Strong-arm tariff manipulations
will have consequences lasting far beyond
the Trump Presidency
Time Contraction in the Age of Trump
When I posted ‘De-Dollarization and the Decline of the American Empire Part 1: Overview’ six weeks ago, I had in mind that the Empire’s financial reckoning was still years away.
But behold! here we are barely three months into Trump 2.0, and the reckoning has come over the horizon and is barreling at us like a runaway train.
OK, that’s a little much—the train is a runaway, but it moves in fits and starts, sometimes idling ominously, at other times lurching forward or backward, in correspondence with the fits and starts of Donald Trump’s mental processes. There’s no telling just when and how hard it will hit us, but now we can see it coming.
As of the evening of April 9, 2025, Donald Trump has just paused most of the procrustean tariffs he had called into being just seven days before, on “Liberation Day,” except for a whopping 145 percent on imports from China, and 10 percent on most of the others. These changes, taken together with the earlier on-again, off-again, whipsawing of tariffs on Mexico and Canada, convey one concept above all else: you never know what he will do next. Trump thinks this is good strategy. Time will tell otherwise.
Update as of April 16th: Trump has now lifted tariffs on smart phones, computers, and other electronic devices coming from China. Trump has been the first to blink in the trade war with China that he started. You might say that vacillation is at the center of Trump trade policy.
Multiple choice test: what are the objectives behind Donald Trump’s wide array of tariffs?
A) Belief that these tariffs will bring about the resurrection of U.S. manufacturing.
B) To punish foreign countries who have been unfairly and malignly “ripping us off” since World War II. Take that, you blood-suckers!
C) To enact a plan starting with threats to foreign countries to impose tariffs that could cripple their economies unless they accede to Trump’s demands on prices, currency valuations, and regulations. The purpose is to aggregate trade concessions in a sweeping plan which goes by the name of “The Mar-a-Lago Accords.” That grand-sounding name is a euphemism for worldwide extortion.
D) To use proceeds from tariffs to offset tax cuts for corporations, private equity businesses, and wealthy individuals. (Note that tariffs are effectively regressive sales taxes that hurt the poor and lower-middle classes the hardest, and the super-wealthy hardly at all.)
E) To use proceeds from tariffs for a sovereign wealth fund which he and his billionaire buddies can tap for government investments in their businesses.
F) Take an opportunity to look tough by playing a game of chicken with China
G) He just likes tariffs, the bigger the better. After all, he’s had a lifetime fixation on tariffs. He has said that “tariff” is the most beautiful word in the English language (more beautiful even than “love”—the last pronounced at a rally of the Trump cultists with a note of sarcasm, the strength of which serves as another clue that at the core of Donald Trump’s heart is a void).
H) All of the above.
While the answer is ‘H,’ most of these objectives have flaws that undermine their practicability. The most doable—using tariffs to feed a sovereign wealth fund and to offset income tax cuts—are the ones limited to the boundaries of the U.S. The ones that involve foreign countries have slim prospects at best, and they get slimmer the more Donald Trump tries to jerk them around.
The potential for ‘C’ (the putative Mar-a-Lago Accord) to work has been undermined by Trump’s erratic approach to the application of tariffs. Countries will be wary of negotiating agreements that could be ripped up in a matter of days. They will be asking for assurances that scotch the deal before negotiations have finished.
As for ‘F,’ Trump has already backed down once. He’s come up against someone who has more “cards” than he does.
Mutual trust is the foundation of successful trade, and Trump has broken trust more times than anyone can count
Countries alienated by Donald Trump are seeking a new international economic order—an order no longer dictated to them by the U.S. Their search is increasingly focused on currency and bond markets, with the financial hegemony inherent in the status of the U.S. dollar as the global reserve currency at stake.
De-dollarization and the erosion of America’s economic strength go hand in hand. The replacement of the dollar by some other dominant currency as the global reserve in a formal sense would entail complex negotiations among scores of countries, and I understand it might take at least two years to put in place at best. Yet what is now happening, as foreign nations, businesses, and persons sell their U.S. Treasuries* and pull back from other investments in the U.S., is a shift away from the dollar and toward multipolar arrangements. This was discussed in my earlier post on de-dollarization. Alliances of countries such as the growing BRICS+ group pose a practical threat to American hegemony. Even if the dollar remains officially the reserve currency, it will become less and less relevant to actual trade.
Consider How Europe Can Replace the Dollar by Ryan Cooper in American Prospect. I quote a key passage from Cooper below:
Normally during a chaotic trading situation, anxious financiers run to what has long been the safest of investments: dollars and dollar assets, like U.S. government debt. That drives the value of the dollar up and the interest rate on debt down.
Instead, we are seeing the opposite: The dollar is falling against other currencies, and interest rates on American debt are increasing. As yet, these movements are relatively modest, and may represent nothing more than chaos in the market. However, they do indicate a likely weakening of confidence in the stability and security of the dollar as a global reserve currency—which given Trump’s deranged behavior, ought to be expected. A country that elected a senile criminal madman twice is not to be trusted.
[sic] The European Union just might have a once-in-a-century opportunity to provide that stability and security to governments and investors, and swipe some or all of the dollar’s status. But it won’t happen automatically, and it will require permanently ditching the traditional European allergy to debt and printing money.
Cooper is probably wrong right about Europe’s capacity to replace the dollar. Globally, China is just as important as Europe in international trade, and is working with its BRICS+ allies to craft a multipolar alternative to one dominant world reserve currency—an alternative whose center of gravity is shifting toward the global South.
But Cooper’s most important point is “A country that elected a senile criminal madman twice is not to be trusted.”
We are contemplating a lack of trust not just in Trump but in the country that voted a “senile criminal madman” into office (along with a contingent of far-right, conspiracy-mongering Christian nationalists who are holding moderate lawmakers in Congress hostage). Trump is laying waste to the foreign policy based on alliances with friends and solidarity against foes that Biden sought to forge after the first Trump presidency. Relationships that have taken decades to develop are being shattered in a matter of weeks. It would take at least two successor political administrations—if they occur—to restore trust in the U.S. (if there is still a U.S.) by mid-century. By the time that happens we’ll be living in an entirely different world, shaped by forces and events that we can now envision only through a glass darkly.
A lack of trust will prove the downfall of any global-scale economic program the Trump regime might try. Lack of trust is hastening the decline of the dollar and with it the economic hegemony of the United States.
Lastly: the futility of the trade war with China
Trump and his advisors have it badly wrong about the economic strength of the U.S. vs China. I don’t have to make that case, since Ben Norton in Geopolitical Economy Report makes it in a devastating critique in the video below (note that Norton, who is a very serious guy, is having quite a bit of fun with this one—it’s the first time I’ve seen him chuckle more than once during a podcast):
More on the China dilemma in a later post.
* For more on Treasuries, see U.S. National Debt and U.S. Treasuries
I found myself in a world in which