Douglas Irwin, economist and historian of American trade policy, writes for the Peterson Institute that the tariffs announced by Donald Trump, if implemented, would constitute a “historic event in the annals of US trade policy” and “one of the largest increases in trade taxes in US history. One has to go back almost a century to find tariff increases comparable”.
Irwin limits himself to providing us with a historical dimension to the planned duties. But the bewilderment and turmoil created, especially among Washington’s allies, derives from the fact that the tariffs being brandished are accompanied by a hail of presidential decrees and declarations that mark a profound political discontinuity, both in the balance of internal institutional powers and in the balance of power between nations. The watershed was expected, but the speed and vehemence of the White House’s assaults are setting the scene for a change of era in inter-imperialist relations.
Historical US tariffs
Irwin points to the three tariff peaks of American imperialist ascendancy as touchstones for Trump’s tariffs. First, the McKinley tariff of 1890, promoted by the future president William McKinley, Trump’s favourite. Irwin writes, however, that the tariff was one of the causes of the depression of 1893-96. Second, the Fordney-McCumber tariff, introduced in 1922 under Warren Harding’s presidency, aimed at reversing the trade tariff reductions implemented by President Woodrow Wilson in 1913. Third, the Smoot-Hawley tariff, enacted by President Herbert Hoover in 1930, as the world economy was plunging into the spiral of the Great Depression. All of these tariffs, the author emphasises, were approved by Republican Congresses and
signed by Republican presidents. When following Irwin’s calculations, it should be kept in mind that today the ratio of US imports to GDP (14%) is more than double what it was in McKinley’s time, and that throughout the 19th century tariffs provided over three quarters of American tax revenue, because income tax was not introduced until 1913. The golden age promised by Trump looks to that model.
Back to the 1940s
Irwin observes that, firstly, the tariffs announced by Trump on February 1st affect imports worth 4.8% of US GDP, triple the share of GDP affected by Smoot-Hawley (1.4%) and approximately double that of McKinley (2.7%). Secondly, the average tariff planned for dutiable imports (17.3%) is still much lower, between half and a third, than the three historical tariffs. Thirdly, the increase in Trump’s average tariff relative to current rates (+10%) is almost equal to the increase imposed by McKinley and twice that of Smoot-Hawley. Fourthly, Irwin thinks that if they are fully implemented -- and taking into account that they include neither the expected duties on European goods nor the monstrous “reciprocal tariff’ project -- Trump’s tariffs will be the highest since the Second World War. Irwin predicts US tariffs will reach 1940s levels, similar to the 10% duties on total US imports in 1943 and the 17% average duties on imports in 1947.
Energy dominance
On his first day as president, Trump revoked 78 orders issued by his predecessor Joe Biden and began issuing dozens of executive orders of his own. Let’s take a brief look at the economic policy suggested by these orders during the first month of Trump’s second term.
Alongside the tariff war, examined separately in this newspaper, the spasmodic search for American “energy dominance” in the field of fossil fuels and the definitive disengagement from the electrical restructuring with renewable energy are of the utmost importance. For the second time, Trump has taken the United States out of the Paris Agreement on climate and “any agreement, pact, accord or similar commitment”, and ordered to “immediately cease or revoke any purported financial commitment made by the United States” under the UN framework on climate. For ten years the United Nations has presided over the process of global electric conversion, clumsily placed under the banner of saving the planet: that “environmental swindle” that we were the first to denounce, just as today we denounce the scam of Trump who, in the name of a “national energy emergency”, is seeking an alignment with the other two gas and oil superpowers, Russia and Saudi Arabia, at the expense of the energy consuming countries and the resources of a blood-soaked Ukraine.
Among the many objectives outlined in the executive order “Unleashing American Energy” is that of encouraging energy exploration and production “on federal lands and waters, including on the Outer Continental Shelf’, and that of eliminating the “electric vehicle (EV) mandate” and cancelling measures that limit “sales of gasoline-powered automobiles”. A specific executive order concerns the development of Alaska’s subsoil resources through the “permitting and leasing of energy and natural resource projects”, prioritising “the development of Alaska’s liquefied natural gas (LNG) potential” and mobilising the necessary means “to immediately achieve the development and export of energy resources from Alaska”. A memorandum decrees the temporary withdrawal of licences for offshore wind energy production, while confirming those for oil and mining production. Finally, the executive order of February 14th establishes the National Energy Dominance Council, with the task of identifying the means “to make America energy dominant”. The organisation will be presided over by the secretary of the interior who, in this role, will become part of the National Security Council.
Unstoppable spending
Republican congressional representatives have published their fiscal policy project, which according to The Wall Street Journal foresees a minimum of $1.5 trillion in spending cuts over a decade, a maximum of $4.5 trillion in tax cuts, and an increase in the federal debt limit of $4 trillion, which may be enough for two years. The federal debt is destined to grow. Public debt is at 98% of GDP. Interest expenditure absorbs 13% of the total federal budget, exceeding spending on defence (12.5%) and almost equalling Medicare expenditure (13.3%). But Trump has no intention of giving up on renewing the big tax cuts introduced during his first term.
The Department of Government Efficiency (DOGE), under the informal guidance of Elon Musk, has been set up to rein in spending, by administratively pruning government employees and the jungle of federal expenditure. The two billionaires treat cutting federal spending like a board game. Musk has committed to saving the State one trillion dollars, rooting out waste and fraud.
Unprecedented methods
Trump’s first move has been contested in The New York Times by five former Democratic secretaries of the Treasury (Robert Rubin, Lawrence Summers, Timothy Geithner, Jacob Lew, and Janet Yellen), who accused the DOGE of inserting one of its officials into the Treasury payments system, violating the practice that reserves the management of that system to a restricted group of apolitical officials. The five former secretaries fear the risk of arbitrary and illegitimate political management of these payments. They argue that no expenditure approved by Congress can be disallowed. The Wall Street Journal defended the government against the suspicion of illegal actions but suggested that some choices are deliberate violations of the law, in order to bring controversial regulations before the Supreme Court.
The issue is part of the wider debate sparked last summer by the Supreme Court’s overturning of a famous 1984 ruling, known as “Chevron deference”. The Court had ruled that when Congress passes an imprecise or ambivalent law, it should be left to the government agency that implements it to interpret it. Chevron has long been fought by conservative activists, who are opposed to the excessive freedom it grants the “administrative State”, and for whom the reversal of the ruling seems to represent a victory.
The DOGE will now probably be able to challenge the interpretations of certain agencies that have resulted in large amounts of undue expenditure.
The Washington Post takes a different view: it asks Trump to put guard rails in place to limit Musk’s intrusiveness, restricting his access to sensitive documents and keeping him away from foreign policy. The newspaper also requests that Trump deal directly with elected members of Congress regarding cuts in public spending. Jeff Bezos, owner of The Washington Post and Amazon, and the other owners of Wall Street’s “Magnificent Seven”, don’t want their secrets ending up on Musk’s radar.
Cryptocurrencies and the dollar
After obtaining the resignation of Gary Gensler, head of the Security and Exchange Commission (SEC) and enemy of cryptocurrencies, Trump relaunched the slogan of making the United States “the world capital of the crypto universe”. The sector was one of the most generous financiers of his election campaign. After the election, the market value of bitcoin surged by 50%. With an executive order dated to January 23rd, Trump has set up a presidential working group that will develop a federal regulatory network governing digital assets. The president of this group, which will include the secretary of the Treasury and the new head of the SEC, among others, is deliberately and emphatically defined as the “White House AI & Crypto Czar”. The decree stakes a claim to “US leadership in digital assets and financial technology” and launches the marriage between artificial intelligence and cryptocurrencies, both of which are huge energy guzzlers. With the stroke of a pen, the anathemas that central banks have launched in past years against these speculative instruments, used by criminals for the anonymity they guarantee, are cancelled.
The decree prohibits the Central Bank from issuing a digital currency, reserving this instrument for the private sector. According to Lucrezia Reichlin, former chief economist of the ECB and professor at the London Business School, this ban stems from the fact that the FED would not guarantee anonymity to its cryptocurrencies, rendering them unpopular.
Minefield
Trump’s euphoria is that of a recent convert. During his first term in office, he called cryptocurrencies a scam. Now, thanks to his sponsorship, they are gaining followers. Reichlin sees in the most stable category of the crypto world, the stablecoins, backed by US dollars, some shared characteristics with Eurodollars, free from the constraints of the FED and its protection, and with the advantage of complete anonymity. Reichlin does not rule out that this strategy, which Les Echos calls the “privatisation of the dollar”, could be a valid way to preserve the global character of the dollar itself. A Financial Times editorial is much more cautious: the adoption of cryptocurrencies, which lays the foundations for a strategic reserve of these instruments, combined with rampant deregulation and the rejection of the Basel III rules, is creating a race to the bottom in terms of regulatory standards. In short, Trump is laying a minefield.
The old “Gresham’s law”, named after Queen Elizabeth’s financial agent in the 16th century, states that bad money drives out good money. The difficulty today lies in establishing which is the worst money. It is therefore no coincidence that the price of gold continues to rise.
Lotta Comunista, February 2025