'Trump’s tariff fixation is part of a global economic plan that is solid.' Andrew Caballero-Reynolds / AFP via Getty
Faced with President Trump’s economic moves, his centrist critics oscillate between desperation and a touching faith that his tariff frenzy will fizzle out. They assume that Trump will huff and puff until reality exposes the emptiness of his economic rationale. They have not been paying attention: Trump’s tariff fixation is part of a global economic plan that is solid — albeit inherently risky.
Their thinking is hard-wired onto a misconception of how capital, trade and money move around the globe. Like the brewer who gets drunk on his own ale, centrists ended up believing their own propaganda: that we live in a world of competitive markets where money is neutral and prices adjust to balance the demand and the supply of everything. The unsophisticated Trump is, in fact, far more sophisticated than them in that he understands how raw economic power, not marginal productivity, decides who does what to whom — both domestically and internationally.
Though we risk the abyss staring back when we attempt to gaze into Trump’s mind, we do need a grasp of his thinking on three fundamental questions: why does he believe that America is exploited by the rest of the world? What is his vision for a new international order in which America can be “great” again? How does he plan to bring it about? Only then can we produce a sensible critique of Trump’s economic masterplan.
So why does the President believe America has been dealt a bad deal? His chief complaint is that dollar supremacy may confer huge powers on America’s government and ruling class, but, ultimately, foreigners are using it in ways that guarantee US decline. So what most consider to be America’s exorbitant privilege, he sees as its exorbitant burden.
Trump has been lamenting the decline of US manufacturing for decades: “if you don’t have steel, you don’t have a country.” But why blame this on the dollar’s global role? Because, Trump answers, foreign central banks do not let the dollar adjust downwards to the “right” level — at which US exports recover and imports are restrained. It is not that foreign central bankers are conspiring against America. It is just that the dollar is the only safe international reserve they can get their hands on. It is only natural for European and Asian central banks to hoard the dollars that flow to Europe and Asia when Americans import things. By not swapping their stash of dollars for their own currencies, the European Central Bank, the Bank of Japan, the People’s Bank of China and the Bank of England suppress the demand for (and thus the value of) their currencies. This helps their own exporters boost their sales to America and earn even more dollars. In a never-ending circle, these fresh dollars accumulate in the coffers of the foreign central bankers who, to gain interest safely, use them to buy US government debt.
And there’s the rub. According to Trump, America imports too much because it is a good global citizen which feels obliged to provide foreigners with the reserve dollar assets they need. In short, US manufacturing has been in decline because America is a good Samaritan: its workers and middle class suffer so that the rest of the world can grow at its expense.
But the dollar’s hegemonic status also underpins American exceptionalism, as Trump knows and appreciates. Foreign central banks’ purchases of US Treasuries enable the US government to run deficits and pay for an oversized military that would bankrupt any other country. And by being the linchpin of international payments, the hegemonic dollar enables the President to exercise the modern-day equivalent of gunboat diplomacy: to sanction at will any person or government.
This is not enough, in Trump’s eyes, to offset the suffering of American producers who are undercut by foreigners whose central bankers exploit a service (dollar reserves) America provides them for free to keep the dollar overvalued. For Trump, America is undermining itself for the glory of geopolitical power and the opportunity to accumulate other people’s profits. These imported riches benefit Wall Street and realtors but only at the expense of the people who elected him twice: Americans in the heartlands who produce the “manly” goods such as steel and automobiles that a nation needs to remain viable.
And that’s not the worst of Trump’s concerns. His nightmare is that this hegemony will be fleeting. Back in 1988, while promoting his Art of the Deal on Larry King and Oprah Winfrey, he bemoaned: “We are a debtor nation. Something’s going to happen over the next number of years in this country, because you can’t keep on losing $200 billion a year.” Since then, he has become increasingly convinced that a terrible tipping point is approaching: as America’s output diminishes in relative terms, the global demand for the dollar rises faster than US incomes. The dollar then has to appreciate even faster to keep up with the reserve needs of the rest of the world. This can’t go on forever.
For when US deficits exceed some threshold, foreigners will panic. They will sell their dollar-denominated assets and find some other currency to hoard. Americans will be left amid international chaos with a wrecked manufacturing sector, derelict financial markets and an insolvent government. This nightmare scenario has convinced Trump that he is on a mission to save America: that he has a duty to usher in a new international order. And that’s the gist of his plan: to effect in 2025 a decisive anti-Nixon Shock — a global shock that cancels out the work of his predecessor by terminating the Bretton Woods system in 1971 which spearheaded the era of financialisation.
Central to this new global order would be a cheaper dollar that remains the world’s reserve currency — this would lower US long-term borrowing rates even more. Can Trump have his cake (a hegemonic dollar and low-yielding US Treasuries) and eat it (a depreciated dollar)? He knows that the markets will never deliver this of their own accord. Only foreign central banks can do this for him. But to agree to do this, they need to be shocked into action first. And that’s where his tariffs come in.
This is what his critics do not understand. They mistakenly think that he thinks that his tariffs will reduce America’s trade deficit on their own. He knows they will not. Their utility comes from their capacity to shock foreign central bankers into reducing domestic interest rates. Consequently, the euro, the yen and the renminbi will soften relative to the dollar. This will cancel out the price hikes of goods imported into the US, and leave the prices American consumers pay unaffected. The tariffed countries will be in effect paying for Trump’s tariffs.
But tariffs are only the first phase of his masterplan. With high tariffs as the new default, and with foreign money accumulating in the Treasury, Trump can bide his time as friends and foes in Europe and Asia clamour to talk. That’s when the second phase of Trump’s plan kicks in: the grand negotiation.
Unlike his predecessors, from Carter to Biden, Trump disdains multilateral meetings and crowded negotiations. He is a one-on-one man. His ideal world is a hub and spokes model, like a bicycle wheel, in which none of the individual spokes makes much of a difference to the functioning of the wheel. In this view of the world, Trump feels confident that he can deal with each spoke sequentially. With tariffs on the one hand and the threat of removing America’s security shield (or deploying it against them) on the other, he feels he can get most countries to acquiesce.
Acquiesce to what? To appreciating their currency substantially without liquidating their long-term dollar holding. He will not only expect each spoke to cut domestic interest rates, but will demand different things from different interlocutors. From Asian countries that currently hoard the most dollars, he will demand they sell a portion of their short-term dollar assets in exchange for their own (thus appreciating) currency. From a relatively dollar-poor eurozone riddled with internal divisions that increase his negotiating power, Trump may demand three things: that they agree to swap their long-term bonds for ultra-long-term or possibly even perpetual ones; that they allow German manufacturing to migrate to America; and, naturally, that they buy a lot more US-made weapons.
Can you picture Trump’s smirk at the thought of this second phase of his masterplan? When a foreign government acquiesces to his demands, he will have chalked up another victory. And when some recalcitrant government holds out, the tariffs stay put, yielding his Treasury a steady stream of dollars which he can dispense with any way he deems fit (since Congress controls only tax revenues). Once this second phase of his plan is complete, the world will have been divided into two camps: one camp shielded by American security at the cost of an appreciated currency, the loss of manufacturing plants, and forced purchases of US exports including weapons. The other camp will be strategically closer perhaps to China and Russia, but still connected to the US through reduced trade which still gives the US regular tariff income.
Trump’s vision of a desirable international economic order may be violently different from mine, but that gives none of us a licence to underestimate its solidity and purpose — as most centrists do. Like all well-laid plans, this may, of course, go awry. The depreciation of the dollar may not be sufficient to cancel out the effect of tariffs on prices US consumers pay. Or the sale of dollars may be too great to keep long-term US debt yields low enough. But besides these manageable risks, the masterplan will be tested on two political fronts.
The first political threat to his masterplan is domestic. If the trade deficit begins to shrink as planned, foreign private money will stop flooding Wall Street. Suddenly Trump will have to betray either his own tribe of outraged financiers and realtors or the working class that elected him. Meanwhile, a second front will be opening. Regarding all countries as spokes to his hub, Trump may soon discover that he has manufactured dissent abroad. Beijing may throw caution to the wind and turn the BRICS into a New Bretton Woods system in which the yuan plays the anchoring role that the dollar played in the original Bretton Woods. Perhaps this would be the most astonishing legacy, and comeuppance, of Trump’s otherwise impressive masterplan.
Yanis Varoufakis is an economist and former Greek Minister of Finance. He is the author of several best-selling books, most recently Another Now: Dispatches from an Alternative Present.
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SubscribeI’m not used to complimenting Marxists, but this was an informative essay. Perhaps some economist out there can tell us if you’re wrong, but what you’ve written makes sense.
He’s not really a marxist now, is he?
Well, I thought I heard him claim to be a kind of Marxist in an UnHerd interview. I was willing to take him at his word.
Marx was right on many things; for example the fact that the ruling ideology always is the ideology of the ruling class. However, Marx was also wrong on many things, for eample he didn’t understand the role of tecnological improvements.
The Dialectical Prophet Marx was only right about things after he got all the first principles wrong.
Think of a complex equation that starts out under the assumption that 2+2=5. When your equation splits off in different directions it will be based on propositions that don’t match reality. There are interesting insights to make once that happens because alot of people also get first principles wrong. His ideas resonate with those people.
For instance the idea that humans are inherently cooperative and not imherently competitive is observatively false. It denies reality. People are naturally selfish not selfless. The fact that they are capable of being selfless doesn’t negate their natural instincts.
Marx is operating from a false premise and that’s why the many movements around the world that support him are either broke and overwhelmed with conflict or total authoritarian states with no freedom.
People are neither “inherently” cooperative nor competitive in the reductive way that your post implies — they respond to context and at times cooperate and at other times compete and sometimes even cooperate TO compete …
Once a Marxist ALWAYS a Marxist.
A sound analysis of the rationale and the risks. However, there are three big risks overlooked.
The first risk is European demand might simply crater. The problem with Europe is not too much manufacturing but too little demand (suppressed by tax and regulation) and tariffs may make that even worse. If some European manufacturing does shift to the USA and the Euro strengthens, with Europe already trapped in 2 decades of stagnation, carrying very high debt, and rapidly deindustrialising, Europe faces a serious recession and a permanent reduction in consumption of USA goods and services.
With its increasing impoverishment, Europe might in fact end up substituting supplies for even more (cheap) Chinese goods. This is the second risk. China might be able to survive a loss of USA market share by simply being the cheapest, largest, near monopoly supplier of most industrial and consumer goods to the rest of the world.
The third risk is inflating the dollar value of China’s economy. China suppresses the value of the Yuan and the dollar value of its economy by using its vast current account surplus to buy USA assets like Treasury bonds. If the tariffs are effective then China’s current account surplus will shrink. The dollar will weaken against the Yuan as the Chinese dollar surplus shrinks. The Yuan will rise in dollar terms and the Chinese economy measured in dollars will rise too. This will give China more firepower in overseas markets and commodities be it to build a new Bretton Woods or simply buy leverage over foreign governments. With a looming labour shortage due to demographics, China can afford a rising Yuan nibbling away at domestic production and jobs, especially as the rising Yuan will make its newly minted middle and upper working class feel more prosperous.
Sadly, there are no easy ways out for a West that has financialised its economies in the pursuit of short term wealth at the expense of long term economic strength.
Then Donald might need to defeat China on the battlefield to complete his transformation of the world.
I really hope it doesn’t come to that. I think I’d rather do the hard work and make the sacrifices necessary to rebuild US manufacturing and make the country more self sufficient than fight another world war.
There are no easy ways to correct three decades of short sighted greed, no, but if I were an oligarch or multinational corporation, I’d play ball with Trump, because if he fails to stabilize the situation to the satisfaction of already angry voters, they will only get angrier, and in the absence of a way out, they’ll settle for punishing those responsible. The USA is maybe just one financial crisis away from reenacting the French Revolution, probably including the public execution and exile of the former nobility and definitely seizing everything in their possession that has any value as payment for the debts their leadership laid upon the backs of taxpayers. Anyone who doubts that should remember how many people were cheering for Mangione. That is a truly dangerous level of revolutionary energy, and not something to be brushed off. The anger is real, and Trump won’t be the end of it unless he succeeds in moving the goalposts and establishing a new normal. The financiers had better do all they can to see that he does, or they’ll find that there are worse things than Donald Trump.
The software of the last 50 years had run its course. It blew up in 2008. The last 17 years has been politics floundering to adjust. This is an adjustment. No one really knows where this leads but it will certainly be a huge change from where we have been for a long time.
The best thing about it is it hasn’t needed a World War to adjust to. Merely a realisation that the centrists had run their course and were now old news.
I feel it slightly misses the combined effect of what Trump is doing. He is cutting expenditure (DOGE) and raising revenue via Tariffs. That becomes money in the bank (eventually) which he will use to finance tax reductions. America is such a large economy that tariffs will make it worth investing in the US (as the Japanese have said they will do), and retaining investment income, and so jobs, in the US. The net potential benefit is lower taxes and more jobs.
The cost is often measured in higher prices for imported goods. For a relatively self-sufficient US market, this isn’t too much of a issue and to enter the US market, foreign exchange rates will need to weaken against the dollar so the imports can compete with homegrown US products.
Now, other countries/regions (especially the EU) have always been protectionist through both tariff and non-tariff barriers. High VAT is a tariff because local producers get to offset their input costs, while external producers don’t. And non-tariff are classic things like CE marking, or the recent dodge of requiring a registered importer in the EU.
So now, with Trump, European manufacturers are facing barriers to US sales, and large threats from Chinese and Asian production, particularly if the EU is used as a dumping ground for lost US sales. That doesn’t bode well for EU jobs or the EU economy in general.
A very persuasive theory of possible action.
Does raise question as to why the disciplined (oxymoron perhaps in the Trump mind) use of MMT to take the sting out of the dollars appreciation, renew infrastructure, and invest in energy transition, and subsidise conversion of natural resource.management to Regenerative.
Particularly funding education, universities to teach human ecology. Kennedy would understand this. Musk, Bezos and Gates and clique are lost in fantasy, along with Wall Street moving to profit on the wreckage of the status quo
Europe’s solution is to raise tariffs against BRICS.
EROI will kill fossils as primary energy,, plastic must evolve to 100%recycling.
The long run requires countries to become self sufficient and 100% recycling. A move to ecologically regenerative cultures is vital to climate cooling and carbon drawdown.Ref: Reeves W etal
Trump maybe the circuit breaker, the institutions have long been captured by Wall Street.
I’ll leave the financial speculation to you, but I want to focus on Trump’s psychological makeup.
Before becoming president, he had business dealings with China. He knows how to negotiate, but that experience also frustrated him. He likely expected his wealth and the dollar’s power to command respect, only to be treated as just another businessman. The Chinese played the long game, understanding the dollar as well as, if not better than, he did. To them, it wasn’t special. They made it clear—subtly but firmly—that he had to follow their rules, and we know Trump loves breaking rules.
This shaped his approach to diplomacy. Now, as president, he may feel his position gives him leverage he lacked as a businessman. But frustration limits his strategy. Instead of thinking long-term, he’s using brute force—ineffective against a more powerful China.
His attitude toward Canada and Mexico follows the same pattern because he took them for granted. He pressures them but not Japan, South Korea, or Europe—saving them for next phase. Canada and Mexico are now facing a level of economic stress they never imagined. If these tariff disputes last more than six months, they’ll pivot elsewhere—possibly even to China, which they previously kept at bay due to U.S. influence. If Canada allows Chinese EV, the relationship with US will never be the same.
At that point, Trump may turn to South Korea, Taiwan, and Japan, playing the same game. But if he loses these key allies, there’s no way back. The bigger issue isn’t just trade but the potential permanent loss of dependable allies. If he escalates tensions with Japan and South Korea, they may willingly move closer to Beijing.
If America shifts toward relying on war and arms sales, Gaza and Ukraine have already shown that large-scale conflict takes time. Even with escalation, killing millions isn’t quick. The longer the war, the worse for the U.S.—and the better for China. Meanwhile, America faces internal risks: an oversupply of weapons, a dismantled federal system (oddly, before securing deals which makes US more vulnerable to external interference), and wavering support from allies. A pariah state at war isn’t a viable strategy today. The only saving grace for him now is the domestic front is eerily quiet! But add a real recession or depression and the bottom goes out!
So what’s his psychological endgame? I believe he truly wants to “make America great again,” but through chaos—disrupting systems and avoiding debt repayment just like he did in his life (he loved bulling banks and declaring bankruptcy and then again pop up somewhere else). He’s betting on resetting the financial system while maintaining the dollar’s exorbitant privilege. Perhaps that’s why he avoids confronting Japan and South Korea, seeing them as a lifeline. But this gamble could backfire spectacularly, bringing down U.S. hegemony and the financial systems.
Ultimately, I think he envisions U.S. bankruptcy as just another business move. He’s survived bankruptcies before and still made it to the presidency – highest position in US. He believes he’s the only one who truly understands how to lose money and gain power. But this time, the stakes are far higher. When the heat gets too hot, he will just say F.. it!
His Achilles heels!
An array of foreign corporations, including Japanese, European, Korean and others are announcing plans to commence or expand manufacturing in the US. Pay better attention.
Wow, Yanis Varoufakis acknowledging that Trump may indeed be both clever and sophisticated. The times are indeed a-changing.
Excellent article btw. At some point any American president is going to have to choose between Wall Street and Main Street. The tragedy is that almost all the recent ones have gone with the former when push came to shove.
” Trump may indeed be both clever and sophisticated”
He is, of course, neither. He’s a cheap bully and like all bullies he’ll crumble at the first hint of fightback, as we saw last week.
And the thought that he understands the first thing about global economics is highly amusing. He probably thinks that Bretton Woods is another golf course he can go cheat at.
Trust me, illegal firings and mean tweets to Taylor Swift are the extent of Trump’s sophistication.
Yeah. Just like he crumbled when a bullet took a chunk out of his ear.
The TDS is strong in this one.
Not sure what the little nick on his ear has to do with him backing down last week at the first sign of pushback?
Why don’t you explain that to us?
This should be good!
The world we inhabit is, for better or worse, changing. As the UK has a Labour govt for the next few years you may be insulated from that for a while, but eventually you’ll realise how irrelevant your beliefs have become.
Sadly you have clearly not understood the article which is very well written and thoughtful. I can understand reasoned disagreement but you haven’t even attempted that
Attempted reasoned disagreement? He’s not capable of reasoned disagreement!
Trust me, you say? Why would anyone trust somebody who exposes his own lack of economic understanding by not even trying to refute the premise of the article but reverting to ad hominem attacks, the last refuge of a scoundrel.
I know! I was shocked too. Sounds like Yanis has actually read Stepen Mirans (US Chief Economics advisor) playbook , unlike those centerist progressive dads .
I look forward to Yanis’ piece on How to Overspend on Borrowed Money, Bankrupt Your Country and Blame Germany.
Trump has been saying this in various interviews over the years before he went into politics and became persona non grata with the bien-pensant.
Impressive article
My fear is that unlike Milei, this strategy has not been detailed in the least
It has been sold as wisdom from the guy sitting at the bar end.
The art of politics… the author is right in pointing out unavoidable conflicts between Trump voters. However I doubt anyone voted for him expecting a safe and risk free transition
It will hinge on perceived wealth : my only frustration with the article is the omission of a key objective : abolishing income tax. Bearing in mind that Trump has 4 years to undo 50, timing is key.
As for Europe, you have to be blind not to recognise that we are at pre revolution stage
“…my only frustration with the article is the omission of a key objective : abolishing income tax…”
+1
I agree. I think switching to the FAIR TAX, a consumption tax collected at the point of sale, cash register would be the way to actually do away with the IRS and income tax. Just in case the tariffs idea doesn’t work out.
Milei is an economist, so there is at least some chance he understands economics.
Milei is the rare economist with common sense. The rest are fortune tellers of finance. I’ll take an experienced trader every day of the week.
12 months in, he achieved economic success everyone thought impossible. With a further 10% of Argentinians under the poverty line, he is still at 50+% approval ratings. Dangerous but exciting, cautiously optimistic times.
I have not found a good English version of his speech to parliament after one year in office. This will have to do https://x.com/Chafuen/status/1836021810346803536?mx=2
My point : this is not just an economist delivering a lecture, it is a leadership masterclass. And one of the rare times a leader is not treating his folk as children, but as responsible stakeholders in a common entreprise. For the last 30 years in Europe, I have marvelled at the absence of anyone coming even close to that standard.
Trump maybe eyeing the same endgame, but has not offered anything near the same clarity. He is still de facto treating his folk as children, and we are all left guessing what Daddy really thinks.
I recall a scene in “Yes, Prime Minister”. Hacker (talking to Bernard): “Humphrey doesn’t seem to understand economics”. Bernard: “He did read Classics, Prime Minister”. Hacker: “What about Frank (Sir Frank Gordon, Permanent Secretary of the Treasury)?” Bernard: “He understands even less about economics. He’s an Economist”.
The Milei worship around here is highly amusing, especially based as it is upon such a risible data set. I have seen this movie in Argentina before (multiple times) and it never ends well …
I may disagree with Yanis Varofakis on a lot of things, but I always read his pieces as he’s a great thinker and comes out with interesting articles. If he’s right (and it all kind of makes sense), it’s definitely high risk, but good luck to him. Not mentioned, but it makes the UK’s place in all this make sense. Trump is going easy on us because we fundamentally suffer from the same issues. A historically overvalued currency (and yes, other reasons) has gutted our manufacturing and heavy industry.
Britain meets all these conditions already. So perhaps we have front-loaded the pain.
Britain is the current Job. Please suffer quietly. No reason that you suffer. You just do.
Britain will need those weapons for the inevitable war with Russia.
The only time the UK ever ends up at war with Russia is when they go out of their way to get into one. Get back to me when the Slavic armada is steaming towards you numpties …
Yanis strikes me as the sort of guy who would have written articles about what Beatles lyrics really mean back in the 60s.
The question is who in Britain is ready to screw the City in order to get manufacturing back?
It is for stuff like this that I subscribe to UnHerd. The writer’s rationale for Trump’s seemingly absurd interventions makes sense. Well done, Yanis.
If it seems to make sense, it’s probably because it makes no sense whatsoever.
To those in financial markets, it does, Melonsmith.
So Trump strengthens the dollar so as to weaken the dollar? This is certainly a convoluted strategy, that feels more like a conspiracy theory, a take YV has indulged in for decades (remember the Minotaur?)
I’d go further. A major risk faced by Trump is that Europe doesn’t play ball, its politicians betrayed on Ukraine and Gaza, and its central banks directed to focus on domestic growth and IP development, rather than consumption of American energy, weapons and technology. Europe is the natural terminus for the Silk Road, and China is ready to talk. The current habit of Sinophobia can soon change.
I think that Europe will split into 2 camps if that were to happen: US-sphere and BRICS-sphere. Obviously Britain would be in the first camp, perhaps with the Nordics. France and Germany in the second?
Hmm. Germany in thrall to Russia? I can’t see that one.
It’s also not ‘obvious’ the UK would be in the US camp.
The coming change is massive and no-one knows how it will play out.
I think it is pretty obvious. Britain and the USA have always been in the same camp. Whereas Britain has never managed to remain more than a few years in the same camp as the continental Europeans. Not only have we been to war with France and Germany in living memory (and several times in the last couple of centuries) but we haven’t even been able to successfully cohabit with them in peacetime. Just this century we have split with them over Iraq and then over the EU/ECJ. I’m pretty sure the next British government will leave the ECHR and cut any final ties that bind the British parliament to European courts.
On the other hand, the USA, Australia, Canada, NZ and Britain are sister nations. We have fought on the same side multiple times, speak the same language and have pretty much the same outlook. I was struck watching Elon Musk’s defence of DOGE in the White House this morning that his argument for the elected government as the voice of the people versus the unelected bureaucracy was identical to the Brexit argument against the EU.
As you say, massive change will come but it will only push the Anglosphere closer together. Perhaps one day we will see the 51st, 52nd, 53rd and 54th states come into being and “Greater Britain” will re-assemble but this time centred on Washington rather than London.
I agree with your points almost entirely. But I wouldn’t say it was obvious, or perhaps certain is a better word. We are geographically European and, in terms of security, we will therefore always be tied to some degree with Europe.
There’s other potential issues. Pivoting East economically has been talked about for ages as that’s where the growth is. If that’s where Europe goes it’ll be difficult to stand apart.
Or, to get hypothetical, if Trump or a future president were to properly fall out with Canada, where would the UK stand? We have a greater shared history with them than we do with the US and, though it may not mean much anymore, we still have the same King. Which would be awkward to say the least.
Rather as the vortex of power shifted inexorably from Rome to Constantinople.
A fascinating take. I rather think nations as large as Canada and Australia would constitute multiple states, and the dilemma with the UK would be how to handle Wales, Scotland and Northern Ireland. At any rate, while America is currently divided, adding states is a basic impossibility unless it would add the same number of reliably ‘red’ and ‘blue’ states, which this almost certainly wouldn’t. The most that could be accomplished is some sort of economic customs union, which is problematic enough in its own right. Now, if Trump’s reforms prove popular and the Republicans win a landslide majority in Congress two years from now, that will signal a historic shift and alter the landscape significantly because it would signal the American people are largely of one mind about the country and its future for the first time since at least the 1950’s. It will give Republicans a clear indication that they have decisively won the populism/globalism conflict, and they may be inclined to press their advantage outside the US.
Yes I agree there would have to be multiple states for Oz, Canada and the UK. And yes some sort of EU of the English Speaking World might be the right first step – customs union, free movement plus (unlike the EU) a shared military and intelligence arrangement.
I think this is the scenario that Trump has in mind – an extended USA, incorporating its key allies in Europe and Asia, as a means of extending American exceptionalism. It’s not a given – hubris and overreach may well be a factor to prevent it ever coming into fruition. If it does materialise, the choice that would precipitate for several large European countries would be neither obvious or simple, and would probably see the redrawing of numerous borders.
Yes it it. The British and the Americans are kindred people. The Americans even speak English (after a fashion).
Well they managed to set aside their differences long enough to divide Poland between them, then Hitler made one of his several errors and attacked Russia anyway. That decision more than US intervention led to his ultimate defeat. In this case, they’ll both be enthralled to China more than either one to the other.
Hitler was always going to attack Russia. The only person who couldn’t see that was Stalin.
I think there’s little chance France and Germany go in the same direction. If they do, they’ll take the entire EU with them as I doubt any other nations have the wherewithal to actually leave the eurozone and deal with the economic fallout. If they pull in opposite directions though, that’s the dynamic that will ultimately pull the EU apart. France has a history of violent rebellion and a rabid love of freedom that is nearly on par with the US. I can’t see them ever being comfortable with Chinese totalitarianism or central planning and control on that scale. Germany, on the other hand, is another story. They have a history of tolerating unaccountable bureaucracies and never had a democratic state that wasn’t handed to them/forced upon them at the end of a war. One could argue that the current Chinese system is basically Nazism without the antisemitism and the obsession with race in general. I think France pulls towards the US and Germany towards China and that is what ultimately dooms the EU. As unlikely as a Russian/German detente sounds, it was already in progress in terms of energy before the Ukraine conflict disrupted that. As energy costs continue to skyrocket in Germany, there will be pressure to mend fences with the nearest and cheapest source. France on the other hand, invested in nuclear power and has little need for Russian energy, while a US that is becoming receptive to nuclear power again and shredding the bureaucracy that stood opposed will naturally look to France for expertise. The rest of Europe is a toss up. I could easily see the Nordic nations banding together with Switzerland in a kind of league of neutrality and minding their own business. The low countries are likely to go with France and the UK, Italy with Germany. Honestly Europe may end up looking more like it did prior to WWII, when Germany and Russia managed to put aside their differences long enough to carve up Poland. Had Hitler not decided to turn around and attack Russia anyway, history might look very different today, and indeed we may get there by a roundabout path.
Go a little further back in history and a German/Russian rapprochement is not so surprising — Bismarck struggled his entire career to keep the Russians onside (League of Three Emperors/Reinsurance Treaty). It took an addled Kaiser Wilhelm II to undo all that diplomatic effort, and the results have NOT been pretty …
The U.S also intends to control the supply of Bitcoin and Gold, allowing for more discretion in the use of Dollar control and diplomacy.
Control the supply of Gold and Bitcoin….hmmm, love to know how they could do that!!
Why bitcoin?
What makes it valuable?
It has no intrinsic worth at all… at least Tulips were pretty…
Ok.. so there will only ever be 21,000,000 bitcoin…. but to call it digital gold is ridiculous… it’s nothing like gold, which has many uses, and, it is genuinely rare… but there can be, there are already, hundreds of other so called crypto currencies: Only 21 million bitcoint, but what about the 21,000,000 sh*tco*n, or buttcoin, or crapcoin, or duffcoin, 21m. mugscoin, or duhcoin. or plebcoin, 21,000,000 concoin, all totally worthless, and, unlike gold, not intrinsically rare at all… and America should be buying these worthless digital entries?
There will only ever be 21,000,000 of my toenail clippings too, but they don’t seem to be worth anything.
Precisely. This is Hyman Minsky’s insight: anyone can issue “money” — the challenge is to get it accepted …
All very interesting, but it sounds a bit complicated for Trump.
Good point. Donald Trump is not a planner, he’s a doer. He will try things by taking small steps to see what works, and then take the next, larger step. That’s the only way to try to improve a complex adaptive system. The bad part is even it seldom works.
I’m surprised the article didn’t mention gold. Central banks have been hoarding it lately. Gold bugs and ‘sound money’ people have been banging on about some degree of a return to the gold standard for a long time. Perhaps their day is soon to arrive.
Agreed. It’s a good article from an outsider, but he misses the “how”. Watch videos of lutnick and bessent and you’ll see. It’s laid out already.
I doubt you’ll see a return to the gold standard. The reason gold was used an international medium of exchange was because of its symbolic association with wealth. That symbolism came from ancient times when gold was used because it was fairly rare, easily identified, and durable. It could also be passed back and forth more easily than other forms of wealth like perishable food, land, and livestock. In a real sense, gold was the original fiat currency. It’s value was not tied to its usefulness, because for most practical purposes, gold isn’t all that useful. It’s very soft and mostly useless when compared with bronze, copper, iron, and so forth. It could be used as ornamentation and to protect other metals from rust, but that was restricted to the wealthy because it’s value was so much higher than its real utility was. These days though, gold is used for something. Hundreds of tons of gold are used in electronics, and that number is rapidly rising. That’s new. A large part of the reason people used gold and not other metals or commodities as international currency and a wealth repository was because it wasn’t needed for anything else. It exclusively represented wealth in the abstract sense just as money does today. To go back on the gold standard, we would have to contend with the fact that gold is now an industrial commodity as well as a wealth repository and its economic value will be a composite of its value as both. The policies that governments might use to affect gold as wealth and currency might have different effects than gold as a raw input for manufacturing, and those effects might push in opposite directions and partially cancel each other out. It would actually make calculating wealth and manipulating national economies in the ways we’re familiar with far more difficult and maybe impossible, depending on how much gold usage expands.
One aspect missing from this article is the scramble for resources that’s going on. Ukraine has already started of course, but Trump has his eyes on Canada and Greenland, presumably for their natural resources and access to the Arctic as it thaws. He knows struggle with China is coming and is positioning the US to better meet the challenge.
It’s interesting that the most common assessment of Trumps Canandian and Greenland aspirations are rooted in arctic thawing, caused by climate change which he denies is a thing.
He’s doesn’t deny ‘it’s a thing”, he accepts it is happening as it has been happening naturally since the planet had an atmosphere.
Donald Trump’s business masterplan. USA meet Bankruptcy Court. Ha ha ha.
Back in the 80s/90s Trump used bankruptcy to screw his investors and walk away with the prize. Weirdly, he did it three times. He kept finding new investors/suckers willing to go in on his next project.
The man is kind of witchy.
No one walks away with a prize by declaring bankruptcy.
He had been paying himself as president or manager of the co-op or condo or whatever.
He takes no salary as President, nor does his advisor Musk. Pay better attention.
Ford, Chrysler and many, many others have done just that. I suspect this is also true on your side of the pond.
The mistake with this article is to think that Trump cares about economics. He doesn’t. He is focussing on global politics and the need to make the US military, health, food and energy systems independent of Chinese imports .
Good article. Analytical but not dense, critical of The Orange Man where it needs to be but not hysterical like so many pieces from other authors. Underestimate this man Trump at your peril. I believe that he may – just may – herald an era of peace and prosperity, not just for America, but for our allies as well.
Has any of this been articulated by DJT?
I am a fan of Varoufakis and I see the attactions to the Trump aministdation of weakening the US$ while at the same time maintaining its dominant reserve currency status. But I cannot see the convoluted policy/currency pathway set out by Varoufakis as likely, or even possible.
Currency forecasts of “up a bit then down more” are not usually realised. There is no example of such a pathway for the dominant reserve currency in a very highly finncialised system. Bretton Woods and Plaza took place when real economy factors moved markets.
For some time now, it is short term financial return expectations, investor positioning and FX market momentum that drives currencies. These factors currently drive an expensive US$ higher. If Trump really wants the ciurrency lower to avoid his nightmare confluence events for the US system, his administration will likely get it all at once, in a US$ Minsky moment of incalculable complexity. To point to just one huge explosive device…..the vast majority of collateral contracts in our financial world are denominated in that same US$.
*…administration.
Good article overall, only a little weak on the (non-US) currency responses; on the one hand, the Euro and Yen have to weaken (to lower the cost of tariff-boosted) imports to American consumers and businesses, but on the other they need to strengthen (or they will strengthen) at such time as the great recycling trade (Europe, China and Japan investing some of the proceeds from their exports to the US back into US Treasuries and other American assets) starts to fall off. Yanis seems sure Trump has figured out a path to preserving US financial power while not harming his core voters, bur Yanis didn’t explain this path too clearly, or so it seems to me.
“The worm has turned”.*
*John Heywood, circa 1497-1580.
An excellent analysis. But be assured it hasn’t come from Trump – he’s just the useful idiot. The many hours I’ve spent watching him in conversation and at rallies left me on no doubt he is the last person in the world to be underestimated. His industrial and Project 2025 cronies are calling these shots, and their heads will roll if it all goes apeshit – “He’s a terrible advisor – a stupid person”. Familiar?
Absolutely. Varoufakis is attributing to Trump a degree of economics learning and thoughtfulness that all the indications and reports suggest he does not have. Those who are exploiting him – and yes the word is exploiting – know how to feed his nativism and populist inclinations to achieve their aims. ‘Useful idiot’ could hardly be a more apt description.
Underestimating Trump would be a mistake. To cite the obvious:
*He’s just pulled off the greatest political comeback in history, with the possible exception of England’s own Winston.
*He’s completely reoriented the Republican Party, and unified it.
*He’s making real progress in dismantling a very corrupt DC establishment/deep state/bureaucracy/blob.
*His new coalition is increasingly composed of working/middle class voters (formerly Democrat voters).
*He’s on a path to obtain peace in Europe and the Mideast, so the US can better confront the Communist Chinese threat.
Seems to me Brits and Europeans ought to be delighted with these developments. Perhaps what both need are a few Trump-like populists (even though you don’t have the populist American Constitution and tradition).
I don’t have enough economics knowledge to challenge what YV is saying but the theory as presented does seem to make sense. Ever since Trump came on the political scene in 2015 we’ve been hammered constantly by the Dems/Left about how bad Trump will be for America. Personally I think they meant how bad Trump will be for Washington and the Beltway cabal found therein.
Perhaps we would be better able to critique Trump’s plan (assuming YV has laid it out correctly) by making note of who or what is squealing the loudest that it won’t work.
Yanis Varoufakis must be a mind reader. Anybody can make sh*t up.
Explain to me how foreign governments lowering their interest rates is going to square with appreciating their currencies?
I think the psychology of Trump’s tariffs and other policies need to be considered from a psychological perspective as much as from an economic perspective.
Predicting Trump’s zigs will lead to unexpected zags. Varis wrote an interesting fantasy fiction.
The most intelligent, thoughtful article I have read about Trump to date.
Thank you.
“yielding his Treasury a steady stream of dollars which he can dispense with any way he deems fit (since Congress controls only tax revenues)”
That’s not how it works.
So Trump will first force foreign central banks via tariffs to lower interest rates to depreciate their currencies and then force them via military threats to appreciate their currencies by a new Plaza Accord in reverse? Have I missed something? I think I now understand one thing: why this chap nearly destroyed the Greek economy.
I get that tariffs may well lead to, say, the ECB cutting rates but that will only lead to the Euro weakening against the $. How to you get from there to the $ weakening against the Euro? Seems there is an awfull lot that can go wrong if that is the plan!
A lot of what is said in this article rings true to me. I think I also just learned some things, so I am grateful for it. One thing I am thinking about is what about the EU? What reason will it have to even exist moving forward?
Its whole existence is predicated on 2 things. Military protection against Russia, Russia, Russia, and an economic union that serves as a bloc to increase its economic footprint.
The Trump team is quickly putting an end to the Ukraine war, and also probably negotiating a security architecture without Ukraine or EU nations involved at all. On top of that the US has helped crater the EU economies by denying them Russian gas based on the old sanction-to-rule-the-world model which is going away. On top of that Trump is going to start demanding 5% military spending from these already overburdened and declining EU nation economies.
Then Trump is also doing favorable bilateral trade deals with countries like Hungary (Not with ones that mistreated him and hate on him.) that pretty much bypass the whole EU architecture.
What I am building a case for is the dissolution of NATO and the EU in its current form. Ursela is already talking about everyone ditching NATO and forming an independent EU-only military alliance. I can only imagine she is doing this because they realize what a bad deal being US vassals really has been and will be, and people are talking. The issue is that entitlement programs such as healthcare is strained in EU nations, and they (I guess I am talking about Germany) simply have no room for a 5% military spending increase.
On top of that, all the EU elites and leadership are pretty much hated more each day by the average citizens, who want out of their failed policies. I guess I am just getting at the whole idea of the EU and NATO becoming obsolete.
NATO should have been gotten rid of in 1991 honestly. It’s a mystery to me why either the US or anyone else wanted to sustain it. Ironically, there is a reason now, Russian aggression. How much Trump’s dismantling of globalism affects that I don’t know and how much the peace in Ukraine assuages the concerns of Russia’s neighbors is an open question. There is an argument to be made that in a multipolar world, defense will be as important as it ever has been and most European nations are woefully unprepared to defend themselves as things stand, let alone without American support.
As for the EU, I’d watch what happens with France and Germany. Those two are the most powerful EU members and if they come into conflict with each other, it would signal big trouble. France has invested in nuclear energy and doesn’t need Russian gas, nor are the perpetually revolutionary French likely to be amenable to Chinese totalitarianism. Besides that, there’s quite a bit of historical animosity between the two while their alliance was more recent and created by the circumstances of the Cold War and a particular set of policies followed by the US. The Cold War is over and the US is not what it was when the EU was conceived. The question is whether there is sufficient reason for the EU to exist without the existential threat of Soviet domination and without a US that’s willing and able to unilaterally subsidize its national defense. Is there any advantage for the individual nations to have a united Europe in a multipolar world or can the individual nations within the EU derive greater benefits from taking the side of one or the other global powers according to their own interests, people, and culture.
Great article. I admit this makes a credible case that Trump does indeed have some kind of plan. I have to wonder if it’s actually his or one of his advisors, but I digress. He will definitely have to choose between Wall Street and Main Street, but we have quite a few indicators that suggest he will choose the latter, given who supported which campaign. Why should he consider Wall Street bankers his “buddies” when they lined up almost to a man behind his opponents? Why should he feel any loyalty to the class of corporate overlords and davos men who mostly mocked him and held him in contempt? I’ve always believed part of Trump’s motivation was how the davos men, the truly wealthy and powerful, never accepted him as one of them. He channels voter frustration with Wall Street and big business because he shares it to some extent. They never let him into their exclusive parties or accepted him as one of them, so he returned with a mob of angry peasants at his back. They wouldn’t take him seriously before. They certainly do now. What is the value of a stock portfolio or a fortune of a few million dollars against starting a political dynasty and being remembered as a figure of historic significance alongside Lincoln, Washington, and Roosevelt. Trump has never been about money as such. He wants to be seen as wealthy because of his ego. Wealth, though, is nothing beside the prospect of having people erect statues in your honor. For any true narcissist and egomaniac, that is the absolute zenith of what is possible. He is now very old and can’t take his fortune with him, but he can leave behind something that is greater than any amount of money. He could betray his movement, but it would make no psychological or narrative sense, and it would go against the available evidence. What we’re seeing with the lack of panic from Wall Street is more the reality that they can still make money in a non globalized world, and if they did start behaving as if there would be a massive crisis, they would probably cause that exact crisis and get blamed for it at a time when they’re already persona non grata with much of the American populace, and it wouldn’t take much at all for people to break out the pitchforks and torches. Trump can, and will, get a lot of concessions from them as well, because like foreign nations, they have much to fear.
“In America, the impossible is what we do best.” –Donald J. Trump, The 45th & 47th President of the United States
One of the advantages of having a President who has a lifetime experience of business is that he is likely to tackle economic problems, which in the case of the US need tackling.