It is a declaration of global trade war. Against everything and everyone. The world is the enemy of Donald Trump.
A good example of this is Spain, a country that has a trade deficit with the United States, meaning it imports more than it exports to that nation. It is also a significant difference, with over 10.013 billion euros in favor of Washington. What is the logic of imposing a 39% tariff on a country to which goods worth 10,000 million more are sold than bought?
Trump's tariffs hit friends of the United States harder than its enemies. Russia, Belarus, Cuba, and North Korea - four countries not known for their openness of any kind, including commercial, or for the freedom of action they give to U.S. companies - have only received the minimum tariff of 10%. The entire Chinese sphere of influence, which the United States has been courting to contain the new Asian superpower, faces the worst tariff blows. Two countries that historically resisted Beijing - and precisely the last two that China invaded in 1979 and 1951 - Vietnam and South Korea, face 46% and 25% tariffs. Three nations under China's influence - Cambodia, Laos, and Myanmar - face 49%, 48%, and 44% tariffs, respectively.
With this policy, Trump is confirming the worst suspicions about Washington, summarized in the old adage that "it is dangerous to be an enemy of the United States, but being a friend can be deadly", attributed to different characters - but good connoisseurs of the country - such as former Secretary of State Henry Kissinger, Arabist Bernard Lewis, and former Empress of Iran, Farah Diba.
This is especially true in emerging countries, like Vietnam, which the United States has been turning into the ideal destination for companies to move their factories out of China for over a decade. This is how Apple, which opened its first partnership in Vietnam nine years and four months ago, plans to manufacture 20% of its global production of watches and tablets there this year, and 65% of its headphones. The same Apple that yesterday, mid-session, saw almost a quarter of a trillion euros of its market capitalization vanish.
Apple's loss is brutal. But nothing compared to what awaits Vietnam, a country of 100 million inhabitants with a GDP per capita slightly over 10% of that of Spain. Approximately 30% of Vietnam's economy depends, directly or indirectly, on exports to the United States. What in the developed world can mean unemployment, poverty, or recession, in developing countries means hunger.
And, for China, an opportunity to extend its influence. With the economic blow Vietnam is about to receive, will that country be able to continue opposing Beijing's expansionism in the South China Sea, which occupies its entire coast? China, which already took the Paracel Islands from Vietnam in the seventies, can offer Hanoi economic cooperation agreements it needs to maintain its economic growth. These agreements that China proposes are draconian. In 2017, when Sri Lanka could not repay its debt to China, it had to hand over the port of Hambantota for 99 years. The then Vice President of the United States under Donald Trump, Mike Pence, said that Beijing had carried out with Colombo "debt diplomacy". If the alternative is the West, Sri Lanka has to think about it, especially after the United States imposed a 44% tariff.
The President of the Council of Economic Advisers, Stephen Miran.
No one knows what the strategy is. But the only possible one is as crazy as it is dangerous and impracticable. It is in a 41-page document written in November, after Trump's victory, and accessible online, titled User Guide to Restructuring the World Trade System. Its author is Stephen Miran, who was then Chief Strategy Officer of the hedge fund Hudson Management, and is now President of the Council of Economic Advisers at the White House, a kind of think tank for the U.S. Executive.
Miran's theory can be summarized as follows. The dollar is too strong, which harms U.S. exports. But, since the dollar is the world's reserve currency, and U.S. Treasury bonds - colloquially called t-bills - are the dominant financial instrument on Earth (practically, having t-bills is like having cash, given how liquid that market is), it is almost impossible for the dollar to weaken. It is a curious view because until now the prevailing view was that the dollar is an "exorbitant privilege," as then French Economy Minister and future President of France, Valerie Giscard d'Estaing, said in the sixties. Given the demand for dollars worldwide, the United States can borrow much more than any other country without experiencing a debt crisis, and can produce many more dollars than would be healthy for its economy because there will always be demand for t-bills and greenbacks outside its borders.
Regardless, Miran believes the dollar is overvalued. So, to devalue it, he proposes the following. First, tariffs. Then, force G-7 countries to agree to appreciate their currencies against the dollar. This is what he calls Mar-a-Lago Agreements in reference to the Plaza Accords, named after the New York hotel (of which Trump was a partial owner) where Ronald Reagan achieved exactly that in 1985, although on that occasion the dollar fell too much and two years later had to partially reverse course with the Louvre Accords, another hotel, this time in Paris.
The problem is that if the dollar devalues, the over thirty trillion euros in t-bills lose value against other currencies. This could cause a global financial crisis and, in turn, force the United States to backtrack on the entire process. So what is Miran's solution?
Very simple: that the states and central banks of the rest of the world exchange their current U.S. Treasury bonds for newly issued ones. These new bonds would have, however, two small differences. One: they would not have a maximum of 30 years, but of a hundred or... perpetual. In other words, the interest the United States would pay would be lower, and the principal would take much longer to be repaid, if it is repaid at all. But there is another option: the bond would not pay interest. It would literally be a gift to the United States. In exchange for what? Miran is not shy: in exchange for access to the U.S. market and also for military protection. The economist does not seem to have realized that, after the tariffs, Afghanistan and now Ukraine, no one trusts the United States for market access or military protection.
The plan has more pitfalls than a spaghetti western movie. Exchanging 30-year debt for 100-year debt has a very simple name: default. Something the United States has never done, and an economy with the reserve currency cannot do, even though during the 2016 election campaign Donald Trump suggested to his advisors that Washington stop paying its debt. Trying to lower the dollar and prevent capital from leaving the country is seeking the impossible. In fact, economic theory - as Miran explains in his article - indicates that when a country imposes tariffs, its currency appreciates, but now the dollar is falling. Economics is not an exact science.
In reality, Miran's plan is a direct way to impose domination of the world economy in which the rest of the world pays the United States in exchange for being able to sell things to them and to have their defensive umbrella. A plan as risky as it is bold. Something that Wall Street and the City of London have elevated to the status of a sacred text that explains what Trump wants to do. And for that very reason, it scares them. Others, like Rogé Karma, in the magazine The Atlantic, have described it as "QAnon with tariffs", referring to the crazed theory that circulated on the internet during Trump's first term and tried to explain all of the president's policies as part of a "secret war" against a mafia of cannibalistic pedophiles who ruled the world, including Hillary Clinton, Pope Francis, German Chancellor Angela Merkel, and the owner of Facebook, WhatsApp, and Instagram, Mark Zuckerberg, who was at the White House on Wednesday meeting with Trump before he announced his tariffs.