The Guardian view on Donald Trump’s tariffs: a nostalgia that misreads a changed world | Editorial
WWhen the US Supreme Court voted 6-3 last Friday to strike down Donald Trump’s tariffs, it was incandescent. Two justices he had promoted – Neil Gorsuch and Amy Coney Barrett – were suddenly labeled traitors to the cause. Both were, he insinuated, under the influence of foreign interests. The court ruled that the tariffs exceeded the powers granted by the U.S. Congress under the International Emergency Economic Powers Act of 1977. Mr. Trump responded by proposing a 1974 trade law, citing “international payments problems” to impose 10% tariffs for 150 days.
Mr. Trump was shaped by the 1970s. His political DNA was formed during the crises of that era, and he governs as if America were still in the era of Nixon’s shock politics. In some ways there are parallels. Political mobilization around economic insecurity echoes this period, as does distrust of elite authority. This explains why many right-wing populist politicians look to the 1970s, which fits the mood of decline and rivalry and offers a “restoration of strength” narrative. Internationally, Mr. Trump also sees the world through the prism of the 1970s, that of industrial rivalries and trade conflicts. But today’s world is in a much more financialized and interdependent state.
This is why Mr. Trump cannot treat current U.S. trade deficits as balance-of-payments crises worthy of the 1970s. The old Bretton Woods system ended in 1971. Today, America has no shortage of gold to pay its creditors. It is losing ground in the very complex manufacturing sector to its emerging competitors, notably China. It’s not just Mr. Trump. The question is not whether Western governments need industrial policies. It’s a question of whether they can afford not to have them.
Many G7 powers fear moving down the economic ladder. It’s understandable. The lower tiers are filled with unhappy nations under heavy external constraints, such as Sri Lanka. It borrows in dollars, imports essential products priced in dollars and must earn or attract dollars to survive. If exports weaken or capital flees, the currency falls, making it harder to import goods. When a country cannot find enough dollars to pay its debts, the International Monetary Fund comes knocking at its door.
Sri Lanka’s ongoing debt crisis has forced the country to accept the 17th IMF intervention since 1965 with one of the most aggressive austerity programs in the country’s history. To be clear, the United States does not face any major financial constraints. It does not need exports to pay its debts. It issues the currency in which these debts are written. But if he relinquishes control of advanced manufacturing and crucial technology supply chains, he risks something else: slower productivity, lower global debt and national decline. This is not a payments crisis. It’s a crisis of power.
History suggests the risks are real. Britain lost its industrial leadership in 1918, but the pound sterling endured until the 1930s. It was not a single shock, but several shocks that hit Britain: war debts, diminishing economic weight, imperial expansion and self-inflicted deflation. Ultimately, confidence in Britain’s future ability to get ahead of its competitors has diminished. Capital increasingly flowed into the booming U.S. economy, and prices and settlements followed. Today, the United States is the predominant power, having replaced Great Britain. The dollar survives thanks to trust in American institutions and innovation. Mr. Trump is eating away at both. If technological leadership migrates, Western – then American – leadership will follow.
