US Trade Representative Katherine Tai is either excessively naive or cynical. But you probably would not rise to the top in Washington by being the former. Tai has accused China of causing market distortions to the global economy in the past “20 years” by practising “state-centred and non-market trade practices”. Against the recent records and the actual experience of most of our adult lives, she claims China has caused the loss of American jobs, income and manufacturing capabilities. As a result of the surge in low-priced imports from China, “real and devastating” impact has been caused to the US economy. “For too long, the PRC’s unfair policies and practices undercut American prosperity, suppressed labour rights, and weakened environmental standards,” she said. Tai’s claims are patently absurd. The United States chose to deindustrialise. That started in the 1980s but accelerated especially after the Cold War. This called for the offshoring of its production capacities to developing economies with cheap and abundant labour – for a long time, that meant China – thereby promoting a wave of trade globalisation. It also led to the switch from industrial capitalism to financial capitalism in the US. Instead of making things to make money, you make money from money or rather from highly complex financial instruments and corporate services. That was a choice that America’s governing and corporate elites made, with the resultant loss of jobs and living standards for the working class in the US. The US didn’t just go along but promoted what was called “Chimerical”, the symbiotic system of economic and trade relations between the two countries. It could have picked another developing economy, but China did fit the bill and was in the right place at the right time. For much of the post-war era, Germany and Japan played a comparable part. When you stop making things, you need to buy them from someone else. That necessarily creates a chronic trade deficit and national debt to pay for foreign goods. That’s bad for most countries, but not the US. In fact, it has been extremely beneficial and has been called its “exorbitant privilege”. It is what underpins its financial dominance with the US dollar being the world’s main reserve currency, which in turn subsidises its global-military hegemony. It means you can print money as much as you want to pay for imports and ever-rising debt while your currency still, probably, will not collapse, unlike the currency and trade position of every other country. This is because the US dollar is always in demand, around the world, for people and countries to trade with each other and with the US. It may be counterintuitive but the chronic US trade deficit underpins its exorbitant privilege as well as the dollar’s dominance and reserve currency status. These in turn allow the US to dominate and dictate the global financial system, making sanctions against enemies possible. Even its enemies need US dollars! In this merry-go-round, the world has been subsidising the US to dominate it, though the US prefers to phrase it as “the rules-based international system”. China is not an outlier but a typical example. Japan, Germany, South Korea and others followed the same industrial-policy script for national economic development in the same or similar way as the US after the end of its civil war and the British Empire before that. But neoliberalism and monetarism took over from the 1980s as the dominant ideologies – small government, a free market and unregulated finance. They provided the justification for the US switch to financial capitalism. Yet, recently, to counter and decouple from a rising China, the US needs to reshore some industrial capacities as well as protect supply chains for what it considers strategic industries such as advanced semiconductors. So, at least for now, the free market and neoliberalism are out; industrial policy is back. But who knows whether that’s sustainable. Financial capitalism has been great for Wall Street and US billionaires. Why would they want to give up that gravy train just to take on China?