The US has imposed sanctions of 25% on all foreign goods … or that could be the terminology if those countries had imposed the tariffs. The main difference is that the “tariff” is a fine that goes to the US … supposedly to pay back the debt, but the US has never managed to do that before.
However, in terms of trade alone, the impact is the same as partial sanctions. So basically doing for the US what the international tariffs on the Russian Federation have done for Russia. Which is … <add your own good/bad depending on your own propaganda point of view>
Putin loves the international tariffs, for the same reason Trump wanted his sanctions. Because they refocus their own economy on their own economy and thereby help to boost the primary industries that are so easily undercut. In particular Russia loved the west helping to move the Russian economy away from the close ties with the “west” and toward a more international outlook. And, he had the great advantage of being able to blame the short term difficulties on the US/West. Trump, in contrast cannot. He has to take the whole blame for the short term difficulties.
Impact
However, I cannot quite work out the impact. The first is easy. Whenever anyone buys from abroad, they pay a fine to the US treasury. That is effectively a tax on prices, like VAT but selectively applied. Trump says he will use that to pay off the US creditors. Which means that the money will be going straight to them. I’ve got very little idea of who they are, but my guess is that most of them will be people holding dollars abroad. So, Trump will be …. buying back dollars … but he only has dollars ????
Some people in the US will pay for foreign goods in dollars … Some people abroad will pay for US goods in their own local currencies. Then some people abroad will use the US dollar to pay for US goods … so the dollars go back to the US. And likewise, some of the local currency will pass through many hands to eventually go back to that country.
OK … got it. There is a net flow of dollars out of the US into foreign ownership. That is because people outside the US accept US dollars and then deposit that money in banks as US dollars. So, more and more of the money held in banks has been in US dollars. Technically, those dollars are “IOU” notes to the bank to pay them sometime in their own local currency. In effect a delayed settlement of the original sale of goods whereby someone accepted dollars for their products.
The only way for the US to pay back those debts, is to swap US dollars for other currency within the US … so avoiding that other currency flowing out of the US. Instead the US government buys it and then they buy back dollars from the international financial system.
So, what Trump is doing, is making the dollar more expensive to use when buying foreign goods, whilst keeping the low price of foreign currency purchases of US goods. The result, his teams hopes, is for a shift in the balance, so that the US government has a surplus of foreign currency.
That surplus is needed, to avoid the collapse of the dollar as the Brics countries start to ditch the dollar … which potentially creates a massive surplus and makes the dollar price unstable and likely to collapse.
So, in theory it’s all hunky dorry.
Reality
What is this really doing? The simple fact, is that it is creating price inflation in the US for almost all imported goods. That will tend to cause a shift to local source, if any exist. But overall the impact is a rise in prices, but not quite as much as the tariff. Over time, as local US producers grow to replace foreign imports, the prices should drop, but never to their former level.
It also massively increases US government income … so makes government MASSIVELY larger. And, we all know what that means as soon as Trump leaves … government will see the income as a cherry to be picked, spending will sky rocket, and very soon, the debt will be rising again as government starts buying goods from abroad. So, it is a very dangerous policy, one that could massively backfire and leave the US with a moribund economy strangled by government spending, where nothing is permitted except by the say so of numerous people in the massive ever growing government bureaucracy, But, let’s ignore that for now.
Prices rise. So wages are relatively lower to the price of goods. However, there is then demand for local production. So, demand for labour, so the price of labour in those areas producing replacement goods begins to rise.
The problem is that this is not an across the board change. Goods already made in the US, will not have rising prices. But they will have their labour stolen as new industries start up. That rise in wage inflation, will make it cheaper to buy abroad!! So, US farmers, producing goods sold in the US, have a tariff on competitors of 10% Whereas US car producers, producing in competition with foreign imports may see 30%.
So, instead of shipping direct to the US … countries will now ship to third countries and then onto the US.
Basically it’s just a tax increasing the size of government
The more I think about it, the more it looks to me, as if all Trump is doing, is to increase the size of the US government. Yes, the intention is to increase the size temporarily in order to pay back the US government debt, but the temptation to use the money to buy votes for the next election, will mean that more and more of the money gets diverted to “important” funding critical to winning the next election. So, whether the demonrats or the others, the new tax will simply become institutionalised government spending, and massively increase the size of the US government … and within 4-8 years, the government debt will be going up again.
It’s basically creating a US version of the EU bureaucracy monster!
Yes wages will go up. Yes, business will boom. But yes, bureaucracy will grow and grow, until they strangle the economy and everyone is WORSE OFF than they are now.
What the US needs … is Sanctions
The great thing about the sanctions on Russia, is that there isn’t one penny increasing the size of the Russian bureaucracy. Instead, the sanctions are stimulating Russian home grown industries and pushing Russians to trade outwith the west. And, the west gets all the blame.
If the sanctions ever get removed … because why would Putin want them removed? The impact is a boost to the Russian economy, but also another slip into the nightmare of becoming reliant on the EU/US for trade. Putin wants to avoid that at all cost, so a long term standoff about Ukraine would suit him.
The US needs the same. It needs the world to stop supplying the US with goods, so that the US is forced to use home grown products and home-grown product prices. Better still, if the US can export, but is denied imports!!
Greenland
Trump needs to invade Greenland. He needs to trigger the EU and Japan/China to sanction the US!! Of course, it would help if Greenland were bombing US cities, like Ukraine was doing to Russians. That makes it much easier to go to war.
Maybe he could trigger the same sanctions by invading Iran? Maybe Taiwan could be the trigger to get the world, and particularly China, sanctioning the US?
…. the more I look at this, the dumber the US looks, and the smarter the Russians look. And, I’m only guessing about the 1/9 of the economic/political iceberg I can see above the water!
Summary
Putin is smart. Trump is also smart, but he’d playing with a very poor hand. The EU is the dumbest smucks in town and I cannot see them surviving long. Trumps move, is a good counter to the Brics ditching of the dollar. But extremely dangerous because it could turn the US into the failing EU … and probably far worse of a economic nuthouse would be created.
Overall, it probably stabilises the global economy, because the US now has a mechanism to stabilise the dollar and compensate for the declining usage of the dollar.
The EU is an economic basket case. The sanctions on Russia + the trade barrier war with the US + NUT Zero, is the end of that anti-democratic basket case.
In the next few years, we are likely to see economic decline together with NET EMMIGRATION from the EU, as all those temporary residents decide to return home, a lot wealthier … because they are taking EU wealth home with them.
Israel will not be pleased, because that will massively boost all the countries it has been trying to depopulate. And the growing economies of the middle east will make them very capable of dealing with Israel in the medium to long term.
The US global influence will decline. But, in a managed way. Although it risks becoming another EU prison state. The US decline also means that the US funding of Israel will decline. Western Global banking … will also decline. Meaning that those controlling the western global banking system are going to be in for a very bad time … as Brics countries first start their own financial systems, and then very rapidly those much cheaper financial systems start to be used in the west … completely undercutting the present parasitic banking system.
