The second term of the United States President Donald Trump was launched with a whirlwind of changes to the status quo in Washington, DC and American relations with the world.
The rapid rhythm of departures from the standard – to target Canada, the firmest ally in the United States, with higher prices than China, and floating the American occupation of Gaza, threatening to annex Greenland and the decision to contact Russian President Vladimir Putin to try to end the war in Ukraine – is overwhelming, and intentionally.
Trump’s prices may not open the most shocking foreign policy in his second administration, but they may well be the most consecutive long-term.
Like all its foreign policy movements generating titles, its prices plan is also part of its excessive game plan to reshape the American economy. He says he will impose prices on Europe, China and all the others that are negotiated with the United States to bring manufacturing home and “make America again large”.
But in this case, it is unlikely that Trump’s audacity will bring him closer to his long -term goals due to the inadvertent impact that these prices will eventually have on the US dollar.
Manufacturing costs in the United States are much higher than they are even in Europe, not to mention Asia, and therefore the immediate effect of its prices and prices threats would inevitably increase the expectations of inflation and start a new strength cycle of the US dollar compared to other main currencies. Although it may seem that a stronger dollar would weaken inflation, prices and its threat would add additional costs to trade, which minimizes this potential advantage. In addition, the American federal reserve has interrupted its rate reduction cycle, while other major central banks, such as the Bank of England and the European Central Bank, advance with their cuts, because their fears of renewed inflation have been supplanted by the need to stimulate growth in the face of commercial threats.
The structure of the international monetary system in which the US dollar already dominates, however, means that higher performance expectations for American assets will only strengthen the dollar.
For so long, global demand for American currency noted that its main export has been its currency and related financial products. This unique “Exorbitant privilegeThis is what allowed Washington to manage trade and budgetary deficits without any major traction on the economy.
Trump has increasingly achieved the importance of protecting this system, threatening 100% prices and other actions against countries seeking to relax and adopt Russia and the “BRICS” organization supported by China.
Trump today considers his task as not only to reorganize budgetary policy to support American national manufacturing, but also of the establishment of new rules of the international monetary order. In simple terms, the president wants to ensure that the US dollar can be negotiated at a lower value compared to other currencies without undermining the centrality of money – and in particular the titles of the US government – in the international monetary system.
This led to a discussion on the question of whether the Trump administration aims to achieve new dollars stabilization agreements with other governments and their central banks related to those that the Reagan administration made in the 1980s, known as Plaza Agreement and the Louvre agreement. Indeed, that the Trump administration is trying to achieve a so-called “Mar-A-Lago” agreement has become a frequent subject of discussion among economists.
However, such a decision will be extremely difficult because, unlike the stabilization agreements of the Reagan era, where the emphasis was on Japan, today, such an agreement should focus on China. At the time, the United States considered the perceived weakness of the Japanese Yen as a threat to its interests and acted to correct it. It was not a big challenge because Tokyo was – and is still it – an ally of the United States. China, however, is nothing of this kind. It is much less interested in such negotiations, and the inheritance of these transactions of the 1980s – in Japan, the strengthening of the Yen following these agreements is most often considered as a central factor in the “lost decades” of the country – is frequently cited by Beijing as an example of the reason why the strengthening of his currency against the dollar should carry significant rich.
Trump is ready to arm this system to obtain concessions and achieve its long -term goals, even when they have nothing to do with trade. Even the most constant American allies must prepare for threats that go far beyond the prices. This has been foreshadowed in its end of January threat of “cash, banks and financial sanctions” against Colombia if it did not accept military aircraft delivering deportees – moves generally reserved for rogue states such as North Korea, Iran and Russia.
Such threats carry much more economic devastation than prices precisely because of the US dollar, its government titles and the centrality of the broader financial system to the global economy.
However, the will of the Trump administration to use such threats against the allies means that it has little hope of concluding negotiations with China with its allies supporting it economically. Beijing and the other supporters of the Dollar system will seek to exploit these weaknesses. For example, for Putin, it is an even more important objective than weakening NATO – it has mentioned the dollar system almost once and a half as often as it has mentioned the military alliance since its large -scale invasion of Ukraine.
Trump is trying to reorganize the international monetary system for the benefit of the United States, but so far, his actions report that his understanding is at best Sophomoric. It has never been more obvious than when asked for NATO spending levels in Spain shortly after its inauguration, he misused the country as a member of the BRICS Bloc.
The American dollars system has never been entirely American. He was largely zero in Europe, where banks began to issue dollars in the 1950s to meet the needs and demand for regional financing. As such, by overwhelming the unity of foreign policy between the United States and Europe supposed to “make America again large”, Trump could end up inadvertently upsetting the Dollar system which has been responsible for a large part of the power and the greatness of America for decades.
The main difference between countries that are members of the BRICS Bloc and European States such as Spain is that BRICS members are almost all the main employees of international trade surpluses, exporting more than they mature, while they also almost always maintain significant capital checks.
The commercial force of Europe, on the other hand, is not enough to maintain the levels of public spending in most of the European Union or the United Kingdom. It is not in Japan either, whose debt figure on GDP is very much of any other leading economy. In turn, after the United States, these historic allies are the main borrowers on the international capital markets, while the capital of the excess nations, such as many members of the BRICS, are those who seek to invest there. This is why China is the first holder of American treasury bills despite the geopolitical rivalry of Washington-Beijing.
Trump movements – such as prices and annexes threats directed to the Allies – tend to undermine this system. Its geopolitical threats which aim to reorganize the monetary system can be targeted on Beijing, but its approach risks not only the rupture of political alignment between the United States and its historical allies, but also their economic alliance.
If Trump has succeeded in his approach, it would probably have advantages for American manufacturing. The growth of 10.2% of the US gross domestic product of the manufacturing will certainly appeal to its basis. But the risk is by aiming to do so, it explodes the American dollar system. And it would be devastating for the American economy, probably triggering not only major inflation but also a spectacular recession.
The opinions expressed in this article are the author’s own and do not necessarily reflect the editorial position of Al Jazeera.
