Donald Trump is escalating his threats to increase tariffs on imports if he wins a second term in the White House, reviving fears of renewed trade wars that hit the global economy during his presidency.
The Republican candidate, seeking to win blue-collar votes in swing states pivotal to November’s presidential election, has doubled down on his protectionist rhetoric, delivering blunt warnings of tariffs to US trading partners including the EU.
On Saturday, Trump went further, promising tariffs of 100 per cent on imports from countries that were moving away from using the dollar — a threat that could engulf many developing economies too.
“I’ll say, ‘you leave the dollar, you’re not doing business with the United States. Because we’re going to put a 100 per cent tariff on your goods,’” he said at a rally in Wisconsin.
“If we lost the dollar as the world currency, I think that would be the equivalent of losing a war,” he told the Economic Club of New York on Thursday.
Ok, but why do all the major petroleum producers trade in USD? Yes the US buys a lot of oil, petrol, and natural gas, but the trading volume isn’t that atypical of other wealthy, large geographic regions. They use it because it’s stable, ubiquitous, and almost always accepted. If it’s not stable or ubiquitous anymore due to these sorts of sanctions, why would the petrol producers keep using it?
Because the US cut a deal with the Saudis during the '71-'73 trade negotiations under Nixon, fixing the price of Saudi light sweet crude to USD. This helped backstop the falling value of the dollar after the official decoupling of USD from gold in 1971.
The British Pound, the Swiss Franc, the Russian Ruble… even the Japanese Yen could have easily stood in for the US Dollar at the time. These were widely traded and regionally ubiquitous thanks to the international trade of the era. But it was the US with military bases scattered all over North Africa and the Middle East in the wake of WW2. And they were the post-WW2 industrial sector with the highest demand, in no small part thanks to US automotive industrial expansion.
To access US financial markets, which have eclipsed the rest of the 20th century global banking powers. If you need USD to trade on the NYSE or to buy up US real estate or purchase US Treasuries, might as well trade oil. Also, we (in many ways literally) have a gun to the heads of Mid Eastern leaders. Just ask Saddam.
Pretty true. I have nothing really to add historically.
Having said that, there’s nothing preventing this status quo from changing in the future if enough economies decide the risk of an erratic main trade partner isn’t worth it anymore. The reward of controlling the main global reserve currency comes with the responsibility of not involving it in undue threats.
There’s substantial existing industrial infrastructure that makes a kilowatt of new petroleum energy easier to produce than a kilowatt of renewable energy. But that’s a result of economic policies. Change the policies and you change the math.
It appears we are, both intentionally and inadvertently, slowly stacking the deck in favor of renewables.
One might argue the reverse. The ability to hold the rest of the world hostage enables a nation to compel adoption of their domestic currency as the global reserve.