Michael Roberts: 150 years since the Critique of the Gotha Programme

In this essay Michael Roberts explains the importance of Marx's critique of the program of the Social Democratic Workers Party of Germany that was adopted at its party Congress in Gotha in 1875. For those workers who are fairly new to Marx and his views on politics and economics and what he meant when he spoke of communism and other terms, Roberts' contribution here is very helpful. RM.

150 years since the Critique of the Gotha Programme

by Michael Roberts

The Critique was a document based on a letter by Marx written in early May 1875 to the Social Democratic Workers’ Party of Germany (SDAP), with whom Marx and Friedrich Engels were in close association. The letter is named after the Gotha Programme, a proposed manifesto for a forthcoming party congress that was to take place in the town of Gotha. At that congress, the SDAP planned to merge with the General German Workers’ Association (ADAV), who were followers of Ferdinand Lassalle, to form a unified party.

Karl Marx’s ‘Critique of the Gotha Programme’ was written 150 years ago this week. It provides us with Marx’s most detailed pronouncements on revolutionary strategy, the meaning of the term ‘the dictatorship of the proletariat’, the nature of the period of transition from capitalism to communism, and the importance of internationalism.

Gotha Conference: May 1875

A socialist activist and politician, Lassalle viewed the state as the expression of ‘the people’, not as a construct of any social class. He adopted a form of state socialism and rejected class struggle by the workers through trade unions. Instead he had a Malthusian theory of  the”iron law of wages“, which argued that if wages rose above the subsistence level in an economy, the population would grow and more workers would compete, forcing wages down again. Marx and Engels had long rejected this theory of wages (see my book, Engels 200 pp40-42).

Ferdinand Lassalle

The Eisenachers sent the draft programme for a united party to Marx for comment. He found the programme significantly influenced by Lassalle and so responded with his Critique. However, at the congress held in Gotha in late May 1875 to set up the Social Democratic Party of Germany (SPD), the programme was accepted with only minor alterations, Marx’s critical letter was published by Engels only much later in 1891, when the SPD declared its intention of adopting a new programme, the result being the Erfurt Programme of 1891. Drafted by Karl Kautsky and Eduard Bernstein, this program superseded the Gotha Program and was closer to Marx and Engels’ views.

In the Critique, among other things, Marx attacked the Lassallean proposal for “state aid” rather than public ownership and the abolition of commodity production.  Marx also noted that there was no mention of the organisation of the working class as a class: “and that is a point of the utmost importance, this being the proletariat’s true class organisation in which it fights its daily battles with capital”.

Marx objected to the program’s reference to a ‘free people’s state’. For Marx, “the state is merely a transitional institution of which use is made in the struggle, in the revolution, to keep down one’s enemies by force” so “it is utter nonsense to speak of a free people’s state; …as soon as there can be any question of freedom, the state as such ceases to exist.”  This was (and is) a vital distinction between the views of Marx and Engels on the state in a post-capitalist society and the views of social democracy and Stalinism, which talks of ‘state socialism’.

Two stages of communism

Both Marx and Engels always referred to themselves as communists to make the distinction with earlier forms of socialism.  They defined communism simply as the ‘dissolution of the mode of production and form of society based on exchange value.’ The most basic feature of communism in Marx’s critique is the overcoming of capitalism’s separation of the producers (labour) from the control of production. To reverse this entails a complete decommodification of labour power. Communist or ‘associated’ production would be planned and carried out by the producers and communities themselves, without the class-based intermediaries of wage labour, market and state.

In the Critique, Marx outlines two stages of communism after the capitalist mode of production has been replaced. In the first stage of communism: “What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges.”

So “accordingly, the individual producer receives back from society – after the deductions have been made – exactly what he gives to it. What he has given to it is his individual quantum of labour. For example, the social working day consists of the sum of the individual hours of work; the individual labour time of the individual producer is the part of the social working day contributed by him, his share in it.

The worker “receives a certificate from society that he has furnished such-and-such an amount of labour (after deducting his labour for the common funds); and with this certificate, he draws from the social stock of means of consumption as much as the same amount of labour cost. The same amount of labour which he has given to society in one form, he receives back in another. Since labour is always, together with nature, a fundamental ‘substance of wealth’, labour time is an important ‘measure of the cost of [wealth’s] production … even if exchange value is eliminated.’

Even in the lower stage of communism, there is no market, no exchange value, no money. During the new association’s lower phase, ‘the producers may … receive paper vouchers entitling them to withdraw from the social supplies of consumer goods a quantity corresponding to their labour–time’; but ‘these vouchers are not money. They do not circulate’ (Marx). Labour certificates are like theatre tickets – to be used once only.

Moreover, Marx assumed that, even in the first phase of communism, most of the total social product will not be distributed to people according to the labour time they perform in the form of labour certificates, but deducted for the common use ‘from the outset’. There will be expanded social services (education, health services, utilities and old age pensions) that are financed by deductions from the total product prior to its distribution among individuals. Hence ‘what the producer is deprived of in his capacity as a private individual benefits him directly or indirectly in his capacity as a member of society’.

Such social consumption will, in Marx’s view, be ‘considerably increased in comparison with present-day society and it increases in proportion as the new society develops’. And with a radical shortening of the working day, thanks to the rapid development of technology, the scope of labour certificates would be substantially narrowed over time.

Eventually “in a higher phase of communist society, after the enslaving subordination of the individual to the division of labour, and therewith also the antithesis between mental and physical labour, has vanished; after labour has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly – only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: ‘From each according to his ability, to each according to his needs!”

The transition

From the Critique, we can also categorise a transitional economy between capitalism towards communism. There is a political transition period in which the state can be nothing but the revolutionary ‘dictatorship of the proletariat.’ The term, the dictatorship of the proletariat seems alien to ‘democracy’ as used now, but for Marx and Engels it was simply a description of the takeover of the state and economy by the working class.

The term, dictatorship of the proletariat, came from the communist journalist Joseph Weydemeyer who in 1852 published an article entitled ‘Dictatorship of the Proletariat’ in the German language newspaper Turn-Zeitung. In that year, Marx wrote to him, stating: “Long before me, bourgeois historians had described the historical development of this struggle between the classes, as had bourgeois economists their economic anatomy. My own contribution was (1) to show that the existence of classes is merely bound up with certain historical phases in the development of production; (2) that the class struggle necessarily leads to the dictatorship of the proletariat; [and] (3) that this dictatorship, itself, constitutes no more than a transition to the abolition of all classes and to a classless society.”

Capitalism may have the trappings of ‘democracy’ with its somewhat blunted universal suffrage and elected leaders. In reality, this democracy is the dictatorship of capital: the rule of finance capital and big oligopolies controlling the ‘democratic’ institutions. The dictatorship of the proletariat would mean the democratic rule of the majority of working people ‘dictating’ to capital, not vice versa.

When asked to give an example of the dictatorship of the proletariat, both Marx and Engels replied: the Paris Commune. In the 1891 postscript to The Civil War in France (1872) pamphlet, Engels stated: ‘Well and good, gentlemen, do you want to know what this dictatorship looks like? Look at the Paris Commune. That was the Dictatorship of the Proletariat.’

Paris Commune

To avoid corruption, Engels had recommended that the Commune made use of two expedients. In this first place, it filled all posts, administrative, judicial, and educational, by election on the basis of universal suffrage of all concerned, with the right of the same electors to recall their delegate at any time. And, in the second place, all officials, high or low, were paid only the wages received by other workers. In this way, an effective barrier to place-hunting and careerism was set up, even apart from the binding mandates to delegates [and] to representative bodies, which were also added in profusion.  

Engels’ second principle was that the elected should not earn more than the electors. This is not only a potent anti-corruption element; it also means that the principle that skilled workers should earn more than unskilled workers is a residue of archaic capitalist production relations. Workers are skilled either because of their inherent qualities (and there is no reason to reward them for this) or because they have benefited from the educational system. In either case, there is no reason to reward them more for this. Garbage refuse collectors are just as important to society as economics professors, if not more.

Those provisions were essential from the start for a workers’ state in transition to communism. Most important, there must be a progressive ‘withering away’ of state power (armies, police, officialdom). In this connection, Marx makes the essential distinction between those performing the function of capital (control and surveillance) and those who perform the function of labour (coordination and unity of the labour process). Marx makes an analogy with an orchestra, where the music director coordinates the musicians. Those performing the work of coordination and unity of the labour process are not managers in the usual meaning. They do not oversee and police, they are not agents of capital who exploit the labourers on behalf of capital. Rather, they are members of the collective labourer. Those performing the work of coordination and unity of the labour process are the opposite of managers in capitalist production relations. 

Production in a transitional economy should be increasing the production of use values, that is, the goods workers themselves decide to produce in order to satisfy their needs as expressed by themselves, for example, environmental investments over arms. This requires planning and thus a democratic decision process. It also requires the common ownership of the means of production, democratic decision-making in investments and in the choice of the techniques in the various labour processes that are most suited for a full development of every worker’s potential. 

These principles are the key indicators of a workers’ democracy making the transition to socialism/communism. Their expansion or disappearance indicates whether a society is moving towards or away from socialism/communism. 

Internationalism

The dictatorship of the proletariat may begin in individual nation states, but such states cannot progress towards socialism, that is, the withering away of state machines towards the ‘administration of things’ unless the dictatorship spreads internationally into the major economies and eventually globally, just as the capitalist mode of production did.

Communist production is not simply inherited from capitalism, needing only to be signed into law by a newly elected socialist government. It requires ‘long struggles, through a series of historic processes, transforming circumstances and men’. Among these transformed circumstances will be ‘not only a change of distribution, but a new organisation of production, or rather the delivery (setting free) of the social forms of production … of their present class character, and their harmonious national and international coordination’. That means the ending of imperialism and its replacement by an association of nations based on democratic planning and common ownership.

Under these criteria, China is not moving ‘towards socialism’. It is a transitional economy that cannot move towards socialism because it lacks the key features of a workers’ democracy as outlined in the Critique; and is surrounded by imperialism. It is in a ‘trapped transition’. And it is in a ‘trapped transition’ which could eventually be reversed, as it proved for the Soviet Union. To avoid that and to move towards socialism, China must raise its productivity levels to that of the imperialist core to reduce working hours and scarcity in social needs and then end wage labour and monetary exchange. But that will not be possible without working-class revolutions in the imperialist core that can establish transitional economies there and then allow the democratic planning of production and distribution globally for social need not profit.

The Critique was in a short letter written by Marx 150 years ago.  In 2025, it remains just as clear and relevant to understanding communism as the alternative to capitalism.

Michael Roberts: Australia: stuck in the middle

by Michael Roberts

The island continent of Australia holds a federal election today (Saturday) with the country stuck in the middle of the trade war between the US and China.

Around 18m Australians are eligible to vote and voting is compulsory (although the fine for not doing so is only A$20). In the last 2022 election, 11% of voters did not do so, reducing the turnout to its lowest level since compulsory voting was introduced. There are 150 seats up for winning in the all-important lower House of Representatives that decides the government.  Voters have preferential votes (voting one and two preferences). 

The current incumbent government is the Labor Party, which won a majority in 2022 under its leader Anthony Albanese.  The opposition is a coalition of the Liberals (usually representing the richer parts of the cities and big business interests) and the National party (usually backed by the farmers and rural voters).  It’s led by Peter Dutton.  In 2022, Labor won 77 seats and had a two-seat majority over all other parties. The current opinion polls show Labor narrowly behind on first preference votes but ahead after second preference votes.  It’s neck and neck but with a slight edge for Labor.

Albanese and the Labor Party have seen a significant drop in public support since assuming office. As Prime Minister, Albanese now holds a net approval rating of -5%, That’s because the last three years have been a rough time for average Australian households with COVID and the post-pandemic hike in the cost of living, rising interest rates; and extremely high house prices. 

House prices in Australia overall have jumped 39% in the last five years – and wages have failed to keep up. It now takes the average prospective homeowner around 10 years to save the 20% deposit usually required to buy an average home, according to a 2024 State of the Housing System report. The rental market is no better, with rents increasing by 36% nationally since the onset of Covid – an equivalent rise of A$171 per week. 

Labor and the Coalition have both promised to invest in building more homes – with Labor offering 1.2 million by 2029, and the Coalition vowing to unlock 500,000.  These promises are just that – with a long time horizon. A 2025 State of the Land report by the Urban Development Institute of Australia says the federal government will fail to meet its target by 2029 – falling short by almost 400,000. The Coalition aims its housing policy as part of an attack on immigration – wanting to reduce the number of international students and implementing a two-year ban on foreign investment in existing properties. (But foreign buying of homes is just 1%).

Australia’s real wages are 4.8% lower than pre-pandemic levels, while across the OECD real wages over the same period have, on average, risen 1.5%.

Real wages, as measured by annual growth in WPI relative to the annual growth in CPI, did rise by 0.8 per cent in the year to the December quarter 2024. But they are forecast to grow by just ½ per cent in 2024–25 and ¼ per cent in 2025–26.

Climate change in Australia has been a critical issue since the beginning of the 21st century.  Australia is becoming hotter and will experience more extreme heat and longer fire seasons.

As a result, the country is facing an “insurability crisis” with one in 25 homes on track to be effectively uninsurable by 2030, according to a Climate Council report. Another one in 11 are at risk of being underinsured. 

Yet the economy depends very much on its fossil fuel exports and developing the mining industry.  Non-renewable fossil fuels still account for about 85 percent of Australia‘s electricity generation. Australia is one of the world’s largest per capita emitters –producing some 1.3 percent of global carbon emissions with only 0.3 of the world’s population.  For a nation so exposed to climate change, Australia remains one of the world’s biggest emitters per head of population. The Labor government has promised to reduce emissions by 43% by 2030- but that’s below the 50% recommended by the Intergovernmental Panel on Climate Change.

Australia used to be called the ‘lucky country’ where people could emigrate to and start a new and prosperous life in an economy that had not suffered a recession of any note for decades.  But the signs that this was changing have been there since the Great Recession of 2008-9 and the subsequent Long Depression that ensued up to the COVID pandemic slump in 2020.   Australian capital has been running out of more labour, especially as immigration restrictions have stopped net immigration expanding.  Net overseas migration (NOM) has continued to decline from its peak in 2022–23, which largely reflects lower migrant arrivals. NOM is forecast to ease further with arrivals expected to continue to decline in 2024–25 before stabilising in 2025‍–‍26. The pool of working-age people has barely grown at all.

After taking into account population growth, average annual real GDP per person grew by about 2% a year in Australia up to the Great Recession.  However, since then, per capita growth has averaged less than half that rate.

Source: IMF, author

Increasingly, Australian capital must rely on boosting productivity growth to expand, but productivity growth has been in a downward trend.

Source: ABS productivity measure

As elsewhere, the slowdown in productivity growth can be connected to the slowdown in productive investment growth.  Business has stagnated at best since the end of the commodities boom in 2011.

Source: ABS

What lies behind the slowdown in real GDP and investment growth?  It’s the same cause that applies to all the major capitalist economies in the last two decades: falling profitability of capital.  The great boom and revival of profitability in Australian capital from the 1980s, led by Australia’s exploitation of resources in minerals, agricultural products and energy, and the huge expansion of a skilled workforce with ‘liberalised’ labour markets, started to falter in the late 1990s.  Although there was a short uptick in profitability during the commodity boom up to 2010, driven by demand from China for Australia’s commodities, in the last decade, the decline in profitability resumed. 

Source: EWPT, author

Indeed, corporate profits have been falling in the last two years.

Australia is part of the imperialist bloc of countries, if a junior partner.  Up to now, it has been a satellite of US imperialism in the Asia-Pacific region, but Trump’s tantrums are causing Australia’s ruling elite headaches.  Nevertheless, both Labor and the Coalition are pledged to boost arms spending under the Aukus security pact with the US and UK designed to resist the ‘threat’ of China – or to be more exact to follow the strategy of US imperialism to ‘contain’ and stop China becoming a rising economic power in the region and globally, The government plans to  invest up to A$18bn (US$12bn) to strengthen “manufacturing of missiles, including making advanced guided missile systems in the country.”

The irony in the sabre-rattling against China is that Australia had been ‘lucky’ because of its close proximity to China, the fastest growing economy over the last 25 years.  Australia remains heavily dependent on its exports to China and world growth in general.  But Trump’s trade war with China threatens to weaken Chinese demand for Australian exports of iron, coal and other resources. In 2023, China purchased 84 per cent of Australia’s US$85.4 billion iron ore exports. Iron ore accounted for 23 per cent of Australia’s total exports in 2023. Finding alternative buyers would be difficult — China purchased 69 per cent of global iron ore exports in the same year.

Australia’s third largest export is petroleum gas, with a 13 per cent share of its export mix. China, the largest importer of petroleum gas in the world, accounts for just under a third of these exports. China is a big importer of Australian services as well as goods. In the 2024 financial year, China was the largest importer of Australian education services, with a 24 per cent share.

Australia’s trade surplus with China accounted for 4 per cent of its GDP in the 2024 financial year. The growth in the trade surplus with China also accounted for 10 per cent of the growth in GDP — measured in current prices — from 2023–24. If the trade surplus with China were to shrink or even just fail to grow, it would have a significant impact on Australia’s economy.

Trump’s tariffs on Australia’s exports to the US will also hit the economy.  The direct impact from Australia’s bilateral trade with the United States is expected, in aggregate, to be limited, given the US accounted for only 4.6 per cent of Australia’s goods exports in 2024.  But Australia’s external account has already slipped back into its usual deficit.

The IMF is now forecasting just 1.6% real GDP growth this year, well below previous trend growth rates.

It’s true that inflation has fallen back and the Reserve Bank of Australia finally cut interest rates for the first time in four long years. Even so, voters are still suffering from the losses in their living standards in those years and with little prospect of much improvement ahead. Whichever party wins will face serious challenges in increasing national output, living standards and in protecting the environment.  And Australia is trapped between supporting US imperialism in its war with China and trying to sustain its markets in China and east Asia.

Michael Roberts: Liberation day

by Michael Roberts

It’s not April Fools day (1 April).  But it might as well be as later today US President Donald Trump announces another barrage of tariffs on imports into the US in what Trump calls ‘Liberation Day’ and what America’s voice of big business and finance, the Wall Street journal, has called “the dumbest trade war in history.”

In this round, Trump is raising tariffs on imports from countries that have higher tariff rates on US exports, ie so-called ‘reciprocal tariffs’. These are supposed to counter what he views as unfair taxes, subsidies and regulations by other countries on US exports. In parallel, the White House is looking at a whole host of levies on certain sectors and the tariffs of 25 per cent on all imports from Canada and Mexico which were earlier postponed are being now reapplied.

US officials have repeatedly singled out the EU’s value added tax as an example of an unfair trade practice. Digital services taxes are also under attack from Trump officials who say they discriminate against US companies.  By the way, VAT is not an unfair tariff as it does not apply to international trade and is solely a domestic tax – the US is one of the few countries that does not operate a federal VAT; relying instead on varying federal and state sales taxes.

Trump claims that his latest measures are going ‘liberate’ American industry by raising the cost of importing foreign goods for American companies and households and so reduce demand and the huge trade deficit that the US currently runs with the rest of the world. He wants to reduce that deficit and force foreign companies to invest and operate within the US rather than export to it.

Will this work?  No, for several reasons.  First, there will be retaliation by other trading nations. The EU has said it would counter US steel and aluminium tariffs with its own duties affecting up to $28bn of assorted American goods. China has also put tariffs on $22bn of US agricultural exports, targeting Trump’s rural base with new duties of 10 per cent on soyabeans, pork, beef and seafood. Canada has already applied tariffs to about $21bn of US goods ranging from alcohol to peanut butter and around $21bn on US steel and aluminium products among other items.

Second, US imports and exports are no longer the decisive force in world trade. US trade as a share of world trade is not small, currently at 10.35%.  But that is down from over 14% in 1990.  In contrast, the EU share of world trade is 29% (down from 34% in 1990) while the so-called BRICS now have a 17.5% share, led by China at nearly 12%, up from just 1.8% in 1990. 

That means non-US trade by other nations could compensate for any reduction in exports to the US.  In the 21st century, US trade no longer makes the biggest contribution to trade growth – China has taken a decisive lead.

Simon Evenett, professor at the IMD Business School, calculates that, even if the US cut off all goods imports, 70 of its trading partners would fully make up their lost sales to the US within one year, and 115 would do so within five years, assuming they maintained their current export growth rates to other markets.  According to the NYU Stern School of Business, full implementation of these tariffs and retaliation by other countries against the US could cut global goods trade volumes by up to 10 per cent versus baseline growth in the long run. But even that downside scenario still implies about 5 per cent more global goods trade in 2029 than in 2024.

One factor that is driving some continued growth in world trade is the rise of trade in services.  Global trade hit a record $33 trillion in 2024, expanding 3.7% ($1.2 trillion), according to the latest Global Trade Update by UN Trade and Development (UNCTAD). Services drove growth, rising 9% for the year and adding $700 billion – nearly 60% of the total growth. Trade in goods grew 2%, contributing $500 billion.  None of Trump’s measures apply to services. Indeed, the US recorded the largest trade surplus for trade in services among the trading – some €257.5 billion in 2023 — while the UK had the 2nd largest surplus (€176.0 billion), followed by the EU (€163.9 billion) and India (€147.2 billion). 

However, the caveat is that services trade still constitutes only 20% of total world trade. Moreover, world trade growth has fallen away since the end of the Great Recession, well before Trump’s tariff measures introduced in his first term in 2016, furthered under Biden from 2020, and now Trump again with Liberation Day.  Globalisation is over and with it the possibility of overcoming domestic economic crises through exports and capital flows abroad.

And here is the crux of the reason for the likely failure of Trump’s tariff measures in restoring the US economy and ‘making America great again’: it does nothing to solve the underlying stagnation of the US domestic economy – on the contrary, it makes that worse.

Trump’s case for tariffs is that cheap foreign imports have caused US deindustrialization. For this reason, some Keynesian economists like Michael Pettis have supported Trump’s measures. Pettis writes that America’s “long-term massive deficits tell the story of a country that has failed to protect its own interests.”  Foreign lending to the US “force[s] adjustments in the U.S. economy that result in lower US savings, mainly through some combination of higher unemployment, higher household debt, investment bubbles and a higher fiscal deficit,” while hollowing out the manufacturing sector.

But Pettis has this back to front. The reason that the US has been running huge trade deficits is because US industry cannot compete against other major traders, particularly China.  US manufacturing hasn’t seen any significant productivity growth in 17 years.  That has made it increasingly impossible for the US to compete in key areas.  China’s manufacturing sector is now the dominant force in world production and trade.  Its production exceeds that of the nine next largest manufacturers combined.  The US imports Chinese goods because they are cheaper and increasingly good quality.

Maurice Obstfeld (Peterson Institute for International Economics) has refuted Pettis’ view that the US has been ‘forced’ to import more because mercantilist foreign practices. That’s the first myth propagated by Trump and Pettis.  “The second is that the dollar’s status as the premier international reserve currency obliges the United States to run trade deficits to supply foreign official holders with dollars. The third is that US deficits are caused entirely by foreign financial inflows, which reflect a more general demand for US assets that America has no choice but to accommodate by consuming more than it produces.” 

Obstfeld instead argues that it is the domestic situation of the US economy that has led to trade deficits. American consumers, companies and government have bought more than they have sold abroad and paid for it by taking in foreign capital (loans, sales of bonds and inward FDI). This happened not because of ‘excessive saving’ by the likes of China and Germany, but because of the ‘lack of investment’ in productive assets in the US (and other deficit countries like the UK).  Obstfeld: “we are mostly seeing an investment collapse. The answer must depend on the rise in US consumption and real estate investment, to a large degree driven by the housing bubble.”  Given these underlying reasons for the US trade deficit, “import tariffs will not improve the trade balance nor, consequently, will they necessarily create manufacturing jobs.” Instead, “they will raise prices to consumers and penalize export firms, which are especially dynamic and productive.”

As I have explained before, the US runs a huge trade deficit in goods with China because it imports so many competitively priced Chinese goods. That was not a problem for US capitalism up to the 2000s, because US capital got a net transfer of surplus value (UE) from China even though US ran a trade deficit. However, as China’s ‘technology deficit’ with the US began to narrow in the 21st century, these gains began to disappear.  Here lies the geo-economic reason for the launching of the trade and technology war against China.

Trump’s tariffs will not be a liberation but instead only add to the likelihood of a new rise in domestic inflation and a descent into recession. Even before the announcement of the new tariffs, there were significant signs that the US economy was slowing at some pace. Already, financial investors are taking stock of Trump’s ‘dumbest trade war in history’ by selling shares.  America’s former ‘Magnificent Seven’ stocks are already in in a bear market, ie falling in value by over 20% since Xmas.

The economic forecasters are lowering their estimates for US economic growth this year.  Goldman Sachs has raised the probability of a recession this year to 35% from 20% and now expects US real GDP growth to reach only 1% this year.  The Atlanta Fed GDP Now economic forecast for the first quarter of this year (just ended) is for a contraction of 1.4% annualised (ie -0.35% qoq).  And Trump’s tariffs are still to come.

Tariffs have never been an effective economic policy tool that can boost a domestic economy. In the 1930s, the attempt of the US to ‘protect’ its industrial base with the Smoot-Hawley tariffs only led to a further contraction in output as part of the Great Depression that enveloped North America, Europe and Japan. The Great Depression of the 1930s was not caused by the protectionist trade war that the US provoked in 1930, but the tariffs then did add force to that global contraction, as it became ‘every country for itself’. Between the years 1929 and 1934, global trade fell by approximately 66% as countries worldwide implemented retaliatory trade measures.More and more studies argue that a tit-for-tat tariff war will only lead to a reduction in global growth, while pushing up inflation. The latest reckons that with a ‘selective decoupling’ between a (US-centric) West bloc and a (China-centric) East bloc limited to more strategic products, global GDP losses relative to trend growth could hover around 6%. In a more severe scenario affecting all products traded across blocs, losses could climb to 9%. Depending on the scenario, GDP losses could range from 2% to 6% for the US and 2.4% to 9.5% for the EU, while China would face much higher losses.  

So no liberation there