Alex Callinicos: Trump uses tariffs to keep his friends close

Donald Trump 

Stock markets soared—especially in the United States—when Donald Trump was re-elected in November.

But they were in free fall ahead of what he calls “liberation day” on Wednesday. That’s when he promised to slap tariffs on imports from all countries that treat the US “unfairly”.

Tariffs are taxes on imports. There’s widespread fear that they will disrupt international trade and increase inflation.

But Trump actively wants international disruption. As Financial Times columnist Rana Foroohar puts it, “It is all about being able to project power and strength, which are the things—aside from wealth—that motivate him.”

Wealth is a source of state power, so the picture is a bit more complex. The most coherent justification for the Trump tariffs that I’ve found comes from a long paper by the economist Stephen Miran, currently chair of Trump’s Council of Economic Advisers.

Miran argues that the US economy suffers from a competitive disadvantage because the dollar is the main reserve currency. This means that capitalists from all over the world invest in US Treasury bonds because they are a safe and reliable asset.

This keeps the dollar strong relative to other currencies. As a result, manufacturing industry in the US has shrunk compared to that of China and Europe.

Trump, like Joe Biden, wants to rebuild manufacturing in the US. One way to do this would be to weaken the dollar against other currencies in order to make US exports cheaper internationally. Miran even comes up with a plan for a “Mar‑a-Lago Accord” under which Washington would bully other leading capitalist states into helping to devalue the dollar.

But Trump likes the strong dollar. It helps to keep the US at the centre of the global financial system. Miran recently told the Bloomberg website that weakening the dollar isn’t a priority for the Trump administration.

The alternative, then, is to make imports more expensive by imposing tariffs. Whether this would increase inflation is an open question. Miran points out that when Trump first imposed tariffs on China in 2018, the Chinese currency—the renminbi—fell against the dollar.

This offset the impact of higher tariffs on US consumers by making Chinese imports cheaper, in the process cutting Chinese workers’ purchasing power. If this reasoning is correct—which depends on lots of other ifs—Trump’s tariffs will increase US tax revenues at the expense of the rest of the world.

Raising more money is very important to the administration. One reason why the markets soared when Trump won was that he promised to continue the tax cut for the rich that he introduced in his first presidential term.

The tax cut is due to expire next year. Extending it would cost £3 trillion over ten years. But—partly because the strong dollar makes it easy for the US to borrow—government debt is massive. The federal budget deficit—the difference between what the US government spends and what it receives in taxes—is projected to be nearly £1.5 trillion in 2025, 6.2 percent of national income.

Borrowing to pay for the tax cut would push up interest rates, which are already rising. Elon Musk’s slash and burn cuts to government spending are a desperate effort to cut the deficit. Trump’s team are counting on the revenues from the tariffs to bring the books more into balance.

So the tariffs are partly about buying the continued silence of the corporate rich at the authoritarian and racist rampage the administration is mounting. They’re also about strengthening US imperialism against its rivals. Miran wants to tie together tariffs and geopolitics.

He says, “Friends are inside the security and economic umbrella, but there is much more burden-sharing. Based on the scope of that burden-sharing, friends may experience more favourable trade or currency terms.

“Those outside the security umbrella may also find themselves outside friendly arrangements for international trade and easy access to the US consumer.”

This is a recipe for a Fortress America with space for compliant allies who increase their defence spending. Who does that remind me of?