The US must abandon its “mammoth deficits” if it is to keep US debt levels manageable for decades to come. The over-indebted US economy can no longer bear, in the context of geopolitical realignments, to support the “excessive monetary privilege” of the dollar, and in order for the new presidency of Donald Trump not to be characterized by the “explosion” of the fiscal bomb, i.e. bankruptcy, the priorities must change.
The Republican National Committee released Donald Trump’s presidential platform this week, a list of 20 points that will guide economic policy. At number 13, the former president pledges to keep the dollar as the world’s main reserve currency.
However, a second Trump term may actually erode the dollar’s dominant role. Instead, the risk comes from a “severe deterioration” in economic and financial conditions in the US, as fiscal strength under Trump based on the current situation is unlikely.
The fiscal cliff
Trump’s promises:
- for big tax cuts and no cuts to Social Security or Medicare.
- the implementation of a 10% universal tariff, which most economists agree would be inflationary.
- plans for mass immigration are expected to slow US growth.
- All this will simultaneously burden the stability of the dollar, although they do not give an opening to another currency to dethrone it.
Dollar reserves would slide if the geopolitical environment continues to fragment. This also seems likely under the Trump administration.
During his first term, Trump threatened to withdraw from NATO and pulled the US out of key agreements such as:
- the Iran nuclear deal,
- the Paris Climate Agreement and
- the Pacific Partnership.
Will the US remain a reliable partner?
Trump has imposed sanctions more often than President Biden – a practice often cited as a key reason other countries seek to de-dollarize their reserves.
