There’s only a slim chance his plan will work. But at least the US President is trying to change history, rather than just caretake it
Tim Stanley
Daily Telegraph
First, an apology. I wrote weeks ago that Trump’s tariffs are a bargaining tool, but they’re not. They might rise or fall, but they’re here to stay – to boost US manufacturing and raise revenue while domestic taxes go down (on welfare cheques and tips). If I was taken by surprise, so was Israel – for it offered to abolish all its tariffs, assuming Trump would respond in kind, which he didn’t, for reasons I’ll try to intuit.
Also in the dark was Washington. Officials reportedly prepared Trump with various tariff options; he chose the simplest and harshest, three hours ahead of his announcement, following a meeting with a handful of his biggest fans. “He’s at the peak of just not giving a f--- anymore,” a source told The Washington Post.
In fact, Trump is correcting a 50-year misdirection in US life, and one that the hero of many Trumpers, Richard Nixon, also attempted to fix. The parallels are spooky. In 1971, the post-war boom was coming to an end: there was inflation, unemployment, and the US was entering a trade deficit for the first time, as dollars flew overseas and foreign goods sailed back.
Nixon raged about the “gangsters” and “vampires sucking the blood out of every transaction” in the international monetary system. To avoid a recession, he tried to pressure the head of the Federal Reserve into a soft money policy (even starting a rumour that he was angling for a pay rise). The Fed chief left his meetings convinced the president was “going mad”.
As described in John A Farrell’s superb biography, Nixon retreated to Camp David with a handful of advisers to formulate a secret plan to re-engineer the world in America’s favour. He took to prime-time television to announce the end of the gold standard, reducing the value of the dollar; price and wage controls; and – da, da, daa! – a 10 per cent tariff on imports. The strategy is familiar, but the reaction was very different. The stock market soared. Prices stabilised. Nixon won re-election with one of the greatest landslides in history.
Of course, back then America wasn’t as fully plugged into the global-trade system, and allies, though outraged, had to follow Nixon’s lead. Truth be told, he had no idea where he was going. The measures threatened global recession, so the tariffs were dropped and a new network of floating currencies agreed. Price and wage controls only delayed, and deepened, inflation.
From the perspective of the 21st century, going off gold makes sense, but the other methods appear deranged: contra free global trade and light-touch government. But remember that in the 1970s, what we call neo-liberal economics was fringe; intervention was mainstream, from expanding welfare to costly trips to the Moon. Nixon’s preference was to leave things to the market. But he was willing to intervene should the market work against his people, sending their jobs to Japan. Nixon began with a political vision and adapted economic policy to serve it. Today, we work the other way around, agreeing stringent economic rules and building our politics around those. That’s why most political parties say roughly the same thing.
One has to admire leaders such as Nixon and Trump – or Roosevelt and Attlee – because rather than caretaking history, they attempt to change it. Most Americans don’t understand economics (I struggle with it myself), but economics also doesn’t understand them – their spiritual, as well as material, needs. A prevailing theme in US history is independence: from Britain, from debt, for the freedom to raise a family, beholden to none.
Another is patriotism, America both granting and demanding loyalty. Capitalism has recently pushed itself into a political danger zone because it has outgrown individual and nation, and Trump is implementing a revolution that could’ve come from Left or Right.
For example: Nike, we are told, is a “great American company” now threatened, the poor lamb, by tariffs. But only because it chooses to produce half its footwear in communist Vietnam, while some years it has paid no domestic federal income tax at all. So how American is it really? If the shop price of its trainers goes up by a few dollars, to preserve a combined margin for maker and retailer of around $100, according to BBC estimates, so what? Trump has pivoted over Bernie Sanders to demand that the sovereign worker comes first, free to sell his labour in a market no longer distorted by Asia’s low costs.
Hence, analysts don’t predict many reciprocal agreements with allies. Reciprocity means abolishing tariffs on both sides of the equation. Trump wants to reduce imports for good.
There’s maybe a 10 per cent chance that his experiment will work, reliant as it is on so many variables: that China won’t go to actual war, or the labour shortage will be met by federal sackings and AI fed by cheap energy. Car makers demonstrate a range of responses to the Trump Shock. Stellantis (Chrysler) is shedding jobs; General Motors is adding them at its Fort Wayne plant. Volkswagen is raising prices; Ford is cutting them.
A recession could decimate the Republicans. Were I a foreign manufacturer, I’d wager this policy will be reversed at least by 2028 when a new president is elected – or big business puts out a hit on Trump, because they’ll tolerate anything but the devaluing of their stock price. The next gun that fires at the president will probably be made in America.