Are Trump policies just a disjointed array of campaign promises, and is there no way to connect the dots that would show some coherent pattern, like a plan? My initial observation was no way there’s a plan. Upon further consideration, I may have been wrong.
Trump was elected mostly with the support of what some call the forgotten class of God-fearing, conservative, mostly white middle class Americans, most of whom live in what the press and political parties dismissively call “flyover country”. These people feel that their demise, i.e. losing good paying, unionized manufacturing jobs, was due to free trade, the driving force behind globalization and the trade deficit. Trump promised to end this and said if elected tariffs would be the order of the day, and he delivered. The main target is China, although he went after Canada, Mexico and the EU also.
Trump also blasted Fed chairman Jerome Powell, who he appointed, for raising interest rates and continuing QT. Wall Street howled, Trump tweeted, and Powell relented; so much for the theory of an independent central bank. Note that the Fed now is on a program of cutting interest rates.
Trump also revoked the Iran Nuclear Deal, ostensibly because he found it ineffective as a means to curtail that country’s nuclear arms capabilities. Now I am not advocating for or against Trump’s policies here; for the moment I’m just trying to see if these dots can be connected.
For reasons going back long before Trump’s election, the dollar is the world’s reserve currency, which makes it the medium of exchange in international trade, and therefore requires reserves by the world’s central banks. Given that all of the world’s currencies are fiat based there is only one way to obtain this reserve currency, i.e. trade and underselling American products for dollars. The difference between these sales and purchases in America accounts for the trade deficit.
This requires an extraordinary supply of dollars in order to keep this system liquid. Apparently Trump has bought in to the accepted “wisdom” that reducing the trade deficit requires a weaker dollar. To make the dollar weaker, Trump needs low interest rates and/or keeping QE in play. The Iran deal threatened the dollar as the reserve currency because it would have exponentially increased trade between China, Iran, and the EU; it’s all about oil. So Trump needed those sanctions back. There is a dilemma here for Trump as tariffs will hurt American exports despite depressed interest rates weakening the dollar, so the two may cancel each other out and not help the trade deficit.
So that’s my thinking, which you may find fault with, but at least it’s based on the facts at hand. What we really need to question is not just Trump’s policies, but whether or not the premise that trade deficits are a problem is true. Given the context of the current world monetary system governments are adverse to free markets, especially free trade, rely on fiat currencies and interventionist foreign and domestic policies. This statist mentality has created a dangerous conflict in international trade that has led to wars in the past, so yes, there is a method to this madness, but just don’t blame Trump because we’ve seen this movie before, and it didn’t end well.
#MADNESS
Libera Voce 