Has Team Trump Blinked?

There is much to celebrate in the first seven weeks of the Trump presidency. Most importantly, the Western globalist elite has fractured, no longer a united front that belittles and enslaves all others. 

Through those cracks, the light of free speech and renewal is shining. There is a sense of hope. The WHO is dying (and good riddance!), peace is truly on the table in Ukraine (finally!), and common sense is back as a player inside US government agencies. 

The EU globalists are panicking, desperately trying to keep out that light. These are huge gains, scarcely thought possible a mere year ago. The truths shouted on the pages of Brownstone these last four years into a gale of idiocy are swiftly becoming acceptable, even assumed. 

How far will the ‘revolution’ really go, though? What problems will not be addressed because they are just too hard or too uncomfortable, even for Team Trump? To answer this, we must allow ourselves to look at what is not happening and to the logic of some big early policy moves. We must shelve our champagne glasses and take a cold look at what is actually happening.

Let us start with a few sobering observations:

• Snowden and Assange remain unpardoned, showing the limits of Team Trump’s commitment to free speech.
• The Epstein files, the JFK files, the Nord Stream Pipeline files, and other lists of wrongdoers and their deeds have still not been made public.
• After six weeks of DOGE-led sound and fury, the reduction in the number of bureaucrats (less than 100,000) is roughly equivalent to one-fifth of the number of government employees in Dallas.
• The US is still part of NATO, still inviting bribes from Ukraine, still sabre-rattling with China, and still applying sanctions to Russia. There is the pragmatic realisation that Russia has won the conflict in Ukraine against the combined might of Ukraine and the US, but an overall strategy of confrontation rather than collaboration remains.
• It has been announced that vast amounts of government (i.e., taxpayer) money will be funnelled into support of private industry, in the form of buying crypto reserves, in an example of classic government corruption. If you know anyone who thinks it makes sense for governments to have crypto reserves, then let those friends know we have a spare bridge to sell them.
• We see no moves against Big Pharma, Big Surveillance, Big Agriculture, Big Tech, and so forth, as we observed previously. Worse, RFK jumped on the ‘Ooh, a scary measles outbreak!’ bandwagon within days of taking office. You might say he is just reacting to the pressures of his office, but that is exactly our point: he is bending to the demands of others rather than bending others to his demands. Not a good first week at the office.
• Tax cuts and spending increases are both promised to be financed by seigniorage taxation (a classy way of saying “money printing”). 

The swamp-dwellers can breathe a huge sigh of relief. It looks like all they have to deal with is new management with slightly different cultural vibes and a more aggressive ‘America First’ agenda, but in essence business as usual. Team Trump still has an existential battle to fight with the US security agencies and the globalists, but the military-industrial complex and much of the rest is off the hook. 

So, it’s a limited revolution. In a big revolution, the pace of change is blinding, with leaders not even able to communicate in real time all the radical decisions they make. 

The hoped-for Team Trump Revolution is, one might say, very cautious and remarkably similar in some key policies to Team Biden. Of course, we need to cut them a bit of slack because it is still early days, and the swamp-dwellers inside the Beltway started sandbagging Team Trump the minute it took office, cheered on as usual by a hyperventilating legacy media and supported by an activist judiciary. 

But, sorry as we are to say it, even if we allow for those inevitabilities, there is an ominous whiff of longer-term defeat in the air: we fear our dream that the deep state might be dismantled, or at least defanged, and the economy reformed, is running out of steam.   

Seduction by the Poison of US Dollar Dominance

By far the most damaging action taken so far, in terms of impacts on the long-run health of the US, is the decision by Team Trump to defend and expand the use of the US dollar for international trade and currency reserves. That single decision is lethal to the ambitions of industrial regeneration and reduced militarism, because deindustrialisation, foreign military bases, and cashing in on US dollar dominance are all joined at the hip. It is basic textbook economics.

US dollar dominance, backed up by control over the key financial lever of the SWIFT banking system, offers a poisoned chalice to US presidential administrations. Something like $30 trillion in foreign ownership (official foreign reserves plus the Eurodollar market) are used by foreigners for international trade and held in reserves, and the Federal Reserve can effectively grab as much of this eye-watering sum as it wants via printing more US dollars and thereby usurping the purchasing power of those foreign-owned reserves. 

Already in the 1960s, this process was recognised and labelled the ‘exorbitant privilege’ of the US. This way of grabbing easy money is politically appealing, as it removes the need to have a domestic fight over the internal pie: one simply takes from others who are being forced to hold or use US dollars. Biden engaged in this process during Covid times because it was the simplest option available for raising cash fast. It offers a lazy or overstretched administration a way to make big moves without big internal political opposition.

What has Team Trump done in this regard? Before inauguration, and ten days after his inauguration, Trump threatened a 100% tariff on any BRICS country that made moves to walk away from the US dollar in international trade. After pressure from the administration, the Indian government announced continued reliance on the US dollar. The administration has also encouraged Argentina to adopt the US dollar and has been happy to see the US dollar adopted by Lebanon and Syria as their actual currencies, helped by direct pressures on those governments via military bases and ongoing armed conflict. 

The Europeans are being pushed to buy American arms and invest in American cryptocurrencies. In terms of ‘sticks,’ the new administration has openly made it easier for US military commanders to kill and destroy people deemed ‘terrorists’ (always a convenient label). In these ways and more, the new administration is openly defending the exorbitant privilege of international US dollar trade. 

Having the privilege and using it are totally different things. If one does not tax via money printing, the privilege is not used, inflation is low, and both friends and foes are happy to use the US dollar for international trade. The problem arises when the privilege is used on a massive scale, as happened in the Biden era and is now certain to happen in the Trump era with the announced tax cuts and spending increases, for which the only realistic resource is the exorbitant privilege. As a result, inflation is on its way.

The use of this exorbitant privilege damages the long-run health of the US with two distinct blows. By printing money and essentially buying foreign goods with it, one gets a lot of free stuff from the rest of the world. That has the downside that you don’t make that stuff yourself, and eventually find yourself addicted and having lost the ability to make stuff. 

A mechanism of harm similar to this is indirect: by having recourse to simple money printing, one is under less pressure to do the politically difficult things one has to do domestically to be and stay productive, such as to organise high-quality education, enforce low levels of corruption, break up private monopolies, and keep the bureaucracy in line. 

All this is far harder than bullying foreigners to keep using the US dollar and buying the stuff they make. The foreigners are a bit poorer for not enjoying their own stuff, but more productive for having to invest in the hard job of figuring out how to make things.

China has accepted that trade-off for decades: high productivity growth via exports, sustained by low external use of their currency. China’s industrial sector is several times bigger than that of the US, masked by distorted currencies, a consequence of the US industrial sector losing its competitiveness through the debt financing of the US government that is exploiting its exorbitant privilege.

Tariffs and ‘Invest in the US’ policies help only marginally with this because industries forcibly located in the US will still need foreign supplies and machinery that are hit by tariffs, so tariffs also hurt domestic industry. Besides this, a firm forced to locate somewhere else does not itself create the whole ecosystem of productive workers, suitable suppliers, and good regulations that a firm needs to become internationally competitive.

For US industry to become internationally competitive, the US dollar would have to massively devalue, which involves letting its representation in foreign reserves be determined by natural market demand rather than by political bullying.

The second blow to long-run US health that this system delivers is that in order to force foreign governments to pay the seigniorage tax via continuing to rely on US dollars, one has to keep threatening those governments with dire consequences. Jeffrey Sachs has written many articles on how this is done and what it truly entails. Every year or so, one has to ‘remove’ a few uncooperative heads of state, sanction recalcitrant finance ministers, sabotage attempts to establish alternative banking systems, bully allies into remaining with US dollars and SWIFT oversight systems, and so forth.

If you don’t bully your friends and enemies into continued reliance on the US dollar, they will opt out of the exorbitant seigniorage taxation by diversifying their foreign currency holdings. So, using the exorbitant privilege needs international military aggression to back it up. You cannot walk away from that international military aggression and hope to keep the privilege going for long, which can be seen in Trump’s aggressive reaction to the desire of the BRICS countries for a rival trade currency.

Also, when you have an apparatus with which to bully foreign governments into retaining the US dollar as their means of trade and reserves, that same apparatus is rather handy to force other favours, as critical journalists have described in great detail. One can force poor African countries to buy American-marketed vaccines (like Pfizer Covid vaccine shots, actually made in Germany) at the expense of general public health services, for example, or simply steal their oil (think Syria), or force them to destroy their own media industry for the benefit of the US media.

This is all a variant of the well-known ‘Dutch disease’: easy money and the ability to blackmail foreign governments makes a government lazy and less prone to force its domestic companies to be efficient. The easy money makes the government inefficient, and the ability to bully foreigners into buying from domestic companies makes those domestic companies inefficient. 

Team Trump is hence not challenging the military-industrial complex, because it needs that complex to sustain US dollar dominance. This makes life politically easier but goes at the expense of domestic reindustrialisation. The administration is not forcing American companies to be competitive, but uses its military muscle to force other countries to buy the products of those companies anyway.

As we have documented before, we do understand the impossibility of the choice: if Team Trump lets go of international militarism and thus of US dollar dominance, the US government is practically instantly bankrupt, and a huge recession would unfold for which Team Trump would get blamed. 

Also, the temptation to use the US military to force uncompetitive American products on others is impossible to resist, as politicians can ask for a bribe campaign donation in return for these coercive services. The politician who does not do this is out-competed by the one who does. 

Is There Hope?

What could Team Trump do instead of walking away from the bullying and thereby invoking an immediate domestic recession? The conventional advice to those holding the reins of a nation that finds itself in charge of a self-destructive, inefficient, yet highly interdependent system – like Gorbachev in the USSR in late 1980s, or the Chinese government around the same era – is to grandfather away the problem while piloting potential new ways of doing things, all the while paying attention to the packaging of one’s proposals to ensure that big vested interests don’t start getting wise and baulk.  

In this case, Team Trump could gradually reduce the amount of US militarism and bullying, gradually release constraints on other currencies being used overseas, and gradually expose domestic industries to more pressure in various ways towards being internationally competitive, sector by sector and region by region. The narrative would be about how he wants things that everyone can agree on – like peace, prosperity, and (when selling to the domestic audience) the American way.  

Perhaps Trump has this more revolutionary strategy in mind but is simply not signalling it yet. For now, the US is like a long-term heroin addict used to getting his fix via bullying the suppliers of heroin to supply the heroin for free, facing what appears to be a choice to keep bullying or go cold turkey. 

From what we see, Team Trump seems to have blinked on its domestic regeneration agenda. The logic of the swamp has prevailed. Continued heroin addiction it is, though with much better background music (from woke to MAGA), and at least we are getting rid of the censorious authoritarian globalists. There is much to be grateful for, but as always, one never quite gets what one wants.