Letter: Trump's trade war could result in a goodbye to the greenback as a global reserve currency
A letter from George Workman:
It is well known that Donald Trump was heavily influenced in his youth by the ruthless lawyer Roy Cohn who played a prominent part in the McCarthy era as chief prosecutor.
His three step modus operandi was as follows - attack, attack, attack, never admit culpability and always claim victory in this process – however pyrrhic!
Trump has largely adopted this dubious strategy in his business and political dealings.
It has proved to be generally successful in furthering Mr Trump’s interests. But, perhaps it has proved to be less beneficial for American national interests.
The American president seemingly has only an elementary view of economics and appears to regard managing global trade as being similar to running a real estate business. The trajectory of travel is away from free trade and towards protectionism.
He has three basic ideas. Tariffs are good, a large balance of trade deficit, such as in the US, is bad, and the dollar is overvalued making US exports uncompetitive.
This dependence on tariffs has a very worrying precedent. The introduction of wholesale and indiscriminate tariffs by America in a similar exercise via the Smoot–Hawley General Tariff Act of 1930 is generally considered by economists to have had a significant and disastrous impact on the great depression - by triggering retaliatory tariffs from other countries and sharply reducing international trade.
Trump’s trade war has had a similar negative impact. The initial and resulting stock market meltdown was ominous. However, the fall in the dollar and rise in bond yields was truly portentous.
Traditionally, investors have flocked to American assets in stormy times. But the US is no longer a safe haven! US treasuries suffered a sell off, even after Trump announced a 90-day pause in “reciprocal” tariffs. The greenback fell to a three-year low against the euro. Trump’s mercurial “Caligula capitalism” has severely weakened the US economy.
Consequently, it is feared that the US is heading for a debt disaster - if its £36 trillion national debt is not brought under control. It will either be a slow, gradual decline via stagflation or a swift, cataclysmic decline via a full blown sovereign debt crisis.
A truly catastrophic run on the fragile dollar financial system is now possible. This could result in a goodbye to the greenback as a global reserve currency, with the US economy collapsing into chaos. This would have a shattering impact on the world economic system.
George Workman, Donabate, Co Dublin