The Nixon Shock of 1971 marked the de facto end of the Bretton Woods system of postwar exchange rate coordination. The end had been coming for a long time due to the over-valuation of the dollar, a result of its guaranteed convertibility to gold at a time of monetary expansion, combined with a steadily worsening balance of payments as other economies grew quickly in the 1950s and 60s. While the unilateral end of gold convertibility was the key change, it's worth noting that Nixon's measures also included a temporary 10% surcharge on imports between August and December of that year. In other words, an increase in tariffs. The Washington consensus, and what we might refer to as high globalisation, has been ailing since at least 2008, and arguably since the failure of the World Trade Organisation's Doha Round in 2001. Trump's tariff shock can be considered the practical change that marks its end, more so that the imposition of selective tariffs on Chinese imports during his first term. The uncertainty - "Does he know what he's doing?", "Is this just a negotiating ploy?" - is not unlike the reaction in 1971. It wasn't until 1973 that the new floating exchange rate system was fully operational, just in time for the first Oil Shock.
The shape of the world "post-globalisation" has been a topic of intense debate for some time now, with many anticipating an era of regional blocs with tightened perimeter controls and free trade maintained within them. This has already suffered an obvious blow with Trump's aggression towards Canada and Mexico, though this can be read as the US demanding subservience rather than equality within the North American bloc. In Europe, the EU has already constructed tariff walls against China and will presumably do so now against the US as well. The other leading theory is that we are seeing a return to mercantilism, though this perhaps places too much emphasis on Trump's rhetorical taste for zero-sum relations and certainly ignores that the military muscle required to enforce it is available to very few nations today (in the original mercantilist era, countries as modestly endowed as Portugal and the Netherlands could establish global empires, while even little Denmark could have colonies in the Caribbean and, topically, Greenland). Russia has shown the limits of a military-led mercantilism in the twenty first century, while even the US has struggled to enforce its will by arms in recent decades.
One useful way to think about the current moment is as an evolution of neoliberalism rather than its supersession, particularly because neoliberalism remains hegemonic domestically, not only in the US but across Europe and much of Asia. The mix of austerity, privatisation and income inequality remains dominant in all advanced economies even as globalisation is being reined in. As Branko Milanovic notes, China's rise has come about through a willingness to manage the two spheres differently: strong state control of the economy at home and the promotion of free-trade abroad. The US is now shifting towards a similar approach of managing the domestic and international spheres independently. Under Biden, there was a brief (and ultimately hamstrung) attempt to use the state to reinvigorate industry while maintaining global free trade. Under Trump, policy has flipped to the dismantling of the state's ability to intervene in the economy and the replacement of free trade with protectionism. The result is, according to Milanovic, "increased mercantilism internationally with increased neoliberalism at home — in other words, the very opposite combination of China’s policies."
It's worth emphasising at this point that while the Chinese government has been highly dirigiste in the economy it has also embraced one particular neoliberal practice domestically, which is the attraction of foreign direct investment (FDI). A lot of American (and European) capital is dependent on the success of Chinese and other Asian businesses. This has helped not only to rapidly grow Chinese industry but to transfer technology and know-how, thereby helping Chinese firms to move up the value chain (consider the symbolic role of DeepSeek). There has been some talk about the capital dimension of Trump's tariffs, but mostly in the sense that encouraging firms to reshore in the US (particularly from Canada and Mexico) will help reduce the country's trade deficit. Less attention, as ever, has been given to the flows of capital earnings. The US net income from abroad has been in decline for some years now and mainly because the growth of FDI in the US, particularly from Europe, has increased the outflow of earnings. The issue for the US then is not the location of factories but who takes the profits from them.
It is correct that focusing on the deficit in manufactured goods ignores the larger, compensatory surplus in services and IP, but it's also true that American foreign earnings are far more susceptible to taxation than goods are, and that's because they've largely been under-taxed ever since the WTO Uruguay round was finalised in 1993. The UK's Digital Services Tax, which was introduced in 2020, is both puny and scary. Puny because it's only levied at 2% on online revenues, scary because it could easily be a lot more. And it could also be extended to other services. That this was the concession the UK government immediately suggested to ward off Trump's evil eye was illustrative of their understanding of its significance, which will have been repeatedly brought home to them in meetings with the likes of Amazon and Meta. That those companies, long seen as close to the Democratic Party, lined up to support Trump's second term is entirely down to their economic self-interest. With the US a mature market, their future earnings growth depends on expansion abroad, and that risks being undermined by taxation. A little stock market turbulence today is a price worth paying to secure those foreign earnings long-term.
It's important to remember that different fractions of capital can be in competition with each other, even to the point of apparently undermining the general interest, and this has historically been most acute in the relations of domestic capital and foreign investment (industry and the City, in British parlance). Trump has long been explicit in seeing foreign economies as ripe for extortion. "Other major economies are the “greatest profit machines ever created”, he argued way back when. “‘Tax’ these wealthy nations, not America.”" He has never made his money by manufacturing goods, as both his laughable attempts to sell steaks and suits and his naive eulogisation of American "heartland" industries make clear. He has made his money by buying cheap, often distressed, assets and then aggressively using the law and government leverage to secure super profits (Trump's plans for the real estate redevelopment of the Gaza Strip are entirely consistent with this). His use of the term "tax" as a synonym for tariff is significant. Trump isn't really trying to shield US businesses from international competition. He's seeking ro run an international protection racket in which he can personally "wet his beak".
The media focus on tariffs and the Punch and Judy of reciprocity misses that what we are witnessing is a display of asymmetric power whose objective is to extract a rent from other economies: to impose a tax on the world so that taxes can be cut in the US. Tariffs on goods will ultimately hit US consumers, a fact that the stock markets are currently pricing-in, but the chief goal of the exercise is to increase returns on American capital abroad (which will happen automatically if the dollar weakens) at a time when it is relatively weak at home, and weak precisely because of the country's slavish adherence to neoliberal policy since 1980. The Biden administration recognised the problem but could not bring itself to reject neoliberalism, trying instead to finagle a government stimulus through the vector of national security. The capitalists who now dominate the Republican Party are not interested in reversing neoliberalism, for all their stated abhorrence of "globalism", largely because they have done so well out of it domestically. The dominant voices are no longer those of traditional heavy industry and manufacturing but of the extractive sector, notably oil and gas, and financial engineering. They are seasoned exploiters and rentiers.
That the British establishment has settled on a policy of "wait and see", a consensus built of equal parts cluelessness and a horror at offending Washington, shouldn't distract from the government's clear-eyed understanding of Trump's demands. While the EU, China and others respond in kind, the UK knows it is powerless. Consider this opening sentence in the Guardian: "Donald Trump’s tariffs signal a new global economic era, Downing Street has said, as economists warned that the British government would probably have to raise taxes in response." Though the connection is explained as the result of a genralised recession hitting growth, this is still an admission that domestic tax policy, like policy on pretty much anything else that catches Republican politicians' fancy, from free-speech to food standards, is now going to be subject to approval by Washington. "The broad outlines of a deal have been drawn up and include concessions across a range of areas, including a lower digital services tax on US tech companies and reduced tariffs on some agricultural products. The government has not denied reports that the deal includes a commitment to review enforcement of the UK’s online safety and digital competition regulations."
The suggestion that the US should have a say in domestic UK policy isn't a premonition of our absorption as the 51st state but a straightforward continuation of the neoliberal model by which supplicant nations were dictated to by the US's proxies, then the World Bank, the IMF and the WTO. The Trump administration has bypassed that arms-length model and decided to exact tribute and make demands directly. In that sense, the Washington Consensus has certainly ended, but not because Washington is going to be any less directive and demanding. What has gone is the fiction that this was ever a consensus, rather than the expression of American power.
