Today, now faced with $1 trillion annual budget deficits, Washington will again be increasingly reliant on the “kindness of strangers” to finance those shortfalls.
But will those “strangers,” particularly China and Japan, the two largest holders of U.S. debt, stop purchasing U.S. bonds, or sell them outright, in retaliation for U.S.-imposed tariffs?
And, if the U.S. were to take further steps, like completely pulling out of NAFTA, a full-blown trade war could have a wide variety of consequences, not the least of which could affect the value of the dollar, the level of interest rates and the overall economy.
It is true that the U.S. has legitimate grievances with trading partners, whether it’s the dumping of steel and other commodities, as China often does with its massive oversupply of the metal or its theft of U.S. intellectual property.
However, the U.S. has at its disposal a wide array of dispute-solving mechanisms, not the least of which is through the World Trade Organization, to address these issues.
However, this president and some of his closest advisors are unilateralists and would prefer to renegotiate a host of trade treaties that have taken some 70 years to forge.
If this president moves forward with these “beggar-thy-neighbor” policies, there will be unintended consequences.
With any luck, they will be short-lived until the president’s more levelheaded advisors can bring him back into the global fold.