Introduction
Under President Donald Trump’s administration, the imposition of “crazy” tariffs on the rest of the world has raised concerns among analysts about the “washing of legitimate” reasons for policies that lack them. Critics argue this naive analysis diverts attention from the ongoing scam. However, is this the only conclusion, or could something more significant be happening?
Alternative Explanation: The Abandonment of Global Free Trade
The U.S. project of promoting global free trade was already abandoned by the time of the 2016 elections, with both Donald Trump and Hillary Clinton campaigning against the Trans-Pacific Partnership. Trump then imposed tariffs on products from China and other countries, many of which were maintained or expanded under President Joe Biden’s administration. One of Biden’s flagship policies, the Inflation Reduction Act, aimed to reindustrialize the U.S. in eco-friendly sectors protected by Trump’s tariffs and later subsidized.
The bipartisan support for protectionist policies stems from the global role of the dollar in promoting structural trade imbalances. As John Maynard Keynes noted in 1944, all countries prefer to be net exporters rather than importers if left to their own devices. Today, net exporter regions like the EU, Asia, and the Gulf earn dollars their economies cannot absorb without raising domestic wages and prices, undermining competitiveness. These dollars are passive for local banks, and the easiest way to convert them into assets is by purchasing U.S. public debt, effectively returning the cash to the U.S. for continued import purchases.
The Long-Term Effects and the Dollar’s Privilege
Over the past 40 years, the U.S. has imported almost everything it wanted by issuing digital IOU bearing 2% interest, never to be repaid. These Treasury bills serve as savings vehicles for net exporters, meaning the U.S. faces no balance of payments restrictions.
Why would the U.S. want to end this seemingly magical situation? As Matthew Klein and Michael Pettis argue, challenging balance of payments restrictions incurs long-term costs. Exporter-nation surpluses accumulate at the expense of domestic investment and local wages, depressing their economies. Meanwhile, the U.S. enjoys cheap foreign goods without limit but at the cost of emptying its industrial capacity. In 1975, the top three U.S. employers were Exxon, General Motors, and Ford; in 2025, they are Walmart, Amazon, and Home Depot. The former group manufactured tradable goods, while the latter primarily sell imported national merchandise.
Bipartisan Support for Reindustrialization
Prominent figures from both U.S. parties view the “exorbitant privilege” of the dollar as a burden and aim to “rebalance” the U.S. economy by promoting domestic production, forcing foreign exporters to reduce dollar demand.
Why the Silence?
These leaders may avoid explicitly discussing being “duped” by other nations because it resonates more with their base than nuanced trade policy arguments. Moreover, the lack of a comprehensive Trump administration plan to rebalance the global order doesn’t mean this rebalancing isn’t happening.
Global Rebalancing: Europe, China, and Asia
Germany’s export engine had been faltering before the pandemic, with its recent relaxation of debt brakes and investment focus suggesting a shift towards domestic consumption. The EU’s defense spending increase driven by Trump will further this trend, and the prospect of a more consumption-driven euro zone offers global investors a viable alternative to the dollar.
China seems to have recognized that flooding the world with eco-friendly exports (electric vehicles, solar panels, etc.) has limits. It has diversified, moving away from the U.S. market, increasing the need for greater domestic consumption. Meanwhile, export-driven Asia appears willing to establish itself in the U.S. market to maintain access.
Conclusion: A Disruptive but Necessary Shift
A rebalanced world would require fewer dollars. Ending the current system will be highly disruptive, and the prospect of a U.S. reindustrialization may seem illusory. However, it’s crucial to remember that both parties consider this necessary. The rebalancing began before Trump’s arrival and is driven by forces that could outlast him.
About the Author
Mark Blyth, Professor of International Economy and Director of the Rhodes Center for International Economics and Finance at Brown University’s Watson Institute for International and Public Affairs, is co-author (with Nicolò Fraccaroli) of “Inflation: A Guide for Users and Losers” (W. W. Norton & Company, 2025) and author of “Austerity: The History of a Dangerous Idea” (Oxford University Press, 2015).
Copyright: Project Syndicate, 1995 – 2025
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