Trump’s ‘America First’ platform, which he built his successful campaign around, promised to reconfigure global trade in favour of the US. This involved encouraging businesses to manufacture domestically, bringing jobs, industry and prosperity back to parts of the country that liberalised trade and outsourcing left behind. The US had, or so the argument goes, become more and more reliant on competitively priced imports that were often manufactured by countries where labour and transportation is much cheaper. This led to the emergence of Rust Belt states in which blue collar workers saw their living standards decline whilst the cities they lived in were hollowed out.
The chosen tactic for this grand economic reconfiguration, it seems, is trade tariffs. By imposing tariffs on foreign goods, especially Chinese imports, Trump hopes to make it more expensive for consumers to buy products that are made abroad and for companies to outsource manufacturing. This, he claims, will breathe life back into the US industrial heartland and make the country more self-sufficient in times of crisis. It will also reduce the trade deficit, making the US less vulnerable to currency manipulation (which Trump accuses China of) and less dependent on consumption.
Another critical aspect of Trump’s tariff policy is its effect on the U.S. dollar. By imposing tariffs on foreign imports, Trump hopes to weaken the dollar, since global demand for the dollar will decline as a result. As such, this would make American-made products more competitive in the global market which, in turn, will boost exports. This, Trump hopes, would provide long-term stability and prosperity for the American economy and reward blue collar voters who overwhelmingly backed him.
However, not only do tariffs have serious economic drawbacks that make their success uncertain, they also fail to address the root cause of the problem. Tariffs are essentially taxes on imported goods, and while they may benefit some domestic producers in the short term by making foreign goods more expensive, they also increase the cost of imports for U.S. consumers and businesses. These higher costs, combined with potential retaliatory tariffs from trading partners, could hurt U.S. consumers, who would face higher prices on a range of goods, from electronics to clothing, which would hurt economic growth.
In fact, China has already announced a retaliatory tariff of 34% and they are even considering not enforcing US intellectual property rights which could have a devastating impact on US businesses. The European Union, as well as India and Turkey, are also preparing counter measures which will harm US exports. Whilst the USA does have a huge domestic market that the entire world wants to tap into, US businesses are also heavily reliant on consumer markets around the world. Tariffs can have unpredictable consequences since there are so many moving parts and, as such, they are no quick fix for the economic woes of the US.
Furthermore, it is not possible to simply revitalise domestic industry overnight after decades of outsourcing. High quality manufacturing requires significant investment in machinery, skilled workers and infrastructure, all of which have been in steep decline in the US whilst countries like China have been forging ahead. This gaping chasm cannot be narrowed in a few short years. The increased adoption of automation and AI also means domestic manufacturing is less likely to bring jobs and economic prosperity back to depressed parts of the US, since these technological advancements reduce dependence on physical labour.
Even if there were suddenly a lot more blue collar jobs in Rust Belt states, they would not have the desired effect Trump supporters are hoping for. The average salary for a blue collar worker in the US is around $53,000, which after taxes amounts to around $3300 a month. The average monthly rent is around $1750, the average monthly health insurance is around $700, the average monthly food bill is around $350 and, on average, utility bills amount to around $600. In other words, this average salary is barely enough to let a single worker live let alone raise a family or support a partner.
The real challenge facing the U.S. economy can be traced back to a much deeper issue: the decoupling of the U.S. dollar from the gold standard in 1971. Before this, the U.S. dollar was tied to gold, meaning the government could only issue as much currency as it had in reserves. This system imposed natural limits on money supply and kept inflation under control. When President Nixon ended the dollar’s convertibility into gold, it allowed the U.S. government to print money freely without any backing, leading to the rise of fiat currency.
Fiat currencies are not backed by any physical commodity, which essentially renders them government issued IOUs. Whilst such a system offers flexibility in the short term, it leads to inflation over time. As more money is printed to fund government spending and cover national debts, the purchasing power of each dollar diminishes. In practice, this means everyday goods and services become more expensive, while wages rarely keep pace with rising prices, making it harder for people to maintain their standard of living. This is why the average blue collar worker could buy a house, run a car and raise a family quite comfortably in the 1980s but cannot do so today. Quantity has a quality all of its own, as the saying goes.
What the US really needs is an alternative to fiat and a form of currency whose value is determined by market forces rather than government policies. Such a currency can provide a hedge against the inflationary pressures that have been exacerbated by decades of fiat monetary policy. It can also cultivate the conditions for fairer trade and stabilize the global economy by providing an alternative store of value that is free from the whims of central banks, traditional banking systems and currency exchange rates. Fortunately, such a currency does exist in the form of Bitcoin.
The Trump trade tariffs are unlikely to achieve the desired goals of revitalizing the Rust Belt or solving the deeper systemic problems within the American economy. This is because they do not address the core issue that has led to a decline in living standards, namely inflationary pressures caused by fiat currency and constant money printing. To address these challenges, a fundamental shift in the way we approach monetary policy may be necessary and in Bitcoin, with its decentralized nature and limited supply, there is now a viable alternative.
This is a guest post by Ghaffar Hussain. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
