing cuts in social security like Medicaid and food benefits. This is iniquitous since the well-off benefit from the direct tax cuts while social security sustains the poor. The cost of living for the poor will rise, thereby lowering their living standards.The proposed tariffs on imports will aggravate their situation. A base 10% tariff has been already imposed and on August 1, the new deadline set, additional tariffs will be levied on imports. So, the tariff has already increased by 7.5% compared to the average prior to Trump assuming office. A part of this increase may be absorbed by the exporters by squeezing their margins. Given the competition in global trade, margins cannot be high and they cannot be squeezed for long. So, prices are likely to rise. It is possible that over time, exporters will squeeze the already low wages of their workers to absorb the squeeze they face.High tariffs likelyTrump does not want production continuing in other countries since that will not bring back the jobs to the US. He would like to restrict imports into the US so that production can take place in the USA. This is protectionism and will lead to price rise in the USA.Trump, is targeting return of intermediate technology production like, automobiles and electronics. That is where the good jobs were in the US three decades ago, and they have migrated to countries where the wages are much lower than in the US, like in China. For increased production in the US, tariffs have to be kept high to nullify the wage differential effect. That is protectionism. Reciprocity would imply tariffs to be at the same level as imposed by other countries. But that will not overcome the wage differential.The implication is that either way, the price of imported items will rise – whether their production returns to the US or they are imported. Unless the wages in the US are squeezed substantially. Whichever way it happens, the living standard of US workers will be squeezed due to price rise and/or wage squeeze.This is a recipe for stagflation, uncertainty and slowdown in investment. It is being pointed out that as yet the US has not faced stagflation. Prices have been stable, unemployment has remained low and economic growth has declined marginally (0.5% in first quarter of 2025). But, US imports have surged to beat the expected rise in tariffs.Many migrants scared of being caught stopped working so official unemployment figures did not increase. It is expected that prices will rise after the present stocks are exhausted and uncertainty ends – as happened recently in the case of firecrackers that are mostly imported from China. This trend will be countered by the decline in some commodity prices in anticipation of a recession.Finally, the US wants to produce more where capacity exists – agriculture, energy and defence equipment, for example – and export it to other countries which are being forced to lower tariffs. So, Trump wants India and Japan to give access to US agricultural produce by lowering (or eliminating) tariffs. If India does so, it will be at the expense of its already poor farmers. In the US only about 1% depend on agriculture and its farmers get a huge subsidy. So, Indian farmers cannot compete with them. India has increased its energy imports from US by 270% even though this has been more expensive.What of free markets?WTO, dominated by the USA, was all about free trade and multilateralism. It was supposed to invoke ‘competitive advantage’. Why it is being given up in favour of bilateralism, higher tariffs and ‘beggar thy neighbour’.Under capitalism there is an asymmetry between capital and labour, with the former dominating. Labour has seen ups and downs. Movements strengthened it post-WWII. But, from mid 1970s the tide has turned for several reasons. Technical change and labour aristocracy have created a divide. Growing automation and mechanisation have led to unemployment. The decline of the Soviet Union, a 180-degree turn by China in the mid-1970s and their coming on to the capitalist path of development ended the idea of alternatives. ‘Endism’ prevails. With challenge to capitalism gone, exploitation has risen unabashedly. There has been Base Erosion and Profit Shifting (BEPS) and a ‘race to the bottom,’ leading to public resources drying up and a decline of public sector and public services.Thacherism and Reaganism came to the fore in the late 1970s and strengthened what is known as the ‘global finance capital’. Capital’s tremendous mobility has enabled it to extract concessions from national and regional governments – one of them being the weakening of labour. This process has led to the unabashed rise of Trumpism.The raw face of capitalismCapitalism enables the big to swallow the small. This remains an abiding feature but gets modified in times of crisis. For Trump, any modification is softness – a sign of weakness. He is espousing a return to the raw face of capitalism – ignoring the lesson that there is a tendency of demand shortage in capitalism.Trump is bullying everyone. Canada finally succumbed to the US pressure to drop the digital services tax. China has agreed to a deal and exports of rare earths and its products. Heads of state going to pay obeisance to Trump in the White House have been sycophantic to placate him. Universities in the US after showing some resistance have largely fallen in line with Trump’s diktats. Iran’s nuclear sites were bombed in the midst of negotiations and Israel is continuing to receive arms in spite of global condemnation of the ongoing genocide in Gaza.Trump’s ‘One Big Beautiful Bill Act’ is in line with his idea of strengthening capitalism in the US by reducing government intervention. This is also the intent of the tariff war. But, are these in the long term interest of global capitalism?Capitalism’s survival has required government intervention to boost demand. It has also taken care of the ill-effects of market failure and prevented social upheaval that could follow growing exploitation and inequality. This created a soft face of capitalism in the form of the welfare state, post World War II. Even in international negotiations in the WTO, a soft face emerged with some give and take between the rich nations on the one hand and the developing world on the other. The World Bank also talked of a ‘safety net’ in the mid-1980s and later suggested Universal Basic Income. These have been all attempts to keep demand up in spite of rising inequality.Trump is overturning all this. NATO member countries are being forced to spend 5% of GDP on defence. This will strengthen the military-industrial complex, mentioned by US president Eisenhower in 1959 and may to lead to more wars and conflicts. Nations will have to raise additional resources. But they do not want to raise direct taxes on the well-off. So, they will have to raise the regressive indirect taxes, like Trump is doing via tariffs. Or, cut social sector spending, or a combination of the two. All this will hurt the workers and the middle classes. The Labour government in the UK tried to cut welfare expenditures but had to retreat due to a revolt from its MPs.Even if Trump’s policies benefit the US economy, though as argued above that will not be the case, the world economy as a whole will decline. The global rise in concentration of wealth and incomes due to a squeeze on wages, will result in shortage of demand and a slowdown which will also impact the US. Trump’s exposing the raw face of capitalism, and ignoring history’s lessons, is going to aggravate capitalism’s challenges.Arun Kumar is retired professor of economics, JNU. He is the author of Indian Economy’s Greatest Crisis: Impact of the Coronavirus and the Road Ahead, 2020.