Why Trump's tariff chaos actually makes sense (big picture)

Trump's MAGA Master Plan for a New Global Order

Key Concepts: Deindustrialization, Bretton Woods system, Neoliberal world order, Griffin dilemma, Exorbitant privilege, Reciprocal tariffs, Mar-a-Lago Accord, Green/Yellow/Red country buckets, Currency accord, Reserve currency status.

The Core Problem: Deindustrialization

The Trump team, led by Treasury Secretary Scott Bessent and top economic advisor Steven Miran, views deindustrialization as the primary threat to the United States. In the 1950s, manufacturing value added accounted for 28% of US output; today, it's only 10%. This decline has devastated the industrial heartland and weakened the US's ability to rapidly militarize, especially compared to China. JD Vance notes that China's state-owned firms built more commercial ships in a single year than the US has since WWII.

Historical Context: Bretton Woods vs. Neoliberalism

Understanding Trump's plan requires examining the two previous US-led global orders:

• Bretton Woods (1944-1973): Countries fixed their currency to the US dollar (tied to gold), relied on the US for military protection, and received US assistance in developing their industries. This system created "green" countries that benefited from US market access and security. French Finance Minister Valery Giscard d'Estaing called the US dollar's role in this system an "exorbitant privilege." However, the Griffin dilemma arose: the global economy needed more dollars, but the gold supply was limited. Nixon ended dollar convertibility to gold in 1971.
• Neoliberal World Order (1980s-2016): Characterized by lower tariffs, reduced investment barriers, flexible exchange rates, and US security guarantees. Countries adhering to WTO rules gained access to the US market and the US dollar system. The US benefited from a strong dollar, allowing it to maintain a large military and enrich Americans. However, this also accelerated deindustrialization, especially after China joined the WTO in 2001 ("China shock"), and increased inequality.

The MAGA Master Plan: A Three-Step Process

The plan aims to re-industrialize the US while maintaining the dollar's reserve currency status.

Step One: Tariff Chaos

• The current phase involves applying high tariffs to both allies and foes to create negotiating leverage.
• Bessent states that tariffs are now a negotiating tool.
• Miran suggested before joining the administration that tariffs would create leverage for later policies.

Step Two: Reciprocal Tariffs

• The goal is to establish a level playing field where the international trading system rewards ingenuity, security, rule of law, and stability, not wage suppression, currency manipulation, intellectual property theft, non-tariff barriers, and draconian regulation.
• Miran argues that the US's unique position as the primary destination for exports gives it leverage in a trade war.
• The aim is to encourage countries to negotiate currency accords in exchange for tariff reductions.

Step Three: A Mar-a-Lago Accord

• The ultimate goal is a currency accord, potentially resembling the Bretton Woods system without the gold standard.
• Miran has suggested weakening the dollar to equilibrate trade, making US exports more competitive.
• The new order could involve "green" countries pegging their currencies to the dollar and appreciating them when the dollar gets too strong. In return, they receive market access, security benefits, and access to the US dollar system. However, unlike Bretton Woods, countries would pay for US security, becoming essentially vassal states.

Key Arguments and Perspectives

• Trump Team: The current international order is not in the best interests of the American people and has led to dangerous deindustrialization.
• Miran: A currency accord is essential to address trade imbalances and make US exports more competitive.
• Bessent: The international trading system is a web of interconnected relationships (military, economic, political) that can be reordered to advance American interests.

Feasibility and Challenges

The plan's success hinges on making it attractive for countries to become "green" countries. The major challenge is trust. Trump's actions, such as tearing up trade agreements and threatening allies, undermine the trust needed for countries to voluntarily commit to raising their currency's value and paying for US security.

Synthesis/Conclusion

Trump's MAGA master plan aims to reshape the global order to benefit the US by re-industrializing the nation and maintaining the dollar's reserve currency status. The plan involves a three-step process: creating tariff chaos, implementing reciprocal tariffs, and establishing a new currency accord. However, the plan's feasibility is questionable due to the lack of trust in the US and the potential for countries to resist becoming vassal states. If the US fails to attract enough "green" countries, it may have to choose between giving up its reserve currency status or accepting continued reliance on foreign manufacturing.