BERKELEY – In a recent interview with The New York Times’ Ezra Klein, Gillian Tett of the Financial Times fell into a common trap: underestimating the radical nature of Donald Trump’s economic policies.
“On one hand, they want to ensure that the dollar remains the world’s reserve currency and that the dollar-based financial system continues to dominate,” Tett explained. “But at the same time, they believe the dollar is overvalued due to its status as a global reserve currency, leading people to buy more dollars and thus raising its value.”
The Mar-a-Lago Agreement: A Dubious Plan
Trump supporters seek a “Mar-a-Lago agreement” where other countries help weaken the dollar in exchange for tariff reductions and military protection. However, this approach lacks strategic sense.
- Green (Friends): Countries that comply with Trump’s demands face constant threats, insults, and new tariffs.
- Red (Enemies): Nations refusing to cooperate risk Trump’s unpredictable retaliation.
- Yellow (Partial Alignment): Countries attempting a middle ground face the same risks as enemies.
Trump’s aggressive stance towards Mexico and Canada undermines any potential for a coherent plan. Instead of fostering US manufacturing through dollar manipulation, his actions alienate key trading partners.
Navigating Trump’s Unpredictability
For other nations, engaging with Trump requires caution. While minor concessions might appease him temporarily, significant policy changes should only occur in exchange for substantial, irreversible benefits.
Mexico and Canada should diversify their trade relationships to mitigate risks. Mexico can deepen ties with Europe and China, while Canada should link resource-rich regions to China and Europe, abandoning plans for southward infrastructure transfers.
A Brexit Analogy
The global community is evaluating ways to minimize US risks under Trump, much like the post-Brexit UK faced economic consequences. The UK’s EU withdrawal without a clear reason cost it 10% of its potential GDP.
Trump’s policies may lead to similar outcomes. However, reversing course is challenging. A credible figure, like Howard Baker for Reagan, could stabilize Trump’s second term—but finding such a person capable and willing remains uncertain.
Author
J. Bradford DeLong, former Assistant Secretary of the US Treasury and UC Berkeley economics professor, is the author of “Slouching Towards Utopia: An Economic History of the Twentieth Century” (Basic Books, 2022).
Copyright: Project Syndicate, 1995 – 2025
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