The exorbitant burden

“We consider it unlikely that customs tariffs will be put in place. The weapon of customs tariffs will always be loaded and ready to be used, but rarely triggered. Another differentiated point of view that we have is that Trump will pursue a weak dollar policy rather than imposing customs tariffs. Tariffs are inflationary and would strengthen the dollar — which would hardly be a good starting point for an industrial renaissance in the United States. The weakening of the dollar at the beginning of a second term would favor the competitiveness of American manufacturing,”

such were the lines written in his letter to his investors by Scott Bessent, today Secretary of the Treasury in the Trump administration. On January 31, 2024, precisely one year ago.

He was wrong. Trump is beginning to use this weapon, and in a rather violent manner, because the imposition of “tariffs” on the most important trading partners of the United States, namely Canada, Mexico, and China, can lead to a global conflagration.

But Bessent was also right, because a (further) strengthening of the dollar could end up completely disfiguring the American economy, accelerating its deindustrialization, and maximally reinforcing the hatred of globalization, which is the distinctive sign of Donald Trump’s popular electorate.

In other words, this centrality, this absolute predominance of the dollar, this “exorbitant privilege,” can also turn out to be an exorbitant burden.

First, an observation: deficits are always political. Nothing questions the sovereignty of a country more than being net dependent on foreign countries for its trade or to finance its way of life. Excessive deficits and uncontrolled debt reduce sovereignty by subjecting the state to external interests (markets, creditors, international institutions), limiting its capacity for action, and exposing it to political and economic pressures beyond its control.

Moreover, let us have the honesty to admit that globalization has led to a loss of sovereignty for many nations. Even better: the prerequisite for globalization is the at least partial loss of sovereignty for the nations that agree to play its game. And the United States is very well placed to lament this, because the countries that show a trade surplus with them (therefore selling more to the U.S. than they buy from them) subsequently reinvest their surpluses in the United States, making them even more dependent… Consequently, the size and scale of American deficits (but this example applies to other countries) are determined not only by national decisions but also by the level of consumption and savings of other countries.

Obviously intolerable for Donald Trump, perfectly aware of his country’s dependence, who reacts with the only weapon at his disposal, namely the sudden decreed increase in customs duties. In reality, the U.S. President does not even fully control this lever, as he has had to invoke emergency reasons—fighting fentanyl and illegal immigration—which alone have allowed him to impose these “tariffs,” thus somewhat twisting the arm of the American Constitution.

That is why it is not difficult to predict that Trump will inevitably return to the fundamentals. The only viable strategy—unanimously co-opted by financial markets—of which his Secretary of the Treasury is one of the emissaries, will be to proceed with devaluing the dollar. A state—especially the U.S.—can discreetly influence the exchange rate of its currency, thus improving the competitiveness of its exports internationally, stimulating its national production, reducing its trade deficit, improving its balance of payments, and ultimately decreasing its need for external financing.

Many times exploited in the past, this manipulation—which will avoid frontal shocks with trading partners—will be attributed to the volatility and arbitrariness of financial markets. Isn’t it so convenient to systematically blame “the markets”?