By VALERIO ARCARY*
It is impossible to understand the “Trump moment” of tariffs without considering the pressure of more than forty years of gigantic and chronic trade and fiscal deficits in the United States.
“Don’t give the villain your finger and he will take your hand.”
(Portuguese popular proverb)
1.
The United States is imposing a shock on the world economy that has not been seen in the last forty years. This is a full-scale counter-offensive to defend Washington’s supremacy in the world market and state system. Anyone who underestimates this is making an unforgivable mistake.
The impact can only be compared to the “Nixon moment” in 1971, when Washington subverted the Bretton Woods agreement and ended the fixed convertibility of the dollar into gold, devaluing the reserve currency to face German and Japanese growth, the growing US trade deficit, and the need to finance the war in Vietnam.[I]
Or the “Reagan moment”, when the Federal Reserve raised the basic interest rate to 21,5% to combat inflation above 13,5%, the surge in public debt which then reached, for the first time, US$1 trillion, the need to finance the arms race against the USSR, after the victory of the revolution in Nicaragua, threatening the expansion of a wave to Central America, in Iran, threatening a wave of Islamic radicalization against Israel, and the fall of dictatorships in the southern cone of Latin America.[ii]
It is impossible to understand the “Trump moment” of tariff hikes without considering the pressure of more than forty years of gigantic and chronic trade and fiscal deficits. They are the Achilles heel of the United States. They did not prevent a mini-boom with Ronald Reagan in the 1980s, Bill Clinton in the 1990s, and George Bush Jr. in the first decade of the 21st century. Any other country, even among the central ones, would have plunged into a spiral of inflation, disinvestment, recession and misgovernance. They are a distortion, an “exceptional” or an “anomaly”.
A nation cannot indefinitely maintain a dysfunctional, or consumption pattern that depends on “infinite” debt that rests on capital stocks of other states, and foreign bourgeois fractions that buy Yankee Treasury bonds. It was only possible because the United States, the world’s greatest power, has a near monopoly on issuing reserve currency, because the role of the euro, the pound, or the Swiss franc is much smaller.
Paradoxically, it operates as a “vacuum cleaner” for capitalist accumulation, but keeps the dollar overvalued, reducing the competitiveness of the North American economy. The strategic challenge has arisen in the last ten years: the contrast between the stagnation in the imperialist centers after the 2007/08 crisis and the qualitative leap forward in China’s strengthening has sounded the alarm bell for a fraction of the North American bourgeoisie.
2.
The US trade deficit in 2024 was about $918,4 billion. The fiscal deficit reached $1,8 trillion.[iii] The public debt is US$36 trillion and the interest payments alone will consume US$1 trillion, more than the Pentagon's military budget.[iv] The United States' gross domestic product (GDP) was $29,16 trillion, still a 26,5% share of the global total, but declining.[v]
In theory, these twin deficits should not be possible. But that is how it is. The Bretton Woods order, created as a result of the catastrophe of two world wars, created the IMF (International Monetary Fund) precisely to prevent these imbalances from being merely temporary and surmountable, and not the trigger for a new global crash like in 1929. But the US broke with Bretton Woods in 1971 to preserve its status as a powerful power intact and, again in 1981, to corner the USSR and impose capitalist restoration.
Between 2001 and 2005, Latin America was shaken by a revolutionary wave ignited by a decade of neoliberal adjustments. The global crisis of 2007/08 was a sign that financialization had insurmountable limits, and its cost was politically unsustainable. The revolutionary wave in the Maghreb spread from Tunisia to Egypt and Syria.
What explains this American “exceptionality”? The fact that the US issues, without backing and without rules, the world’s treasury currency. The dollar’s seigniorage rights were limited until 1971, because Bretton Woods had conditioned its role as reserve currency to a fixed parity of convertibility with gold. But this rule expired more than half a century ago.
The superiority of the United States prevailed in the world because this privilege was decisive in maintaining a war machine that functioned as an “atomic umbrella” that protected the Triad. At the same time, the role of the gigantic US domestic market as an “importer of last resort” allowed Europe and Japan, but also China, among others, to accumulate trade surpluses that financed the fiscal deficit through the stock of US debt securities. This was the case for decades after 1989/91. The neoliberal strategy of financialization guaranteed unipolar supremacy after the capitalist restoration in the former USSR. But a contradiction became more acute over time.
3.
The US has practiced, since the 2007/08 crisis and the Bush Jr./Barack Obama transition, until Donald Trump's first term, the QE strategy (Quantitative Easing) or monetary easing. The Quantitative Easing was the adoption of negative interest rates or rates below inflation, to stimulate consumption and production. It operated as a “flight forward” – combating excess liquidity with more liquidity – and circumvented a global depression, as in the 1930s, but it did not prevent a lost decade, and then the pandemic came.
In this process, the overvaluation of the dollar was inevitable, and it intensified the industrial shift to Asia. Global capitalism gained “historical time”, but, both in Europe and in the USA, poverty and social inequality increased. Black Lives Matter was the largest social mobilization movement in the US in decades, and set in motion a new generation. Donald Trump's tariff shock has as its explicit objective the internalization of production chains. But it also pursues the objective of pressuring for the devaluation of the dollar, for the reduction of the basic interest rate of the FED which rose with post-pandemic inflation and the lengthening of the US public debt profile.
The “dialectical irony” of history was that, during the globalization phase, or at the height of US supremacy, the country that grew, modernized and industrialized the most was China, which is outlining de-dollarization through the BRICS alliance. It already maintains a payment system in its own currency with Russia, since sanctions over the war in Ukraine led to a rupture with the SWIFT system.[vi]
The overvaluation of the dollar has made production costs in the US very high, and the globalization strategy has favored industrial transfer to Asia. The free movement of capital has financed China’s accelerated industrialization. The gigantic size of the US domestic market has guaranteed its role as a “global importer.” But at the same time, American supremacy has come to depend on financial and military superiority. The costs of maintaining the Armed Forces as an “atomic umbrella” have become disproportionate. Trump’s shock response is a response to this threat. The tariff hike is a tactical shift that follows a much broader strategy. It may seem “crazy,” but it has a “method.”
4.
Donald Trump has a plan and there is coherence in his strategy. In the economy, he is betting that the inflationary pressure that will come from the tariff hike can be offset by the devaluation of the dollar. Richard Nixon broke with Bretton Woods to contain Germany and Japan, Ronald Reagan with peaceful coexistence to encircle the USSR, Donald Trump with the WTO, the Paris Treaty, even the WHO (World Health Organization), and is challenging NATO and the UN.
It openly advocates a neocolonial national-imperialist offensive: it threatens the annexation of Greenland and intimidates Denmark, it has regained control of the Panama Canal, it humiliates Canada and it has embraced the line of the Zionist far-right in Israel that advocates ethnic cleansing in the Gaza Strip. It demands unconditional alignment from the European Union against China and it maneuvers to separate Moscow from Beijing.
These were just the first steps, even before the 100 days. Iran and Venezuela will be threatened. Cuba will be in the crosshairs. Mexico will be relatively spared, because it is a semi-colony with privileged status. It is betting on the recovery of greater internal social cohesion in the US with industrialization in strategic sectors. It supports the intensification of oil exploration to guarantee energy sovereignty. But it knows that it needs to maintain superiority in nanotechnology, biomedicine, the military-industrial complex, and services, starting with bigtechs.
The “Trump moment” will be very serious, perhaps worse than the counteroffensives of Richard Nixon and Ronald Reagan, for three reasons. The first is that there is a neo-fascist leadership within the White House. The second is that we are facing an unavoidable environmental crisis, and Donald Trump is a denier. The third is that China does not seem willing to back down and give in to blackmail.
Donald Trump's offensive is supported internally by a current of white supremacy, misogynism and homophobia that embraces an exalted nationalist ideology, and has the social power to shock, as was made explicit in the assault on the Capitol. The response to global warming depends on a global articulation that is not possible without the US, and it is already clear that the Paris Treaty has expired.
China’s response will be crucial, given the beginning of an arms race in Europe against Russia, the imminent siege of Iran, and the prospect of a threat to Venezuela’s sovereignty. The turbulence has changed levels, and the world has become more unpredictable. The historic decline of the United States has created a monster.
* Valerio Arcary is a retired professor of history at the IFSP. Author, among other books, of No one said it would be Easy (boitempo). [https://amzn.to/3OWSRAc]
Notes
[I] Between 1870 and 1970, the United States had uninterrupted trade surpluses averaging 1,1% of GDP. From 1970 onwards, the United States began to have constant trade deficits. The change in the long-term trade balance pattern has a stable correlation with the reversal of the role of industrialization in the international context.
https://www.stlouisfed.org/on-the-economy/2019/may/historical-u-s-trade-deficits
[ii] Before Reagan’s 1981 speech, newly elected presidents typically skipped a formal State of the Union address in their first year in office. Reagan told lawmakers, “Our national debt is approaching $1 trillion. How big is a trillion really? The best I can say is that if you had a stack of $1.000 bills in your hand that was only 4 inches high, you would be a millionaire. A trillion dollars would be a stack of $1.000 bills that was 67 miles high.”
https://www.politico.com/story/2018/02/18/this-day-in-politics-february-18-1981-415852
[iii] Using data from the Federal Reserve Board and the Treasury Department, the following figures were found: US federal government debt of $36 trillion; state and local debt of $3 trillion; household debt of $20,2 trillion; corporate debt of $21,4 trillion; and domestic debt of the financial sectors of $19,8 trillion.
[iv] https://www.infomoney.com.br/mercados/divida-de-us-36-tri-dos-eua-pode-inviabilizar-promessas-de-trump-dizem-analistas/
[v] China's GDP was estimated at US$18,27 trillion, Germany's at US$4,71 trillion, and Brazil's at US$2,18 trillion, 10th in the world.
https://www.bea.gov/data/gdp/gross-domestic-product
[vi] The SWIFT system is a communications network that enables the exchange of financial messages between banks and financial institutions around the world. It is used to send and receive international payments, transfers and other financial transactions.
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