Trump's economic policy

According to President Trump, the US subsidizes the world in two ways: a) Currencies are kept artificially undervalued against the dollar, making it easier to import goods and services into the US and harder to export them, and b) the US spends more than $750 billion annually on military spending, protecting many states.

The Trump administration's two strategies are: to reduce exports to the US, impose tariffs—we saw how he implemented them this week—and make people pay for military protection. This is the Republican Party's thesis, expressed by Stephen Miran and other conservative economists.

The dollar is the world's benchmark currency and the basis for international trade and finance. Its convertibility and stability mean that many states' reserves are held in dollars. This is the reason for the dollar's overvaluation against other currencies. A strong dollar attracts the purchase of US debt due to the security and stability of the investment.

Tariffs make exports to the US more difficult because they make them more expensive—it's a tax on everything coming from abroad—and therefore result in fewer imports to the US. But tariffs have no effect on US exports, except when other states also impose tariffs as a countervailing measure for US taxes—we're seeing this with the trade war Trump has launched.

The Trump administration's policy is to promote local production of goods and services (in this regard, employment in this sector in the US has fallen from 35% of the total in 1950 to 8% in 2020). Globalization has led to job losses in the US. Addressing this situation has been one of the Republican campaign's demands.

The US share of global GDP has fallen from 40% in 1960 to 27% in 2020. Except for high-tech and digital products (and so on), the US is not a producer of goods and services today as it was 50 years ago. That's why the Trump administration wants a dollar that is less overvalued against other currencies, which would allow for reduced imports, increased domestic production, thereby creating jobs, and promoting exports. But this contradicts the US interest in maintaining the dollar as the reference currency for international trade and state reserves.

Regarding the issue of reserves, there is a solution: issuing 100-year debt, which would remove the debt from the market if the investor in the purchase contract were to be financially penalized if they sought to redeem it before the agreed term. This is a possibility the US has and can enforce, through which the potential investor would enjoy military and security protection (or not, if they sold the debt).

To reduce US imports without devaluing the dollar (so as not to lose the value of the dollar as a reference currency for trade and investment), the solution is tariffs, and that's what the Trump administration has already implemented. Now the US will have to carefully monitor the effects of these measures on the economy and trade.

The determination of the relative exchange rates of major currencies was first agreed upon at Bretton Woods in 1944. In 1985, the Plaza Agreement between the United States, France, the United Kingdom, Japan, and Germany agreed to the devaluation of the dollar, and in 1987, the Louvre Agreement addressed this issue. These agreements were globally positive for the world economy due to the stability they brought.

The Trump administration is now proposing a new agreement that, in theory, could be the Mar-a-Lago agreement, with three principles: a) Security-protected areas of the world where states commit to buying US debt; b) Capital-protected areas of the world, where states commit to buying US debt for 100 years; and c) Areas of the world outside of A and B that will be subject to US-imposed tariffs explicitly targeted at them.

If this were to happen, with the US administration convinced that no macroeconomic distortion would occur that would negate these measures (basically inflation in the US and a reduction in world trade), it would seriously damage the EU economy, which is the most open of the three economies—the US, China, and the EU. It would, in fact, mark the end of an era based on social democracy, collaboration, and equality, which has lasted, with ups and downs, since the end of World War II in 1945.

This world, more based on personal merit, individualism, the market, and competition, with a smaller state and fewer social services, is what the Republican Party now advocates, and would mean returning to the inequality the world suffered before the 1914 war, but with higher income levels (we are richer today). Spending a century to return to the origins... It's a nightmare.

If all this were to happen, the Trump presidency, despite its banality, would have global consequences and effects from which we should heal as we did in the 1930s. If possible, with less suffering than then.