Ricardo in Shanghai, Marx in New York: 'Strategic trade compromise'

The foundation of economic thought is laid with the labor theory of value, which places the labor at the core of all commodities. David Ricardo, a classical liberal and one of the founding fathers of capitalism, proposed the Theory of Comparative Advantage, which envisions that countries benefit from trade by specializing, and demonstrates that surplus value, which includes profit, is the sole source of capital.

For this theory to function today: Free trade must prevail, and trade between parties must be balanced in such a way that one cannot become dependent by borrowing from the other. Trade between the US and China is being questioned both in terms of free trade and indebtedness. Let us note that while the trade volume between the two countries was not even 5 billion dollars in 1985, it currently averages around 500 billion dollars, and while the US used to have a deficit of only 6 million dollars, it has long been running an average deficit of around 300 billion dollars. (https://www.census.gov/foreign-trade/balance/c5700.html)

Of course, the US's only concern is not just the foreign trade deficit. It must also be acknowledged that this relationship creates a significant current account deficit (3.9 percent). Furthermore, let us recall that with the growing budget deficit, the US government, which is currently shut down, is pushing for an increase in the debt ceiling (124 percent).

CHINA'S RISE: SURPLUS VALUE, INDUSTRY, AND RARE ELEMENTS

Today's Chinese economy has become the world's largest industrial power by transforming surplus value through advanced robotics, electric vehicle production, and massive labor exploitation. China, the world export champion of the last 15 years, is an export giant that generates an annual trade surplus of nearly one trillion dollars.

China also uses its dominance over rare earth elements, of which it controls approximately 90 percent of the global supply, as a strategic trade bargaining chip. Thanks to labor productivity, leadership in the manufacturing industry, and these rare elements, China has largely realized Ricardo's trade benefit.

THE NEW REALITY OF NEOLIBERALISM: “STRATEGIC COMPROMISE”

The course of bilateral relations that has continued since the Nixon era, and the subsequent consensus referred to in the 2000s as the “Second Bretton Woods System,” have formed the main engine of global capital and trade. Thus, the US grew in non-productive areas such as finance and information technology, while losing productivity—the area where actual surplus value is produced—to China.

For nearly 20 years, the US current account deficit has gone hand-in-hand with China's current account surplus, and China has been able to manage its currency, the Yuan, against the dollar without appreciating it in proportion to the productivity gains resulting from technological development. This systemic alignment, which could largely be maintained with reserves close to 3.5 trillion dollars, has given way to tension due to US objections. Current trade tensions have brought with them a forced “strategic compromise” that is increasingly moving away from the neoliberal ideology of free trade.

China's Strategic Concession: Despite its leverage in rare metals and the surplus value derived from production, China does not want to give up its first place in the world export engine (Ricardo's trade benefit). China, which cannot risk a contraction, has lifted export restrictions on critical rare elements.

The US's Forced Concession: As of November 4, 2025, the US has reduced customs tariffs for one year (to 10 percent) in order to maintain this export flow. This tariff reduction is proof that neoliberalism, which should defend free trade, has had to show protectionist flexibility in order to maintain strategic trade balances. This new phenomenon, which was even the subject of a lawsuit in the US Supreme Court last week, should be questioned in terms of the “world system's” search for a new path.

Another pillar of this compromise has been the loosening of regulations on Chinese companies on Wall Street (New York), the heart of the US stock market, in exchange for rare elements. This is a move to guarantee the flow of vital raw materials for the continuity of financial capital. It is known that nearly 51 trillion of the 141 trillion dollar world bond market is in the US, and that US stock markets have reached a value of nearly 62 trillion (half of the world).

Additionally, it should be noted that China is the single largest buyer of US Treasury bonds, and the largest when Hong Kong and Taiwan are included. (https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html)

This delicate and massive mutual financing balance is important for the continuation of trade.

THE DEATH THROES OF NEOLIBERALISM

The US and China are securing global capital flows and critical raw material supplies through steps such as tariff reductions, opening financial markets, and releasing rare elements. On the other hand, this managed compromise points to a structure that is increasingly moving away from the free-market ideals that are the foundation of neoliberalism.

More importantly, this structure is far from solving the growing social and economic contradictions within the US. For while growth focused on finance, weapons, and information technology supports the financial sector, which has increased its power to direct production through neoliberalization, it deepens inequality in the US due to the slippery ground of employment, rising cost of living, and real wages that never seem to rise. The ghost of Karl Marx's critique of capitalism echoes through the poverty in New York, and the fact that 60 percent of the American public stands against the current administration shows that neoliberalism has lost its social consent. The election of democratic socialist Zohran Mamdani, a member of the New York City Council, as mayor with over 1 million votes is an important example of this situation.

Ricardo's free trade theory was embodied in Shanghai by making China a global production hub, but its continuation has been ensured by a forced compromise negotiated through tariffs applied to trade between the “two superpowers,” rare elements, and financial access.

This situation shows that neoliberalism has had to compromise its own ideological principles (free market and free trade) to maintain its promises of free trade, stable global finance, and low inflation. Global trade and finance are no longer managed by ideological commitments, but by strategic necessities. Although this compromise ensures the flow of global surplus value, it proves that the political and social legitimacy of neoliberalism is in its death throes in the face of deepening inequality and social unrest in the US.