So, it is a lose-lose in the end, due to all the contradictions, right?
To get out of all this situation US has created for themselves, you would imagine the US leading an economic coalition of Western allies applying some overtime increasing tariff pressure to net exporting countries such as China and others.
Please note that all I’m saying is:
1. The US and the west have to get themselves out of this very real situation.
2. The way the US is acting on this is akin to the clowns taking over the circus and chaotically harassing everyone.
It's not so much the U.S. creating a problem for themselves but a global currency needed for stability. Here's what I remember:
Right after WW2, the allies realized that the world needed a global reserve currency in order to prevent future world wars. The U.S. dollar was used because that time the U.S. had the strongest economy in the world (and hardly damaged by WW2), with a quarter of world oil production, the largest manufacturing base, the largest gold reserve, and lots of natural resources and labor power.
True enough, many countries started using the dollar for trade, but they needed to recover economically from WW2, if not industrialize. And they could only do that by selling more and buying less.
After around two decades, they started doing that, starting with European countries, and then Japan, and with U.S. companies licensing to meet demands for foreign markets. That's how the transistor industries in Taiwan and Japan rose, together with all sorts of electronic devices from Japan.
A decade after, the U.S. began to experience trade deficits even as it battled the Iron Curtain. It dropped the gold standard as more allies became wary of increasing U.S. costs even as they and others became recipients of those costs, via increased spending from the U.S. (and thus increased sales and earnings for them), and made deals with Saudi Arabia and OPEC to price oil in dollars, thus retaining the importance of the currency.
But a few years later, even as other Asian countries joined Japan in making their economies stronger thanks to protecting them plus using the dollar for trade and relying on the U.S. and others to buy what they sell, in comes China, which with two tweaks in economic policies (disavowal of the ban on private property, and forming export zones in partnership with foreign companies) began to industrialize as well. It, too, availed of the use of the dollar for trade, foreign capital, and foreign markets to sell its goods.
This was followed by financial deregulation in the states needed to continue spending, the fall of the Iron Curtain, etc.
Thus, in many ways, the U.S. created this problem for themselves, but so did the rest of the world: everyone's expecting the U.S. to continue borrowing and spending, and to the point where U.S. debts are now so high it has to keep borrowing just to pay for part of the interest of previous debts, and then move slowly away from the dollar as they become richer, leaving the U.S. with a ton of debt. Will the U.S. default if that happens? Will China and Japan, which hold a lot of U.S. treasuries, demand control of U.S. physical assets as payment? Will the U.S. military industrial complex, which has been keeping various countries weak to keep their labor and resources cheap, and which is dependent on increased military spending, accept that?
At the same time, if the U.S. defaults, wouldn't it drag down the rest of the world, which has large amounts of dollars earned from sales to the U.S. and to others?
This also reminds me of the recent news where anti-Trumpists reported on U.S. contractors complaining about illegal immigration policies leading to higher building costs. The same people who had been calling for protecting human rights and calling Trump a "tyrant" had been essentially dependent on cheap labor from foreigners, and ironically wanted to maintain that.
It's like calling for keeping tariffs low so that they can avail of cheap labor and resources from poorer countries, while the latter want the same because they need the sales and earnings.
Given that, what's the solution? I think the only way is for countries like China and Japan to start buying from the states. That will weaken the dollar but reverse U.S. trade deficits, thus allowing for a decrease in debt.
Trump tried that during his first term, remember, and China accepted by buying more U.S. products, but after that it stopped. Meanwhile, the Biden admin, unknown to its supporters, continued Trump's America First tariff policies because it likely realized all of the points I raised above. Heck, even Biden's Inflation Reduction Act uses MAGA policies.
