Donald Trump and MAGA: driving the world to crisis and war.
The whole world watches with trepidation the puppet show in the halls of power in the USA. The USA remains the global hegemon. Donald Trump the puppet master appears not to care about the consequences of his actions.
His latest act of impunity is opening a trade war on the world by charging tariffs on all countries that the US imports goods and services. Trump has called these tariffs reciprocal. He has backtracked on this policy as of early April and suspended most of the content of this policy for 90 days. However, the horse has bolted the stable.
That simple act has shocked world leaders. It means global inflation will go up, as supply chains already disrupted by the COVID pandemic will get less sustainable and resilient.
Trump is correct the USA holds all the cards at present. Most countries hold a trade surplus with the USA and are dependent on the USA for their economic wellbeing. A tariff is a tax on their exports to the USA. It is a tax paid at the point of the loading goods and services before they leave for the final destination or port. It makes imported products more expensive for US residents. The ramifications of tariffs are worse for exporting nations who depend on the USA for their exports and internal economies driven by the Dollar.
Then, the irony is that deficits driving up US national debt are actually good for the USA. The USA is the world’s largest consumer and debtor. The USA produces the debt and Dollars that engineers the global economy. Countries enjoy a trade surplus with the USA and they export to the USA more than they import. Their surpluses and exports are valued in US Dollars.
The world sends its products to the USA and the US pays in Dollars printed by the Federal Reserve that is essentially debt guaranteed by investors in US currency and debt instruments.
Investors back the Dollar debt. That debt is the cash the world outside the USA receives, for the goods it sends to the USA. That cash is the lifeblood of the global economy. It is termed reserve currency and is the platform for the world’s payment systems. World currencies are valued in Dollars: they peg to the Dollar.
The US deficit exchanges for surpluses from countries that export to the USA. This is an eternal merry go round. Increasing US national debt is a black hole. It will in fact continue to get deeper. Investors do not mind, their belief in American economic might is insurmountable, concrete. Bondholders, as of today appear to have zero issue with lending money to Uncle Sam.
In the end, we are all dead, and future generations can worry about that debt headache.
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