How Trump's Erratic, Fumbling Economic Policies Will Hurt Ordinary American Working Families

What A Flight From The Dollar Will Mean To You And I

One of the most dangerous aspects of Trump’s bull-in-a-china-shop approach to the economy is the flight from the dollar, something far, far more ominous than it sounds. Trump’s shoot from the hip “agenda” is signaling “a fall in stockvmarkets, a rise in bond yields and a declining currency, what Japan experienced in the 1990s as “the triple yasu.” 

“In total since April 1st,” reported The Economist, “the dollar has fallen by more than 4% against a basket of major currencies, at the same time as yields on ten-year Treasury bonds have risen by 0.3 percentage points. In Japan the triple yasu was associated with national decline. Yet a flight from all American assets represents a far greater loss. That is because the dollar and Treasury bonds are the world’s havens, and the global financial system has been built on the assumption that they are safe.”

Although Trump’s tariffs raise money for the government, such revenue could be dwarfed by the higher payouts required by rising bond yields.

Moreover, America’s budget is already in an awful state. Global demand for the dollar and Treasuries has enabled America to run a more extravagant budget than that which sparked the crisis in Britain. This special status is known as “exorbitant privilege”. The federal government’s net debts are worth about 100% of GDP. In the past 12 months, America has disbursed 7% of GDP more than it raised in revenue, and spent more on interest payments than on national defence. Over the next year officials must roll over debt worth nearly $9 trillion (30% of GDP).

Now that privilege is under threat. Trump’s tariffs are likely to cause deeper economic harm in America than elsewhere. They also reveal American policymaking to be arbitrary and capricious. Who can predict where tariffs will be in a week’s time? The sense of unease goes beyond economics. Trump’s willingness to defund universities that house his critics, to withdraw government business from law firms which work with his legal opponents and to deport migrants to a prison in El Salvador without a hearing appears to threaten the norms on which American society has been built.

It is, therefore, no longer so hard to imagine dire scenarios: the president trying to fiddle with economic data, say, or removing the independence of the Federal Reserve. Indeed, a case is making its way through the courts that could make it easier for Trump to do the latter. It is a particularly bad time for a cloud to sit over the institution responsible for fighting inflation. The economy has been through several years of soaring prices, and faces another surge owing to tariffs. On April 11th John Williams, president of the New York Fed, said that he expected inflation of 3.5-4% this year; a University of Michigan survey revealed that consumers expect prices to rise by 6.7% over the next year, the highest rate since 1981.

No wonder investors are spooked. Yet Republicans are seeking to extend and add to tax cuts from Trump’s first term, as if America’s creditworthiness were unquestionable. On April 10th the House of Representatives approved the Senate’s blueprint for a budget that could add $5.8 trillion in deficits over the next ten years, according to the Committee for a Responsible Federal Budget (CRFB), a think-tank. That is more, in cash terms, than Trump’s first-term tax cuts, the response to the covid-19 pandemic in 2020 and Biden’s stimulus and infrastructure bills combined. To get around procedural limits on deficits, Republican senators plan to score their budget bill against a “current policy” baseline— ie, to pretend that Trump’s earlier tax cuts are already permanent. The result will make forecasts of America’s debt to GDP, already grim, truly woeful. The CRFB warns that the pace at which the ratio is increasing could double.

Market moves could force further course corrections, by Trump or by Congress. On April 11th the administration exempted smartphones and other consumer electronics from supplementary levies on China. But profound damage may already have been done. In recent years, economists have warned that exorbitant privilege, by making borrowing cheap, might induce America to take on too much debt, thereby making the dollar financial system fragile and vulnerable to a run. On this theory, it could collapse, much as the dollar’s peg to gold did in 1971, when the Bretton Woods system of fixed exchange rates imploded. Little more than a week ago King Dollar’s reign looked secure and such a calamity seemed highly remote. It is a measure of Trump’s havoc that it now appears possible.

For ordinary Americans, the consequences of a global flight from the dollar would be devastating. A weaker dollar makes imported goods— everything from food to electronics to medicine— more expensive, effectively functioning as a stealth tax on consumers. Rising bond yields mean the federal government has to pay more to borrow money, which could force painful spending cuts to essential services like Social Security, Medicare, education and infrastructure— or lead to even more borrowing, feeding a vicious cycle. The price of a mortgage, a car loan or even credit card debt would all skyrocket. And with foreign investors pulling back, jobs tied to export industries or reliant on stable global trade would be at serious risk.

In short, Trump’s reckless, ego-driven economic experiments are not just a threat to financial markets— they’re a threat to the daily lives of working people. America has long benefited from the “exorbitant privilege” of the dollar’s central role in the global economy. Squandering that stability would mean trading in cheap credit, global trust, and economic security for volatility, higher costs, and deepening inequality. This is all about what Trump and the GOP break... although an awful lot of it sounds like decades-long Republican Party policy agenda, doesn't it?

Dan Balz wrote yesterday that “As Trump nears the 100-day marker of his second term in office, his opening months have been rife with mistakes, overreach and the hubris that goes with a team that interprets a slender popular vote victory as a sweeping mandate… The tariffs he instituted more than a week ago were based on a formula that baffled mainstream economists. The breadth of the tariffs, hitting allies around the world, alarmed foreign policy analysts who saw it as leading to the isolation of the United States and robbing the country of its credibility as a reliable partner. Tumbling stock and bond markets forced a partial rollback by the president, a 90-day pause in many of the tariffs, which sparked a rally on Wall Street. In the aftermath, Trump hiked tariffs on China even more, setting off a tit-for-tat escalation that could bring significant damage to the world economy. White House Deputy Chief of Staff Stephen Miller summarized all this in a recent post on Twitter: ‘You have been watching the greatest economic master strategy from an American president in history.’ But the Wall Street Journal editorial page opined Friday, ‘The reality is that Trump is making it up as he goes, and it would help if he had an actual strategy to deal with China in particular.’ Trump told reporters that “the bond market had a little moment but I solved that problem very quickly. I’m very good at this stuff.’”

He isn’t. “But the tariff policy,” continued Balz, “is only the most extreme example of an administration sputtering as it goes along… Trump claims he won the election in a landslide and has free rein to act. In reality, he fell a fraction short of winning a majority of the popular vote and defeated Vice President Kamala Harris by just 1.5 percentage points. His electoral college majority, a margin of 86 votes, does not qualify as a big landslide. Trump has sold himself as a successful business executive who has the capability to oversee the economy. Many voters believed that. His biggest economic promise was to lower prices. Now that’s been called into question. The decline in financial markets offered one reaction to Trump’s actions. Plunging consumer sentiment amid fears of a recession provided another measure. The Washington Post’s average of polls shows that Trump’s approval rating has declined over the past month and the few polls so far in early April show steeper declines. Until the president demonstrates the competence expected of a chief executive and begins to produce the results he has promised, those trend lines are likely to keep ticking down, Republicans’ worries will grow and confidence in his leadership will decline.”

This is what I would call ominous... for the Republican Party, for the U.S. and for the whole world

Not reassuring

And, by the way, yesterday Ryan Cooper reported that “Should a global financial crisis develop, leading to a panicked stampede for anything that seems safe, people will likely buy up any euro cash or euro-based asset they can find, driving its value through the roof. Additionally, the European Central Bank would be wise to set up its own swap lines, and make them formal and explicit rather than opaque and ad hoc like those at the Fed. This would alleviate anxiety among eligible nations so they don’t have to build up defensive euro hoards and push up the currency’s value, damaging EU exporters… It took many years for the dollar to get where it is. During the 19th century, the British pound sterling was the reserve currency, and it took the American economy growing far larger than Britain’s, plus two shattering world wars, for the dollar to displace it. Now, Donald Trump may well be doing the work of a century of economic upheaval and Hitlerian destruction in a matter of weeks. But America’s catastrophic self-inflicted loss may be Europe’s gain.”