Yanis Varoufakis, the former finance minister of Greece recently wrote an article about Donald Trump’s eco-political plan with tariffs. According to most accepted economic policy tariffs are not productive, they do more harm than they do good.United States has a huge trade deficit. Its annual imports surpass its exports by a large margin. Its public debt and government deficit have been growing for more than twenty years. Donald Trump says the tariffs would solve both these two hurdles. However, economics suggests that it would not. As America imposes tariffs, its import decreases, in other words the USD appreciates, and when the dollar appreciates the america exports diminishes. So the tariffs would not help diminish the trade deficit. On the other hand the public debt is created because the investment rate is much higher than the saving rate. The capital markets of the United States and Its tech companies are so lucrative that capital around the globe moves to America searching for long term growth and profit. The other problem is the federal government deficit. Around one third of federal government expenses are covered with debt in forms of treasury notes and bills and bonds. This is a very high ratio, such a deficit would bankrupt any other government. But the American federal government resisted it thanks to Global role of the USD as the world reserve currency. The investors and central bankers buy USD backed bonds because it has been reliable and safe so far. But as the government debt increases, Trump fears that in some point the trust on dollars fades away.
Yanis Varoufakis believes that Trump knows this plan with the tariffs would not work as he suggests. But he is using this to cover its plan to restructure the government debt. His plan is to strengthen the dollar as the world currency but to decrease the value of it relative to other currencies to boost US exports. How would he do that? Mostly with the help of central bankers around the world, by restructuring US treasury bonds and bills. As the negotiating for tariffs begins, Trump may demand three things: one that their central bankers agree to swap their US bonds for longer term bonds and ultra-long-term bonds or possibly even perpetual ones; two, that they allow German manufacturing to migrate to America; and three, that they buy a lot more US-made weapons. This way the US government fiscal obligation for dollars diminishes and the dollar role as the world currency strengthens. On the other hand if a country does not accept it. The tariffs would create a steady revenue for Trump to decide where to be used, as tariff revenue is solely under control of the US federal government, unlike the taxes which are controlled by congress.
