PICKING up where we left off yesterday, Chai’s next question cut to the heart of the matter: Can Trumpianomics actually deliver?
For a start, we have already seen many global companies and funds committing to invest in the US to create jobs and improve US productivity and competitiveness in exchange for favours.
The recent announcement by Germany to expand its defence spending is another win for Trump.
In the last few months, he has clearly succeeded in extracting many concessions.
It also depends on whether the rest of the world believes the narrative that the US is the victim, that it has made great sacrifices for the benefit of the world and now must be repaid.
The burden of the cost of providing both defence umbrella and the reserve currency to facilitate global trade and investments must be shared and this includes accepting tariffs from the US without retaliation and long-tenured or perpetual UST, which may never be repaid.
Or will the world perceive it as a bully, an aggressor to make the world pay up the debts of the past and future from its own excessive and extravagant spending?
(Refer to my accompanying 30-page technical paper, ‘Trumpianomics vs. orthodoxy: Strategic retaliation or disruptive escalation?’ for a more detailed discussion on this.)
As I said, in the short term, almost all nations will yield some sort of concession to the US – this is inevitable.
But what are the costs and consequences in the longer term to the US? And to the world?
“There must be structural and political hurdles to implementing Trumpianomics,” he observed.
He’s right and here are five reasons why.
One, while the US dollar must initially appreciate with the implementation of new tariffs against a nation (currency offset) to ensure minimal inflationary impact on the US economy, it must gradually fall over time.
This ensures the US dollar is not overvalued to reduce the trade deficits.
However, to achieve any multilateral agreement with central banks around the world to manage a gradual decline in the US dollar will be extremely difficult.
Two, additionally, the private sector also holds US dollars.
Although central banks around the world hold an aggregate of some US$7 trillion of the US dollar, the average daily trading volume of the US dollar was $8.4 trillion in 2024.
And financial markets, even more so currency markets, are very efficient to discount forward.
It would be surprising if such a gradual movement in the price of a major financial asset can be executed without sharp and quick price adjustments.
Three, the US could apply a unilateral currency approach to drive up the value of the currencies of its trading partners.
This includes imposing a user fee on those using the US dollar for foreign exchange reserves.
Or using the Federal Reserve to buy foreign assets or currencies.
But if foreigners suddenly decide to hold less US dollars, US interest rates will spike with adverse consequences to the capital markets.
I’ve covered the currency dimension in several prior columns.
It’s a topic I remain deeply engaged with, as currency strategy is my core subspecialty within the broader field of interest rate modelling.
That brings me to a reader’s critique of ‘Dominance by design’, published on May 7.
The points raised were thoughtful, and I’ll be addressing them in a dedicated response soon.
Four, there is also the question of time.
The concessions that Trump wants from each of these nations are huge with long-term impact.
Given that he has only a single term of four years as president, would most nations not procrastinate and pay the short-term price?
Five, the entire plan itself is audacious and will change the entire global economic and financial order for decades to come.
Many parts of the execution will be sequential and contingent on another event or decision.
It will take a lot more than time.
And China, in particular, will not be willing to ever suffer another “Century of Humiliation”.
World War III seems more likely than for China to be again subjugated.
If you recall my first piece on tariffs, I mentioned that Trump believes that the present economic order, trade arrangements and financial system no longer serve the interests of the US.
He wants to recreate a new world order for the benefit of the US.
The obvious target is China, the country Trump – and the most recent former US presidents see as the primary challenge to US supremacy.
The difference is that Trump articulates this openly.
And critically, unlike in the past when the US built a “coalition of the willing” to achieve its objectives, Trump believes the US can go it alone.
Or more likely, he can do a great deal with China.
Hence, he is also inclined to extract as many concessions as he can from US allies.
Trump thinks that the US has been taken advantage of – it is the victim, bearing the burden for the world, while other nations prosper.
The US alone pays the price in providing global peace and security, facilitating global trade, banking and finance, ensuring countries have US dollar reserves to support trade and investments, leading to an overvalued US dollar, and persistent trade deficits.
The use of coercion to address a deficit in fair trade reminds me of the Opium Wars.
This is his “truth”, which is the narrative that underpins Trumpianomics.
Of course, many others think the US is an unreasonable aggressor and bully, trying to force other weaker nations to pay for its past excessiveness and extravagance.
Which argument is more convincing?
As I have shown, economic arguments can be made for both cases.
It depends on what one takes as the “prime mover”, what is the main variable that creates the chain reaction.
Depending on the starting point of one’s analysis, there will be a different cause and effect.
In reality, both views have some elements of truth.
In fact, Trump has used this game plan to exaggerate; to bluff, as he conveyed in his memoir.
He calls it “truthful hyperbole”.
And ultimately, does it matter which story or narrative one believes in?
Whether Trump’s truth is the “real or whole truth” or otherwise is largely irrelevant.
It is what he believes in, his truth.
Trump will say what he means and do what he says.
Trumpianomics is already at full throttle.
Can he cut those deals that are needed for Trumpianomics to work?
There is a plan, a small window, but one that will be extremely difficult to execute.
During our closed-door briefing on Thursday in Hanoi, Vietnam, Treasury Secretary Scott Bessent – once a protégé of George Soros – put it succinctly: the more a nation shoulders America’s burden, the lighter the tariff it faces.
This, he explained, is what he meant by “partners should be scored”.
The views expressed here are those of the columnist and do not necessarily represent the views of Sarawak Tribune. The writer can be reached at med.akilis@gmail.com
