What is Trump’s aim in the tariffs and duties he is imposing? Is there a method to what seems like his madness? Could he (unwittingly or otherwise?) be sowing the seeds for a return to the gold standard?
Last week the US announced a list of $50 billion in Chinese goods to target with 25% tariffs. The Trump team said there would be more duties if China retaliated. Within hours China did just that. Releasing its own list of tariffs to place on $50 billion in US imports. This was following recent tariffs to the likes of Canada.
Where Are Trump’s Policies Heading? Will an All Out Trade War Take Place?
At first glance it seems obvious that is we are heading for an all out trade war.
However if we look at Trumps recent moves with North Korea and some comments he made at the G7 meeting maybe not?
Recall last year with Trump saying that threats from North Korea “will be met with fire and fury like the world has never seen.”
Less than a year later we have a potential history peace deal in the making. Who saw that coming?
To many Trump seems absurd but perhaps is there a method to his madness? His “art of the deal” seems to be to create controversy and unsettle your opponent with crazy claims and wild accusations. Simplified this would be, prepare them to think you want something that is so extreme, so then what you really want seems quite reasonable.
This looks to have been Trumps Modus Operandi with North Korea (or maybe the US just threatened them with the “rod from god” kinetic weapon?).
In a trade war everyone loses. So why would Trump risk one? Because he is an ignorant buffoon? Maybe that’s an even bet!
But perhaps Trump, in stoking what looks to be a trade war, is instead using the same approach he appears to have used with North Korea?
Maybe his play here is to achieve the exact opposite of what his current actions would appear?
At the G7 meeting he let slip this comment:
“Ultimately that’s what you want, you want tariff free, no barriers, and you want no subsides because you have some countries subsidizing industries and that’s not fair. So you go tariff free, you go barrier free, you go subsidy free, that’s the way you learned at the Wharton School of Finance.”
Maybe Trump is adding tariffs and trade barriers with the aim of actually eliminating trade tariffs and industry subsidies? That is, just following the same script as he did with North Korea.
Unsettle your opponents with tariffs so you then have a point of negotiation. The old game of “you take yours off and then I’ll take off mine.”
Could Trump’s Methods Result in a Return to the Gold Standard?
So let’s assume Trumps aim is actually the elimination of all tariffs and subsidies. Would this result in glorious free trade and beer and skittles for everyone?
Hugo Salinas Price makes a good argument as to why it wont. Simply due to Triffin’s Dilemma (A.K.A. Triffin’s paradox).
“If the dollar – such as it is – is going to be the basis of the world’s monetary system, and therefore required by all Central Banks as Reserves, there is only one way that these CBs can obtain those Reserves: their countries are forced to undersell all US producers, in order to be able to sell more to the US, than they buy from the US. The difference between the dollars they get from sales, is more, than the dollars they spend to buy from the US. That difference – known as the US Trade Deficit – flows to the CBs of the world and swells their Reserves.
So if Mr. Trump wants to cut down, or even ideally abolish the Trade Deficit, that would mean that foreign CBs would have to find it much harder to obtain dollars for their Reserves. Mr. Trump apparently does not want to have foreign CBs use dollars as Reserves, by making it very difficult to obtain those dollars – which they can only get if the US runs a Trade Deficit.
What that great world monetary system based on the paper dollar has done to the US, was quite unexpected: it consists in obtaining foreign goods by tendering paper money in payment, something that is fundamentally fraudulent. And that fraud has come back to haunt the US, quite unexpectedly.
The unexpected result of Triffin’s (or “Hugo’s”) Dilemma, has been the de-industrialization of the US, as the world geared up to undersell all US producers wherever they could do so, in order to obtain the indispensable US Dollars.[Read more on Triffin’s dilemma: Why A Dollar Collapse Is Inevitable]
Mr. Trump is wildly alienating all the rest of the world, with the threat of Tariffs in order to reduce the Trade Deficit. What he does not understand, is that the Trade Deficit is built-in to the US economy, because the world´s CBs need Dollars for their Reserves: that is the System.
There is one way, and only one way, to do away with the Trade Deficit and renew the productivity of the US: abandon the present International Monetary System (derived from the original Bretton Woods Agreements of 1944) and return to the gold standard.
There are no “Trade Deficits” under the Gold Standard, because all countries have to pay Cash Gold for their imports, and collect Cash Gold for their exports. Result: Balanced Trade. No Trade Deficits.
A question in the back of my mind: Is Mr. Trump’s “madness” really leading to the Gold Standard? Is that what he really wants? Because if he continues to undermine the present US Dollar as the World’s Reserve Currency, by making it impossible for CBs to obtain Dollars through the US Trade Deficit, that would appear to be the likely final outcome.”
Trump is indeed a conundrum. Who knows quite what to make of him?
Trump discussed a return to the gold standard in his election campaign. But of course like a good politician what he says and what he does are two very different things! We have seen little discussion of such a thing since he was elected. And the team he ended up with certainly appears to be no friends of the gold standard.
Read more about Trump and a possible plan to return to a gold standard: Trump and a New Gold-Backed Dollar
But the argument that Salinas Price makes is a solid one.
The Triffin paradox says you cant have balanced trade with a global fiat reserve currency.
So whether by grand plan or totally unwittingly, Trump may well be guiding the world back towards a gold monetary standard once again.