by YANIS VAROUFAKIS
‘Trump takes a look at the trade flows with the rest of the G7 and comes to an inescapable conclusion: he cannot possibly lose a trade war.’ PHOTO/Evan Vucci/AP
As horrified as we may be at Trump’s uncouth antics, it is important to understand the tectonic shifts underpinning them
Donald Trump’s early departure, and his subsequent refusal to endorse the G7 communique, has thrown the mainstream press into an apoplexy reflecting a deeper incomprehension of our unfolding global reality.
In a bid to mix toughness with humour, Emmanuel Macron had quipped that the G7 might become the … G6. That’s absurd, not least because without the United States, capitalism as we know it (let alone the pitiful G7 gatherings) would disappear from the planet’s face.
There is, of course, little doubt that with Trump in the White House there is an awful lot we should be angst-ridden about. However, the establishment’s reaction to the president’s shenanigans, in the United States and in Europe, is perhaps an even greater worry for progressives, replete as it is with dangerous wishful thinking and copious miscalculation.
Some put their faith in the Mueller investigation, assuming that Mike Pence would be kinder to them as president. Others are holding their breath until 2020, refusing to consider the possibility of a second term. What they all fail to grasp is the very real tectonic shifts underpinning Trump’s uncouth antics.
The Trump administration is building up a substantial economic momentum domestically. First, he passed income and corporate tax cuts that the establishment Republicans could not have imagined even in their wildest dreams a few years ago. But this was not all. Behind the scenes, Trump astonished Nancy Pelosi, the Democrat’s leader in the House of Representatives, by approving every single social program that she asked of him. As a result, the federal government is running the largest budget deficit in America’s history when the rate of unemployment is less than 4%.
Whatever one thinks of this president, he is giving money away not only to the richest, who of course get the most, but also to many poor people. With demonstrably strong employment, especially among African American workers, inflation under control and the stock market still buoyant, Donald Trump has his home front covered as he travels to foreign lands to confront friends and foes.
The US anti-Trump establishment prays that markets will punish his profligacy. This is precisely what would have happened if America were any other country. With a fiscal deficit expected to reach $804bn 2018 and $981bn in 2019, and with the government expected to borrow $2.34tn in the next 18 months, the exchange rate would be crashing and interest rates would be going through the roof. Except that the US is not any other country.
As its central bank, the Fed, winds down its quantitative easing program by selling off its stock of accumulated assets to the private sector, investors need dollars to buy them. This causes the number of dollars available to investors to shrink by up to $50bn a month. Add to this the dollars German and Chinese capitalists need to buy US government bonds (in a bid to park their profits somewhere safe) and you begin to see why Trump believes he will not be punished by a run either on the dollar or on government bonds.
Armed with the exorbitant privilege that owning the dollar presses affords him, Trump then takes a look at the trade flows with the rest of the G7 and comes to an inescapable conclusion: he cannot possibly lose a trade war against countries that have such high surpluses with the US (eg Germany, Italy, China), or which (like Canada) will catch pneumonia the moment the American economy catches the common cold.
The Guardian for more