The fall on Wall Street resumed yesterday after the White House clarified that the tariff on China was 145 percent, not 125 percent as previously indicated, and the vast implications of a full-scale economic war between the world’s number one and number two economies started to sink in.

The 125 percent impost was made up of a so-called “reciprocal tariff” plus measures in response to China’s retaliation. It came on top of the 20 percent tariff hike announced before Trump’s so-called “liberation day” of April 2.

After the euphoria of Wednesday, when stock prices soared on the back of the announcement that there would be a 90-day pause on the imposition of “reciprocal tariffs” on a host of countries, reaching as high as almost 50 percent in some cases, the market came back down to earth with a jolt.

The S&P 500 dropped 3.5 percent after a 9.5 percent surge the previous day. The tech-heavy NASDAQ index fell 4.3 percent, following its best day since 2001, and the Dow was down by 2.5 percent.

In currency markets an index of the US dollar against a basket of a dozen of its peers fell 1.9 percent amid growing questions about what the economic war means for its status as the global reserve currency.

The events of the past week have made ever clearer that the focus of the economic war is directed against China and the thrust of any “negotiations” with other countries will be to demand they align themselves with US “national security” objectives or face major tariff hikes once the 90-day pause expires.

Jim Cramer, one of the panellists on the morning show of the business channel CNBC, commented that references to “tariff hikes” against China should be shelved because what was being imposed was an embargo—that is, a total blockade of Chinese goods.

Economists at Deutsche Bank have referred to a “disorderly decoupling between the world’s largest economies.”

Others have put it more strongly. Capital Economics said Chinese exports to the US could more than halve in the coming period. Analysts at Societe Generale said China’s exports to the US “will be largely wiped out” due to the tariff increases.

The effects are already being seen. According to a report in the Wall Street Journal, daily container bookings in the US-China trade route have fallen by a quarter since the end of March compared to a year ago. It said some US importers had temporarily halted inbound shipments while others were storing them at warehouses to await clarification before paying the tariffs.

There are a growing number of reports, even before the full effects of the tariffs hit home, of the economic damage they have already caused in both China and the US.

The chief executive of a US company, which makes kitchen ware and home products sourced in China, India and Cambodia for sale by Walmart, Target and others in the US, told the Journal he had already lost $10 million in cancelled orders and expected more to come.

The chaos that has been unleashed was highlighted in a Financial Times (FT) article that reported on shipping companies cancelling orders and warning of growing disruption in coming weeks.

An unnamed source in the Shanghai freight industry told the FT: “We are seeing now a tremendous amount of cancellations. There’s just so much uncertainty that people are pulling containers. At the moment we have a new order of about 100 containers that’s supposed to go into Houston, and all that’s on hold. The situation changes almost hourly.”

While Trump, his cabinet members and acolytes more broadly are claiming that Wednesday’s “pause” was all part of some master plan to bring US trading partners to plea for negotiations, the real reason was that the financial system was on the edge of a breakdown as serious as that of 2008 and March 2020, or even greater.

In an editorial yesterday, pouring cold water on the claim that “Trump’s retreat was all part of a ‘grand negotiating strategy,’” the FT said that the “key factor was surely the precipitous slide in the markets—above all the mighty US government bond market.”

In his announcement of the “pause,” Trump did say people had become a “little queasy.”

But as the editorial commented, this was a “lesson in understatement.”

“The US government bond market avoided disaster, but it came close. A reliable rule of investment is that when crisis strikes, Treasuries act as a safety valve by offering a risk-free retreat, so prices rise. After Trump’s tariffs this function failed, and bonds fell.”

The editorial also turned to the issue of the status of the dollar as the world’s reserve currency. It noted that, with the US having compromised its safe haven status, two of the most reliable buyers of US government debt, Japan and China, may start to sell Treasuries or “tap the brake on further purchases.” In fact, China has already been running down its holdings of US debt for some time.

Trump’s economic war has placed front and centre the issue of the very functioning of the international monetary system. Since August 15, 1971, and President Nixon’s withdrawal of the gold backing from the dollar, it has been a fiat currency. That is, it has no foundation in real value but has depended on the power of the American state.

But that state is now in an economic and financial crisis—the explosion of government debt to $36 trillion and rising at what is universally considered to be an “unsustainable” rate being only one indication.

This underlying crisis has now been brought to a new peak of intensity by Trump’s actions. His thrashings this way and that are an expression of the existential crisis of the capitalist system itself, while at the same time exacerbating it.

As the editorial noted: “Trump’s blunderbuss efforts to reset global trade rattled all the pillars of a reserve currency: stability, reliability, robust policymaking and the rule of law.”

And bond markets responded with a clear warning that the dollar’s reserve status is not an immutable given.

The growing lack of confidence in the dollar is expressed in the rise of the gold price. After a brief downturn in the market sell-off, its surge has resumed and is almost daily reaching record highs, having risen 7.5 percent in the past 48 hours.

These processes, racing out of the control of the ruling classes and its agencies to contain them, threaten to wipe out vast structures of wealth based on the dollar and massive credit mountains. The breakdown of the capitalist system is not a prospect for the future, it is already underway and there is no solution within its framework.

This poses the historic challenge to the international working class—to resolve the existential crisis of the outmoded and reactionary profit system by means of the fight for world socialism.