US President-elect Donald Trump has been treating the world to a “shock and awe” torrent of economic threats: tariffs on allies as well as adversaries; deportation of 11 million undocumented immigrants; retaliation against de-dollarisation efforts with more tariffs; rollout of more tax cuts; establishment of a Department of Government Efficiency (DOGE) under tech billionaire Elon Musk and entrepreneur turned politician Vivek Ramaswamy for further deregulation; buying Greenland; taking back control of the Panama Canal; and making Canada the 51st state of the US.
Given that accompanying announcements of appointments to more than 4,000 positions that are in his gift feature more Trump loyalists than in his first term, when the Republican Party establishment still existed and had to be humoured, observers worry that in his second term, Trump is freer to carry out these threats. With the inauguration approaching, people are worried. How will “MAGAnomics” affect the world economy? Will it reinforce or undermine dollar dominance?
While the megalomaniac Trump is surely basking in all the attention he is getting, how his presidency unfolds has less to do with him than most imagine. While rather than Trump’s 2016 victory, Joe Biden’s 2020 triumph now seems like a historical aberration, this is not because Trump is ushering in a “new order”. Rather, he represents a mounting disorder.
The US has been spiralling into an accelerated decline throughout the neoliberal era and it is laying political leaders’ strategies waste, as Biden found out. Trump’s political genius lies in knowing that. The Financial Times may lament that “Trump has yet to lay out a comprehensive economic policy prospectus, leaving analysts to base their outlooks on pledges and threats made on the campaign trail”, but he only revels in making even more unhinged and contradictory “pledges and threats”. Trump is not a political actor or force, but a symptom of the deepening and all-pervasive crisis of the US that has led so many to invoke the spectre of civil war. He cannot resolve it, but only express it.
What Trump will do and how his actions fare will be determined by four distinct factors.
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Trump’s campaign rhetoric and promises are the first. Rather than reflecting Trump’s personal inclinations or political convictions, they are determined by the political and electoral constraints of legitimising the neoliberal order. As the historic parties of labour followed the historic parties of capital in their turn to neoliberalism, a cross-party consensus on neoliberalism emerged, festooned here and there with a tokenistic social liberalism under which racism and misogyny were allegedly addressed by promoting a handful of women and non-white people to prominent positions, while leaving the vast majority as badly or worse off.
Though justified on the grounds that free markets and competition would revive growth and restore prosperity, neoliberalism, which merely advanced the power and freedoms of giant monopoly corporations, not only failed to revive growth, but also resulted in rising inequality, high unemployment, stagnant wages, and declining social services. Over the neoliberal decades, as political leaders portrayed their knavish service to corporate capital as taking “principled”, “courageous”, and “unpopular” decisions, voter disaffection only increased.
Blaming external entities
While US Senator Bernie Sanders’ and the UK MP Jeremy Corbyn’s leftist challenges to this neoliberal consensus were fought tooth and nail by the neoliberal political establishment, right-wing politicians like Donald Trump and Boris Johnson—generally called “populist” by the academic establishment but actually far uglier forces—blazed a new and dangerous trail. Unable to get votes without acknowledging popular misery, they deflected popular anger from its true cause, neoliberal policies, and blamed it on external factors—Johnson on the European Union, Trump on China, and both also on immigrants. It is no wonder that Trump’s most important threats concern tariffs and deportations.
The second factor that will determine the actions and fate of the Trump administration is constituted by the capitalists who supported and bankrolled him. Not satisfied by decades of neoliberalism, they want even more tax cuts and deregulation, and even less democracy. Many of these “lumpen” or “warlord” capitalists are today prominent among Trump’s appointees. The “house-trained” capitalists who were more satisfied with the status quo represented by Biden but are already coming around to Trump are the third factor.
Some believe there is a veritable state of civil war between these two factions. Certainly, the lumpen/warlord camp verges on the weird, fantasising not only of colonising Mars but also of creating, as a Financial Times article had it, a “post-federal” US in which cryptocurrencies reign, the state is “reduced to an impotent rump, [and] sovereignty has devolved into a series of franchised “burbclaves”, private statelets ruled by CEO-kings who provide their citizens, or customers, with the basic infrastructure of society”. Such fantasies of erasing the separation of “imperium” or rule from “dominium” or ownership on which capitalism is premised and legitimised are already being partially realised with many billionaire CEOs making the Trump 2.0 administration the richest in modern history. Apparently, the crisis of political leadership has reached a point where capitalists are taking power into their own hands rather than exercising it through political representatives capable of getting and keeping power in a minimally democratic context while also serving capitalist interests. Indeed, their exasperation with politics is clearly manifest in their outright anti-democratic sentiments, liberally mixed with racism.
However, the differences and antagonism between the warlord and house-trained capitalists can be exaggerated. After all, it is hard to find a CEO who does not like even more deregulation, even lower taxes, and even less democracy. Nor are they divided over Trump: most house-trained capitalists have either already supported Trump or are willing to come over to his side, provided it is the winning one.
Finally, there is, arguably, the weightiest factor of all, the limits of US power. These limits take at least three distinct forms.
First, there is the growing assertiveness of the “World Majority” (the Russian label for the majority of the world’s countries not going along with Western sanctions on their country) on trade, finance, and the dollar’s global role. This assertiveness is greatly aided by China’s new relevance: for instance, it is today the most important trading partner to an overwhelming majority of the world’s countries.
Russian President Vladimir Putin and Chinese President Xi Jinping at a plenary session in the BRICS summit in Kazan, Russia, on October 24, 2024.
| Photo Credit:
Maxim Shemetov/REUTERS
Secondly, as should be clear from how much the US’ displacement of China as Germany’s most important trading partner after 2022 cost the Germans, even allied governments, whom Biden claimed to have united with the US in an “alliance of democracies” more solidly than ever, are finding the cost of accepting US leadership electorally unaffordable. The German government fell within hours of declaration of Trump’s victory in November. The French government followed in early December. The UK government is breaking records of unpopularity just months into its term. Japan’s ruling party faces being trounced out of office. The Canadian Prime Minister resigned following growing dissent within his own Liberal Party. The South Korean President is facing impeachment for declaring martial law. Italy is an exception only because its Prime Minister Giorgia Meloni has already defeated Italy’s Atlanticist establishment.
The third limit is constituted by the US’ declining economic weight in the world economy. While talks of US “hegemony” were always exaggerated, with neither the US nor the US dollar exercising the sort of power and control over the world as implied by the term notwithstanding the most zealous efforts to attain it, the mismatch between US ambition and its power is today greater than ever.
These factors will toss about any Trump policy initiative, either reducing it to symbolic gestures or failing or, worse yet, accelerating the US’ decline as a world power and productive economy. Take, for instance, Trump’s tariffs and his pledge to defend the dollar’s world role.
While it is good political theatre, Trump’s tariffs will not, as he claims, revive US manufacturing and jobs. Only industrial policy will, the one that compels US corporations to invest productively and innovatively. Notwithstanding Biden’s fanfare about industrial policy, his initiatives amounted to little more than corporate subsidies. Trump’s warlord corporate backers, moreover, prey parasitically on productive enterprises, loading them down with debt not to invest but to increase dividends and buy back shares, squeezing out short-term returns until the inevitable bankruptcy. They can neither lead an industrial revival nor tolerate curbs on their freedom to speculate, such as financial re-regulation to direct capital away from speculation and towards productive investment.
If imposed, tariffs will increase the already high and politically costly inflation that has forced the Federal Reserve to keep interest rates high for 2025. The current US “supply side” inflation signals loss of American power to compel the rest of the world to yield up its goods and services at throwaway prices that kept inflation low through most of the neoliberal era.
Highlights
- Trump is not a political actor or force, but a symptom of the deepening and all-pervasive crisis of the US that has led so many to invoke the spectre of civil war.
- The US has been spiralling into an accelerated decline throughout the neoliberal era and it is laying political leaders’ strategies waste, as Biden found out.
- Over the neoliberal decades, as political leaders portrayed their knavish service to corporate capital as taking “principled”, “courageous”, and “unpopular” decisions, voter disaffection only increased.
The tariffs will also be opposed by many US CEOs. Whether warlord or house-trained, they all used their expanded freedoms under neoliberalism to stretch supply lines across the world, with components often crossing the US border many times. If they incur tariffs each time, costs can only soar, affecting sales.
Trump’s campaign grandstanding on tariffs is premised on an outdated conception of US power. It is no longer the world’s consumer of last resort. The US imports today account for a mere 15.9 per cent of the world total, with the EU at 13.7 per cent, and China 12.9 per cent. As one observer put it, barring highly integrated neighbours like Mexico or Canada, most countries “could replace [the US] as a final market with pain but without catastrophe”. If they do, it can only undermine US’ power and influence further.
We can therefore safely anticipate that Trump will subject US trading partners to considerable anxiety and short-term disruption with much noise about tariffs, making them wary of an increasingly unreliable and dispensable trading partner, but he will impose them chiefly as symbolic measures and opening gambits in negotiations.
Trump’s threats on the dollar front are quite incoherent. If Trump is so sure that “There is no chance that BRICS will replace the US dollar in international trade”, why does he need to threaten these countries at all? In any case, Trump’s proclaimed preference for a weaker dollar runs counter to the preservation of the dollar system, which is premised on its overvaluation. Moreover, given that interest in alternatives has recently surged because the US weaponised the dollar system, Trump’s threats can only make things worse.
Less and less money is flowing into the dollar system and the US asset markets, which writer-investor Ruchir Sharma recently called “over-owned, overvalued, and overhyped to a degree never seen before”, are in trouble. In picture, a money exchange shop in Hong Kong, in 2019.
| Photo Credit:
Kin Cheung/AP
Most discussions of “de-dollarisation” focus, like Trump, on the efforts of BRICS+ at constructing alternatives for trade payments and development finance. However, these efforts are only part of the story. The other part concerns the workings of the dollar system, where its weaponisation is only a small element.
A contradictory enterprise
We need to cut through piles of nonsense generated by a veritable academic industry for talking up the US and dollar “hegemony” to understand that the dollar system was never viable, thanks to the Triffin Dilemma, which pointed out that a country supplying the world with liquidity by running deficits is engaged in a contradictory enterprise: the higher the deficit the less attractive the currency. Britain had supplied sterling liquidity by exporting the surpluses drawn from British India and other colonies as “capital” to its settler offshoots, including the US and to Europe, the key reason why John Maynard Keynes’ book Indian Currency and Finance is regarded as the best primer on the workings of the sterling system. Since 1971, when its problems forced the US to break the dollar’s gold link, the dollar has counteracted the Triffin Dilemma through a succession of ever greater and ever more volatile expansions of unproductive, predatory, and speculative dollar-denominated financial activity, each of which has increased demand for the dollar and ended in a crisis.
After 2008, such financialisations began running out of road. Less and less money is flowing into the dollar system and the US asset markets, which writer-investor Ruchir Sharma recently called “over-owned, overvalued, and overhyped to a degree never seen before”, are in trouble. The Federal Reserve support is propping them up, including the all-important treasury market. Its liquidity is already endangered, and Trump’s tax cuts and spending hikes will only increase the already torrential US government demand for credit when supply is shrinking.
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The dollar boosters’ narratives are wearing thin. They claim that the US’ “deep and wide financial markets” explain the dollar’s global role when the world can see that they are bubble-driven, crisis-prone, speculative, and predatory. They point to US growth when the world knows that it is powered by the financial sector, which accounts for about 20 percent of US GDP and whose activities are either speculative or prey upon productive activity, and are propped by massive government spending. The last, if combined with Trump’s tax cuts, could be the puncture that deflates the multiple bubbles in US assets and destroys the world’s financialised faith in the US dollar.
Their last resort is to claim that there is no alternative currency that can replace the dollar. However, as Keynes pointed out at Bretton Woods long ago, the world does not need a national currency to pose as world currency. One reason why many other strong economies, whether Germany or Japan in the past or China today, do not permit the internationalisation of their currencies on the model of the dollar is that they do not wish to suffer the deindustrialisation the US has. Keynes had proposed Bancor as a currency confined to the mutual dealings of central banks settling trade and financial imbalances, themselves to be kept to a minimum.
De-dollarisation is likely today because the financialisations on which it relies are harder to inflate and closer to a crash, not because of the efforts of the BRICS+ countries. Indeed, BRICS+ efforts at de-dollarisation are proceeding slowly at best because nearly all these countries are home to wealthy elites invested in the dollar system as a place to park their wealth. Nothing will accelerate de-dollarisation faster than a crisis of that system and the erasing of that wealth.
Radhika Desai is Professor, Department of Political Studies, University of Manitoba and Visiting Professor, Department of International Development, London School of Economics.
