Trump's tariffs may be exploding US dollar hegemony | Business and Economics

The second term of the United States President Donald Trump began with a whirlwind of changes to the status quo in Washington, Columbia County and in US relations with the world.

The rapid rate of deviation from the norm – from targeting Canada, the most anxious ally of the United States, with more tariffs than China and sailing the US occupation of Gaza, to the threat of Greenland and the decision to reach the Russian President Vladimir Putin – to stop the war in Ukraine –

Trump's tariffs may not be the most shocking foreign policy overtured overture for his second administration, but they may be the most implications in the long run.

Like all its title -generating foreign policy movements, its tariff plan is also part of its excessive planning of the game to change the US economy. He says he will impose tariffs on Europe, China and all the others who trade with the United States to return home production and “make America the great again.”

But in this case, Trump's courage is unlikely to bring him closer to his long -term goals because of the involuntary impact that these tariffs will ultimately have on the US dollar.

Production costs in the US are far higher than even in Europe, let alone Asia, and thus the immediate effect of its tariffs and tariff threats would inevitably be to increase inflation expectations, as well as to launch a new dollar power cycle against other leading currencies. Although it may seem that a stronger dollar will weaken inflation, tariffs and the threat of them add additional trading costs that minimize this potential benefit. In addition, the US Federal Reserve has stopped its cutting cycle, even when other best central banks, such as the Bank of England and the European Central Bank, continue forward with their abbreviations, as their fears of renewed inflation have been displaced by the need to stimulate growth in trade threats.

However, the structure of the international monetary system, which already dominates the US dollar, means that the higher expectations for profitability for US assets will only increase the dollar.

For such a long time, global demand for American currency means that its main export is its currency and related financial products. This uniquely ”Excessive privilege“This is what allowed Washington to manage both commerce and fiscal deficit without being much dragging to the economy.

Trump is increasingly aware of the importance of protecting this system, threatening 100 percent rates and other actions against countries that seek to deer and perceive Russia and China-backed BRICS.

Today, Trump sees his task not only for rearranging fiscal policy to support US domestic production, but one of the establishment of new international rules. To put it simply, the President wants to ensure that the US dollar can trade at a greater value than other currencies, while not undermining the central value of the currency -and in particular the US government securities -in the international monetary system.

This has led to discussion whether the Trump administration aims to reach new dollar stabilized deals with other governments and their central banks, similar to those that the Reagan Administration, made in the 1980s, known as the Accord Plaza and Louvre Accord. In fact, the Trump administration is trying to reach the so-called Mar-Lago agreement has become an honor conversation about speaking among economists.

Still, such a move will be extremely difficult, because unlike agreements to stabilize the dollar from the Reagan era, where the focus was on Japan, today any such agreement will have to focus on China. At that time, the United States saw the perceived weakness of the Japanese yen as a threat to its interests and acted to correct it. It was not a big challenge as Tokyo was – and it is still a close ally of the United States. However, China is nothing like it. He is far interested in such negotiations and the heritage of those deals from the 80s – in Japan, the strengthening of the yen as a result of these agreements is more frequent than not being seen as a major factor in the subsequent “lost decades of the country” – often cited by Beijing as an example of being increased.

Trump is ready to arm this system to provide discounts and achieve its long -term goals, even when they have nothing to do with trade. Even the most resistant allies in the US must prepare for threats that go beyond tariffs. This was predicted at the end of January the threat of the “Ministry of Finance, Banking and Financial Sanctions” against Colombia if he did not accept military aircraft delivering deported – movements usually reserved for fraudulent countries such as North Korea, Iran and Russia.

Such threats foreshadow much more economic devastation than the tariffs precisely because of the US dollar, its government securities, and the centrality of the wider financial system to the world economy.

However, the Trump administration's desire to use such threats against allies means that there is little hope to negotiate with China, with its allies supporting it economically. Beijing and other supporters of the dollar system erosion will strive to use these weaknesses. For example, for Putin, this is an even more important goal than weakening NATO-hen mentions the dollar system almost one and a half times more often than mentioning the Military Union after its full-time invasion of Ukraine.

Trump is trying to rearrange the international monetary system for the benefit of the United States, but for now, his actions have signaled that his understanding of it is in the best case of a sophomore. It has never been more clear than when asked about NATO's costs in Spain, shortly after he took office, he misleads the country as a member of the BRICS bloc.

The US dollars system has never been entirely American. They were largely born in Europe, where banks began to issue dollars in the 1950s to meet the needs and demand for regional funding. As such, taking advantage of the foreign policy unity between the US and Europe, which is believed to have “made America again great,” Trump may be inadvertent, increasing the dollar system responsible for much of America's power and majesty.

The main difference between those countries that are members of BRICS Bloc and European countries like Spain is that BRICS members are almost all massive income from international trade surpluses, exporting more than imports, while they also almost always maintain considerable capital control.

The power of trade in Europe, on the other hand, is not sufficient to maintain government spending levels in the bigger part of the European Union or the United Kingdom. Neither is in Japan, whose digit of debt to GDP is exceeding any other leading economy. For its part, after the United States, these historical allies are the main borrowers in the international capital markets, while the capital of nations with excess profit, such as many BRICS members, are those who seek to invest in them. That is why China is the number one owner of US treasures, despite Washington-Bajin's geopolitical rivalry.

Trump's moves – such as tariffs and annexation threats aimed at allies – tend to undermine this system. His geopolitical threats, which aim to rearrange the monetary system, can be directed to Beijing, but also his approach risks not only to violate political alignment between the United States and its historical allies, but also their economic union.

If Trump is successful in his approach, there will probably be some benefits in US production. The growth of the current 10.2 percent of the gross domestic product in the United States would surely like it on its basis. But the risk is that as you go, it raises the US dollar system. And that would be devastating for the US economy, which probably causes not only a lot of inflation but also a dramatic recession.

The anger expressed in this article are the author's own and do not necessarily reflect Al Jazee's editorial position.