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ACM: Some thoughts on Trump’s “Economic Policy” [1]
['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.']
Date: 2025-04-13
Trump’s economic and trade policies are more than a bit confused given what he has said he wants to gain from the introduction of the tariff (i.e., shifting industrial production to the US, decrease interest rates in the US (to decrease mortgages and debt), and causing a revival of the economic prospects of the US. While Trump has backed down (for 90 days, leaving his 10% general tariffs in place for exports to the US) on the day that his “reciprocal” tariffs (based on a rather confused and dubious understanding of the meaning of trade surplus and deficits as a “betrayal of the US”) would be coming into force. So let’s take him at his word and go through what he says he wants and what will happen.
Why did Trump do this? Because he is an ignoramus who doesn't understand that there is no problem with running a trade deficit or having a trade surplus. Moreover, the fool only took into account goods, but not services in deciding his reciprocal tariffs; for example, Europe (whom he put a 20% reciprocal tariff on) runs a trade deficit on services with the US, while they run a trade surplus on goods) -- if the EU wants to do a retaliatory tariff on the US they can specifically target US services and that can hit banks, financial services, big tech, etc which will significantly hurt the US service industry and remember that most advanced capitalist economies predominantly produce services.
Trump’s tariffs have upended the post-WWII international economic and political consensus (I’ve discussed the changes in US foreign policy which share some similarities with his trade agenda); when international trading rules are undermined due to the ignorance of the current President that is worrying in itself. Additionally, they have also placed the neoliberal economic agenda and globalism under threat with no obvious agreed economic replacement.
Friedrich Hayek
A part of me that has read too many dead white men worries that this was deliberate; that the crash of the stock market and the elimination of excess capital invested there could be seen as a “wonderful” way to revive profitability in a stagnant economic system. Reading too many dead-white economics (along with watching “disaster capitalism” in action where human-made and natural catastrophes happen and corporations (capitalism) comes running into to cash in (and make profits) on various forms of misery has made me wonder whether this is a deliberate version of the Keynes-Hayek debate (in an economic crisis should governments intervene to create growth through the use of a stimulus (see the New Deal) or just let the market self-correct (who cares about jobs, unemployment, wages, etc); but rather through a deliberately created crisis to eliminate unproductive capital and revive everything? But that is probably my paranoia and I am aware of that – but Hayek’s position often reminds me of Marx’s discussion in Volume I of Capital where he explains what happens during an economic crisis; stock market crashes and the elimination of redundant capital, business failures, wages fall and then everything restarts as things become profitable again.
The advanced capitalist countries have been living under a regime of neoliberalism and globalisation since the late 1970s-early 1980s, (i.e., “free” trade, focus on export-led growth; production for export rather than domestic consumption, free movement of capital leading to shifts in industrial production away from the advanced capitalist world leading to the destruction of trade unions, the collapse of working conditions, and wages, capital flows to ensure cost-minimisation, free trade zones where goods are produced for the international market in the capitalist periphery cheaply and profits sent elsewhere, and the privatisation of public services and goods). Neoliberalism was tested on the capitalist periphery (the World Bank insisted on these conditions to get loans and Chile under Pinochet (e.g.,) was the first target of the economy being in this mould) before being employed in the advanced capitalist countries as a way to force countries into a classical free trade regime. Rather than create massive economic growth for the advanced capitalist countries through globalisation, it has instead created economic stagnation in the historic advanced capitalist countries and has also not led to massive growth in the capitalist periphery either.
Tariffs, Stock Markets, Dollars and Bond Markets
Trump’s threat of reciprocal tariffs has not only caused international stock markets to fall, if this continues, we will be using the term crash, already we are talking trillions of dollars lost on the stock markets. With the withdrawal of the reciprocal tariffs, the markets revived, but again started to lose money when the falls in the bond market became clear. There has also been dumping of US dollars leading to the weakening of the US dollar (the depreciation of dollars and a fall in the US dollar index) as dollars began to be dumped in currency markets.
But additionally (and this is agreed by all commentators that I have read) there was a dumping of treasuries (these are government treasury bonds which are used to service the US debt) and this is what made Trump blink in his stupid game of reciprocal tariffs. The US debt is held primarily by US investors and other holders, then foreign investors led by Japan ($1 tr), then China, and then Britain are the three largest governmental holders of US treasuries (US debt); interestingly several tax havens also hold US debt. Japan and China have been selling this off over the years; a decent size chunk was sold off during the pandemic to liquidise assets. Investments in Gold have increased. What does this mean for Trump’s economic fantasies?
The dumping of US treasuries (which has led to an increase in the rate of interest, especially on 10 year bonds, which Trump did not want as he wanted to lower interest rates or so he says; this is also weird as tariffs cause inflation which tends to raise interest rates or central banks raise interest rates – so he is really confused). It is normal that when the stock markets fallstrongly, that alternative sources for investment are sought; the US dollar orthe bond market. While Trump has wanted the US dollar to depreciate making US produced goods cheaper overseas, the bond market crashing out at the same time stoppedthe nonsense for at least 90 days. The bond markets are much more important (that is where debt is sold and they can impact your credit-worthiness ; they’ve already brought Liz Truss down) and it may be the case that private investors dumped treasury bonds to make their assets more liquid, or it may be that governments holding US debt decided that it was no longer a safe asset due to Trump’s actions and beliefs; this destabilises not only the world capitalist economy and threatens the US role in it. Many writers argue that it would hurt Japan or China themselves if they dumped treasury bonds, but what is possible as well given the depreciation of the dollar as well, it reflects a lack of confidence in the US economy itself.
This 90-day suspension again adds instability as no one knows what he will do (will he do the reciprocal tariffs or not, will he revise them, will he abandon them. That is 3 months of uncertainly and this arises because he is so deeply ignorant and confused about economic policy and there is also this weird jingoistic nonsense going on as well (and this is often found among many Americans irrespective of their political positions) that the US shall reign economically forever and ever.
One question that exists is whether Trump’s tariff stupidity (and the fallout in the dumping of dollars and treasury bonds will have a significant impact on the US as global economic leader (which is already in decline) and whether the position of the US dollar as the global reserve currency is secure. This is not the first time that the Republicans seem to be seeking the loss of reserve currency status; the fight over raising the debt ceiling last August is an example. China has already been using its currency as a reserve in trades with other Asian countries. One cannot help wondering if this is deliberate on their part (and part of the rejection of the post-War Consensus) or they are also just stupid and don’t understand the impact of what they are doing.
The revival of American Industry?
These tariffs which are supposedly Trump’s attempt to revive American industry will fail because he does not understand industrial capitalism and why investment would occur in industry; to understand that you need to understand competition of capitals, investment and profitability.
There are several things which Trump does not understand about industrial production:
This is because Trump is a rentier capitalist who understands “buy low and sell high” otherwise known as mercantilism; that has nothing to do with investment in industrial production and for that matter capitalist production. Mercantilist economic ideas became replaced by capitalist economic ideas several hundred years ago (the end of the 17th century).
A) Industrial production in heavy industry requires a large investment of capital: it requires not only raw materials (e.g., coal and iron for steel production) and skilled labour; it also requires machinery specific to the industry which needs to be in existence prior to starting production and that machinery needs to be up-do-date as well (as the machinery probably has changed; finally, it also requires specialised buildings. Hence fixed constant capital must already be in place before production can begin. Labour that knows how to work these newer machines must already be trained to work those machines What is relevant here that is that US civilian unemployment is 4.2%; contrary to what many people think, skills are relevant in many industries, we have not all been reduced to undifferentiated labour. So does this labour exist (or does it need training) and wages in the US are actually higher than many other countries. One thing that is very important which has also not been discussed at all by the MSM is Trump’s climate change denial which is important in this context; his refusal to recognise that extractivist industries (minerals, fossil fuels) and heavy industry which he sees as the future of the US (returning to the past is not an easy thing to do and it is even harder economically for a multitude of reasons many of which are discussed here) will actually continue the destruction of the planet.
B) Industrial production doesn’t just require a simple capital investment in this production period solely; it requires long-term investment of capital and hence a long turnover period where capital is tied up and hence unlike financial markets and rentier activities, capital turnover and how long you are willing to invest this capital will depend on the potential (not potential) rates of profit that you can earn in production.
C) There is no guarantee that what you produce will be able to realise the surplus value in the output. So, that depends on costs of production. The costs of raw materials which need to be produced or purchased prior to production which relates to getting them out of the ground for industrial production based on extractive industries. Then there is the wages for skilled labour and the costs of machinery, and the productivity of the machinery and labour compared to other countries producing the same/similar good. Then, we need to add rent or ownership of building as well. So, the price that you can afford to sell the output for and whether there is a market to for this output at a price to yield profits as well as markets to buy these products. So, it is not only whether you can produce the goods, this is the private sector and hence profits on investments are essential or these goods won’t be produced.
As such even if industrial investment in the US occurred and these goods could be produced, they would still be too expensive to sell internationally. The short-termism that characterises investment currently in the advanced capitalist world makes that a bad investment.
It may be another thing altogether if the government nationalised or socialised the steel and aluminium industries for example and made the investment themselves for domestic production, but can you see Trump advocating this? We have seen a large part of Trump and the Republican policies before Trump opposing the Federal Government running functional and necessary programs and have tried to disband the bodies running these programs. So nationalisation or socialisation under Trump is doubtful; so that means that profits are essential and therein lies the problem.
Yesterday, the UK Parliament (Commons and Lords) was recalled in an emergency session to discuss whether to keep a company called British Steel running. British Steel had been bought by a Chinese company Jingye in 2020 who had already invested £1.2 billion, but the plant was haemorrhaging money. The discussion specifically related to keep the last plant in Britain that could make steel from scratch running; if blast furnaces were shut down, reopening the plant would be very expensive, so purchase of raw materials were essential. The Emergency Law was passed enabling the government to take control and manage British Steel and probably British Steel will be nationalised.
Despite Trump’s attempt to conflate the success of the market (private sector) with the success of the US (this is not only Trump, this is the vast majority how American politicians view the US; so, there is a logic, to the slogan MAGA – strengthening the market rather will in his opinion, make America great again. However, it is neither poorly paid jobs, a dearth of services (e.g., health, education, welfare, social care, etc), nor crappy pensions (think of what would have been the case if social security was already privatised and the markets crashed) that makes things great for the majority … and that is all that Trump is offering; (unfortunately the Dems are not offering much better).
So, what will a tariff on goods produced internationally and exported to the US, actually do?
Tariffs will increase the price that both producers of intermediate goods (machinery, processed raw materials) and final output of industrial goods and consumption goods if they require inputs produced internationally or if they are final goods produced internationally.
All these tariffs will do is create inflation for both consumers and producers in the US. It will drive up costs for producers and prices for consumers. Contrary to what Trump believes, tariffs will be passed from producers onto consumers directly or indirectly. So, the prices of final working-class consumption goods produced internationally will increase directly due to the results of the tariffs.
If inputs used in these consumption goods production increase in price due to the tariffs, the price rise will lead to an increase in prices for final purchasers (if possible) or it will lead to a decrease in profits of the corporations. So, while Trump is thinking that this will force corporations to produce in the US; there is no guarantee that this will happen as the costs to produce in the US may be too expensive and profits will be too low anyway; the US is a large market but it is not the only market in the world. So, producers will look for another market where they can sell their products, if the rate of profits they can earn is too low for producing and selling in the US. Remember production (supply) does not create its own demand necessarily or the realisation of profits, that depends on sale, the price of the good and that depends on demand. That is something that a lot of mainstream economists forget; this is tied to neoliberalism and globalisation and why we find ourselves in stagnant economies or very low growth economies in the advanced capitalist world.
One of the major parts of the neoliberal agenda was export-led growth as well as the shift of most industrial production (but not technology) to the peripheral capitalist economies. Export-led growth, free-trade zones, and the free mobility of capital should be understood capital being able to flow freely to enable cheapening the costs of production: so cheaper raw materials, less capital start-up investment, cheaper labour costs (cheaper consumption goods produced), weaker (or non-existent) trade unions, weakening wages and destroying working conditions (think of the whole self-employment scam) or shifting to countries where the raw materials actually were).
As such, with export-led growth regimes, goods produced domestically will be sold outside the country. This required the shift of production of workers’ consumption goods internationally (outside of Europe and North America) to decrease their costs of production, so that even with stagnant money wages, workers in the advanced capitalist world would still be able to purchase consumption goods cheaply despite wage stagnation caused by the weakening of industrial trade unions and the destruction of working contacts and the end of wages linked to productivity.
You know, Walmart made massive profits on cheap products made in India, Cambodia, Malaysia, Indonesia, Vietnam etc – you heard these names recently, they are the countries that Trump slapped with really high reciprocal tariffs so that the price of these goods produced for and then sold by Walmart has now risen by 10% due to the tariffs (imagine if these were the reciprocal tariffs …). Additionally, Walmart has undercut wages and working conditions in the US for their workers; that also holds for workers international producing their products. While I will not mourn Walmart, it was the ultimate model of horizontal production internationally (and super-exploitation of workers as well), large numbers of working-class people (especially women who are not given enough hours to get benefits, sick days and holidays) work there and large numbers of the poorest working-class Americans buy their cheap goods there. I am wondering how people will be able to buy these goods now? I am also wondering how many of these people voted for Trump. Do you think that maybe he did not think this through?
During and after the pandemic we saw the increase of energy prices, food prices and necessary consumption good price (e.g., clothing, shoes, household goods) rises (due to rising oil and hence transport costs had already undercut real wages and wage incomes (including benefits) forcing even the Tory-led British government (which had limited public sector wage growth to 1% each year to bring it into line with the private sector) to give a cost-of-living increase to benefits and minimum wages.
Yes, producing for export enables producers to screw over their working class by keeping wages low and destroying working conditions (as well as their trade unions); but this has not led to massive increases in profits and economic growth. Whether this model of growth worked depends on your ability to sell goods internationally at a profit (and to invest and reinvest it in places where you can make a profit). So, globalisation and the shift of industrial production to places with the cheapest costs has clearly created problems for economic growth (stagnation) and the low wages in the advanced capitalist world; the destruction of jobs and services and the failure of mainstream politicians to actually help their domestic working class (and abandon neoliberalism) has led to the rise and consolidation of the far-right internationally. This has also impacted support for “the post-war liberal consensus.”
Even more the rise of financialisation has increased the instability of the capitalist system itself. Crises are more common and “recoveries” have not led to increases in employment domestically. The ruling class know the system is more unstable (they knew this historically and globalisation means the system is far more interconnected than it was before the New Deal).
Stock Market Crashes and the Real Economy
One of the weirdest things (for me) that occurred when the stock markets lost so much value was that most of the MSM concentrated on the impact on the finance sector, not the real economy. What happens when there are tariffs, real wages buy less because prices rise (and this is passed on to consumers), this is inflation and the rate of interest will rise for borrowing and mortgages. At this point this will affect US consumers due to his 10% tariff.
What happens if the stock market actually crashes (that this continues)? This can lead to businesses shrinking (cutting staff) and closures (goodbye to those jobs), it can lead to further cost-cutting exercises (can they lower money wages further on the threat to workers of job losses?!), you bet they can and this has been done often enough that most of us can answer yes (how many unions capitulated to that threat in your lifetimes?!). How many recessions have led to jobless recoveries in your lifetime?
I spent the week listening to the MSM and reading this, they never mentioned this. The other thing they never talked about (maybe it was different in the US) was your pensions. I had to go to specific consumer sites to see what they had to say about the loss of value on the stock markets. State pensions (social security) have been under threat of privatisation by Repugs for years (the day they will pay back the $2.9 trillion it borrowed from Social Security will be a cold day in hell; they claim that the interest keeps social security going), if they raised the cap that would also help “keep it going.”
Stop and think of what would’ve happened if social security was already privatised and the markets crashed? One of the major changes that has happened in my lifetime was the shift from defined benefit pensions (where you had a pension income for life) to defined contribution pensions which were invested in the stock markets (or in the case of Enron workers in their own company and when it crashed, so did their pension). This was part of the change in the nature of pensions that we saw during the neoliberal period to draw workers’ savings into the stock markets adding to the funds already tied to the markets and of course tied to the vagaries of the financial markets. This has left working class people far more vulnerable to crashes in the financial markets; the financial markets are by their nature, unstable and the fall in the financial markets have impacted working people, not only the ruling class. Going to a consumer protection site to see what they were advising about the falling stock market the only advice you could fine was to sit tight. But what if you were planning on retiring soon … sit tight doesn’t really work. So retiring may not be an option as you sit and wait for the stock markets to bounce back.
Because of the changes in the pension system, those significant falls in the stock markets also undercut workers’ pensions which are tied up in the stock market which is the majority of pensions beyond social security or a state pension. It is not only individual private pensions that are held there and we are not talking about billionaire capitalists: we are talking about trade union pensions, and the pensions of workers from employers (public and private sector workers), we are talking about 401K for self-employed (many of whom were forced into self-employment when contracts were eliminated so that bosses didn’t have to pay social security and benefits, we are talking about IRAs (and Cash ISAs in Britain as well as investment ISAs) which people have been saving for their retirement.
Unlike the paper money (value of their stock portfolios) of the investment profiles of the rich, this was our retirement money, for us it is real. If we lose that, what will we live on. State pensions in Britain are ridiculous; you can survive decently on social security. One way to think about how different it is for us and how different it is for the ruling class is think how much Tesla stock has fallen and that Musk has lost billions; but that is paper money for him (that is money on paper), it is not real. What is real money to Musk is those Teslas bought by the US government, that is literally government funding of his company. What do conflict of interest laws actually do anyway?! How can Trump announce on his truthsocial to invest in his business as something big is coming … I still don’t understand why those in power cannot be prosecuted for their perfidy and corruption.
Apologies for the penguins, they are my way of coping ...
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