Yanis Varoufakis, former Greek finance minister and economics professor at the University of Athens, analyzed that if the elected U.S. president successfully eliminates the trade deficit, real estate prices in Miami and Manhattan will plummet, the cost of repaying government debt will soar, and the Dow Jones index will also fall significantly.
From the beginning of his first term, Trump has been firmly committed to eliminating the U.S. trade deficit. However, Varoufakis pointed out that the U.S. trade deficit is deeply entrenched, having been embedded in the U.S. economic structure since the collapse of the Bretton Woods system, which is not only beyond the new administration's capability but also contradicts its core objectives.
According to Varoufakis, Trump has two major 'heavy weapons' at his disposal to combat the trade deficit: traditional import tariffs and Section 232 of the Trade Expansion Act of 1962, which allows the U.S. government to take retaliatory measures against countries or economies that implement protectionist policies under the pretext of national security. For example, the EU imposes a uniform special tariff of 10% on all imported cars and takes other administrative restrictions, while maintaining a substantial trade surplus in U.S.-EU automobile trade.
However, Varoufakis believes that neither tariffs nor Section 232 measures can reliably reduce the U.S. trade deficit. Why? Suppose Trump indeed imposes tariffs on Canada, China, and Mexico on his first day in office and implements other punitive measures to restrict imports. Undoubtedly, these measures would reduce imports, but U.S. exports would also decline significantly.
The adverse impact of tariffs on U.S. exports reflects the international role of the dollar. Even if people in other countries do not want to purchase any products from U.S. companies, they still wish to hold dollars. If Trump raises tariffs to a level he believes is sufficient to curb imports from Central Europe and enhance government revenue (thus reducing domestic taxes), the currency market will inevitably push the dollar to appreciate. If domestic tax cuts are also implemented, the dollar may even appreciate significantly. Therefore, even if Trump's tariff policy can reduce imports, the strength of the dollar will offset this trend, instead boosting imports while weakening the U.S. export capacity. Ultimately, the U.S. trade deficit will largely remain unchanged.
Next are the goals of Trump's new administration. Varoufakis hypothesizes an unlikely scenario: Trump's measures successfully eliminate or significantly reduce the U.S. trade deficit. Then, he will face a personal and political 'Waterloo'. Although working-class voters helped him win this victory, the groups Trump truly 'pledges loyalty' to are financiers and real estate developers. Satisfying them is Trump's mission. And herein lies the problem: eliminating the U.S. trade deficit will destroy the wealth of these individuals.
By reviewing history, we can better understand this point. Varoufakis pointed out that after World War II, the U.S. maintained a trade surplus by 'dollarizing' Europe and Japan (thus encouraging its allies to purchase U.S. export products). This process was achieved through aid (such as the Marshall Plan), loans, and the fixed exchange rates between the dollar, European currencies, yen, and gold under the Bretton Woods system.
As long as the United States maintains a trade surplus, this system can operate smoothly. As Europe and Japan purchase cars, home appliances, and computers from American companies, the dollars exported by the United States gradually flow back, allowing the surplus cycle to continue. However, by 1971, the U.S. trade balance shifted to a deficit. As a net importing country, the U.S. economy exported more and more dollars to Europe and Japan. Meanwhile, the Pentagon's massive spending during the Vietnam War also led to a large outflow of dollars to Southeast Asia, Japan, and even Europe. In short, a large amount of dollars piled up in foreign central banks' vaults.
The core of the Bretton Woods system was the U.S. commitment to exchange gold at a price of $35 per ounce. However, as dollars continued to flood into the hands of non-Americans, confidence in the U.S. fulfilling this commitment began to wane. Ultimately, on August 15, 1971, President Nixon announced the termination of the gold standard, completely dismantling the post-war fixed exchange rate system, leading to a significant devaluation of the dollar while the currencies of Germany and Japan significantly appreciated.
Soon, the central banks of Europe and Japan found themselves in a dilemma. They were unwilling to exchange the accumulated dollars for U.S. gold, nor were they willing to convert these dollars into German marks or yen for fear of further appreciation of the exchange rate, which would have a greater impact on their exports. Thus, these central banks used dollars as an alternative to gold reserves, channeling them through financial intermediaries to Wall Street to purchase U.S. debt, real estate, and stocks that the U.S. government allowed foreigners to buy.
Varoufakis said this is the essence of today's 'wonderful paradox' of U.S. global hegemony: the U.S. trade deficit provides demand for net exports from European and Asian capitalists while supporting the capital flowing into the U.S. to finance the U.S. government, and boosting American financiers and developers—Trump's 'friends'.
Therefore, if Trump really succeeds in eliminating the trade deficit in the United States, real estate prices in Miami and on Fifth Avenue in New York will plummet, the cost of repaying government debt will rise sharply, and the Dow Jones index will also fall significantly. Varoufakis said, perhaps Trump needs to be reminded of one thing: the most merciless gods are often those that fulfill his deepest wishes.
Article forwarded from: Jin Shi Data