Tariffs
Subterms
Latest story
More stories
- in US Politics
China and US agree 90-day pause to trade war initiated by Donald Trump
China and the US have agreed a 90-day pause to the deepening trade war that has threatened to upend the global economy, with reciprocal tariffs to be lowered by 115%.Speaking to the media after talks in Geneva, the US treasury secretary, Scott Bessent, said both sides had shown “great respect” in the negotiations.Bessent said: “The consensus from both delegations this weekend was neither side wants a decoupling.”The 90-day lowering of tariffs applies to the duties announced by Donald Trump on 2 April, which ultimately escalated to 125% on Chinese imports, with Beijing responding with equivalent measures.China also imposed non-tariff measures, such as restricting the export of critical minerals that are essential to US manufacturing of hi-tech goods.The US trade representative, Jamieson Greer, said China’s retaliation had been disproportionate and amounted to an effective embargo on trade between the world’s two biggest economies.With the 115% deduction, Chinese duties on US goods will be lowered to 10%, while the US tax on Chinese goods will be lowered to 30%. That is because the US tariffs include a 20% rate imposed by Trump before the latest trade war, which the president said was related to China’s role in the US’s fentanyl crisis. The fentanyl-related tariff will still apply.A spokesperson for China’s ministry of commerce said: “This move meets the expectations of producers and consumers in both countries, as well as the interests of both nations and the common interest of the world.“We hope that the US side will, based on this meeting, continue to move forward in the same direction with China, completely correct the erroneous practice of unilateral tariff hikes, and continually strengthen mutually beneficial cooperation.”China’s yuan jumped to a six-month high on the signal that the trade war would be paused. Up to 16m jobs were at risk in China, according to some estimates, while the US faced rising inflation and empty shelves thanks to dizzying tariffs on the biggest supplier of US goods.Bessent said he was impressed by the level of Chinese engagement on the fentanyl issue during the talks in Switzerland. “For the first time the Chinese side understood the magnitude of what is happening in the US,” Bessent said.A joint statement published by the US and China on Monday said that both sides would “continue to advance related work in a spirit of mutual openness, continuous communication, cooperation and mutual respect”.William Xin, the chair of the hedge fund Spring Mountain Pu Jiang Investment Management, told Reuters: “The result far exceeds market expectations. Previously, the hope was just that the two sides can sit down to talk, and the market had been very fragile. Now, there’s more certainty. Both China stocks and the yuan will be in an upswing for a while.”skip past newsletter promotionafter newsletter promotionHu Xijin, the former editor of the nationalist Chinese tabloid the Global Times, said on social media the agreement was a “great victory for China in upholding the principles of equality and mutual respect”. Hu noted on Weibo that the recently agreed UK-US trade deal maintained the US’s 10% tariff on UK imports, “while the UK did not implement reciprocal measures”.Wang Wen, the head of the Chongyang Institute for Financial Studies at Renmin University in Beijing, said: “This is an unexpected achievement in Sino-US tariff negotiations.”However, Wang also urged caution, as he said the agreement “does not represent the resolution of the structural contradictions between China and the United States, nor does it mean that there will be no friction and serious differences between China and the United States in the future”.Stock markets across Europe rose in the aftermath of the US-China announcement. Germany’s DAX index jumped by 1.5%, with Mercedes-Benz, Daimler Trucks and BMW among the biggest risers. France’s CAC index rose by 1.2%.Additional research by Lillian Yang More
- in US Politics
White House claims China trade deal reached after ‘productive’ Geneva talks
The White House has announced that a trade deal with China has been struck after two days of talks in Geneva.The announcement on Sunday came after the US treasury secretary, Scott Bessent, told reporters that there had been “substantial progress” in talks between his team and that of the Chinese vice-premier, He Lifeng, in Geneva on defusing the trade war between the world’s two largest economies sparked by Donald Trump’s 145% tariffs.At a news conference later on Sunday, He, the top Chinese trade official, called the talks “candid” and said substantive progress had been made to reach an “important consensus”, according to China’s state-run media. The two sides will issue a joint statement agreed during the talks, the vice-premier said.In televised remarks that were posted on social media by the White House, Bessent said he would give more details on Monday, “but I can tell you that the talks were productive”.“I’m happy to report that we’ve made substantial progress between the United States and China in the very important trade talks,” Bessent told reporters.The US trade representative, Jamieson Greer, who spoke alongside Bessent, suggested more strongly that a deal had been reached.“It’s important to understand how quickly we were able to come to agreement, which reflects that perhaps the differences were not so large as maybe thought,” Greer said.“Just remember why we’re here in the first place,” he added. “The United States has a massive $1.2tn trade deficit, so the president declared a national emergency and imposed tariffs, and we’re confident that the deal we struck with our Chinese partners will help us to resolve, work toward resolving that national emergency.”Bessent said he had informed Trump of the progress of the talks.The meeting was the first face-to-face interaction between Bessent, Greer and He since the world’s two largest economies imposed tariffs well above 100% on each other’s goods.Although Bessent has said the bilateral tariffs were too high and needed to come down in a de-escalation move, he did not offer any details of reductions agreed and took no questions from reporters.On Saturday night, Trump wrote on his social media platform that the two sides were working on “a total reset … in a friendly, but constructive, manner.”“Many things discussed, much agreed to,” Trump posted. “We want to see, for the good of both China and the U.S., an opening up of China to American business. GREAT PROGRESS MADE!!!,” Trump added. Trump’s rhetoric, that China needs to be “opened” to US business seemed to ignore a half century of trade between the two nations since one of his political heroes, Richard Nixon, visited China in 1972.The US commerce secretary, Howard Lutnick, confirmed to CNN that the US will continue to keep “a 10% baseline tariff to be in place for the foreseeable future” even on imports from nations the US strikes new trade deals with.On Sunday, Kevin Hassett, the director of the National Economic Council, said: “What’s going to happen in all likelihood is that relationships are going to be rebooted. It looks like the Chinese are very very eager to play ball and renormalise things … they really want to rebuild a relationship that’s great for both of us.”Last week, Trump and the UK prime minister, Keir Starmer, announced a limited bilateral trade deal.Hassett said the UK agreement provided a “really exciting blueprint” and that he had been briefed on 24 deals with other countries that are in the works. “They all look a little bit like the UK deal but each one is bespoke,” he said.Meanwhile, Lutnick dismissed reports of dock workers and truckers losing their jobs as a result of the tariffs.“This is just a China problem right now,” Lutnick said. “The rest of the world is 10% [tariffs]. So don’t overdo it.”“Prices are going to stay stable once this policy is done,” Lutnick added.Reuters contributed reporting More
- in US Politics
Why is Trump so fixated on toys for little girls? | Moira Donegan
Donald Trump has found a new target for his trademark mockery and dismissal: little girls.In comments at a 30 April cabinet meeting, the president seemed to dismiss the economic impact of his chaotic tariff regime on American consumers by citing girls as the primary complainants. “Somebody said, oh, the shelves are going to be open,” Trump said. “Well, maybe the children will have two dolls instead of 30 dolls. And maybe the two dolls will cost a couple bucks more than they would normally.”Trump is prone to odd non-sequiturs, but the dolls have become something of a sticking point. Onboard Air Force One on 4 May, he doubled down on his insistence that American girls should have fewer toys. “All I’m saying is that a young lady, a 10-year-old girl, nine-year-old girl, 15-year-old girl, doesn’t need 37 dolls,” he told reporters. “She could be very happy with two or three or four or five.”In an interview with Kristen Welker of Meet the Press that same day, Trump again mentioned the dolls. “I don’t think a beautiful baby girl needs – that’s 11 years old – needs 30 dolls,” Trump said. “I think they can have three dolls or four dolls because what we were doing with China was just unbelievable.” He went on to assert that American children also have too many pencils. “They don’t need to have 250 pencils. They can have five.”In some respects, the comments seem like a rare bit of honesty from the president: an acknowledgment of the reality that his tariffs will hurt consumers and lower the American their standard of living. With steep tariffs on many consumer goods, particularly those made in China, and supply chain issues caused by retailers and producers frantic attempts to offset the costs of the new tariffs, many common products – yes, including children’s toys – will become shorter in supply and steeper in cost. Because of Trump’s policies, it is indeed true that there will be fewer presents for children underneath American Christmas trees this year – a trend that is likely to continue for years to come if Trump’s trade war triggers an economic recession, as is widely expected. Americans themselves don’t have much say in this, but Donald Trump wants us all to know that he’s comfortable with us, and our children, having less.But the selection of dolls, in particular, as Trump’s stand-in for consumer prices reflects the gendered ideas about work, money and purchasing that animate Trump’s chaotic economic policy. After all, Trump did not talk about the impact of his trade regime on toy trucks or GI Joe action figures – and he certainly didn’t mention its likely impact on things like video games, basketballs, squat racks or protein powders. The tariffs will increase prices across economic sectors and hurt consumers of all kinds of goods. But Trump did not speak in general terms about those who might like to buy a house one day, or about who will be hurt by his tariffs on Canadian lumber, or about those who would like to be treated for their illnesses but who have to pay steeper prices for the medicines they need when tariffs hit pharmaceuticals. He didn’t talk about any of the consumption that Americans are uniformly agreed to think of as reasonable, dignified or aspirational. He chose, instead, something seen as trivial, childlike, and only for girls.The comments aim to cast the pain that consumers will face as ultimately feminine and frivolous, their complaints petulant and childlike. In this respect, Trump is drawing on a long tradition of economic rhetoric that aims to cast consumption as feminine, decadent and morally suspect – and to contrast it with the supposedly more manly and virtuous productive side of the economy. It’s a laughably stupid symbolism, one that only works for those deeply committed to their ignorance about how the economy actually works: in truth, everyone consumes, and people of all genders participate in the productive economy. But Trump does not argue based on the facts: he asserts dominance. And here, he casts those Americans who would complain about the economic pain that he is inflicting on them as feminine and hence as contemptible, deserving no more respect than spoiled children.The project of masculinizing the economy – perhaps especially at children’s expense – is one that the Trump administration seems to be pushing more broadly. Trump claims, despite the near-universal assertions of economists to the contrary, that his tariffs will shift the US away from the primarily female service sector industries that have dominated the American economy since the 1970s back to a more masculine manufacturing base.To this end, his commerce secretary, Howard Lutnick, a billionaire former CEO, went on MSNBC late last month to describe his vision for the future of the American worker. “It’s time to train people not to do the jobs of the past but to do the great jobs of the future,” Lutnick said, arguing that fewer people should be aspiring to bachelor’s degrees and should expect to occupy themselves in lower-skill factory work instead. “This is the new model, where you work in these kind of plants for the rest of your life, and your kids work here, and your grandkids work here.”This is the vision for your children’s future that the Trump administration wants to put forward: deprived of material comforts and joy in childhood, then deprived of the hope for upward mobility in adulthood. They want you, and your kids, to be poor, desperate and ignorant. They want you to work in repetitive, dangerous, back-breakingly physical jobs, and they want you to have no aspiration to anything better. They want you to imagine your future, and your children’s futures, not as an open horizon of freedom and potential, but as a dark and desperate struggle, devoid of the notion that we might be anything more than useful instruments for the needs of capital. What do they offer Americans as compensation for this loss? Virtually nothing, aside from misogynist contempt, and the assurance that as our living standards sink and our prospects disappear, in our suffering, at least, we are masculine.On Fox News this past Tuesday, the treasury secretary, Scott Bessent, tried to put this spin on things. Describing what he would say to a little girl who would be denied dolls because of Trump’s tariff policy, Bessent insisted that it was for her own good. “I would tell that young girl that you would have a better life than your parents,” Bessent said. But the Trump administration is doing everything in its power to ensure that America’s children – and in particular, its little girls – have it worse.
Moira Donegan is a Guardian US columnist More
- in US Politics
Trade deals, global wars and AI Jedi posts: where is Trump’s focus? – podcast
On Thursday, the White House announced a framework for a US-UK trade deal. Earlier in the week, when asked for his take on India’s missile attack on Pakistan, Donald Trump replied: “I get along with both.” But before all of that, on an otherwise quiet Sunday, the US president announced tariffs on foreign films and the reopening of Alcatraz. Throw in the White House posting another AI-generated image of Trump – this time featuring a lightsabre, muscly arms and two bald eagles – and you have one chaotic week.Archive: BBC News, CBS News, ABC News, NBC News, Sky News, Sky News Australia
Send your questions and feedback to politicsweeklyamerica@theguardian.comHelp support the Guardian. Go to theguardian.com/politcspodus More
- in US Politics
Trump tariffs to hit small farms in Maga heartlands hardest, analysis predicts
The winners and losers of Trump’s first tariff war strongly suggest that bankruptcies and farm consolidation could surge during his second term, with major corporations best placed to benefit from his polices at the expense of independent farmers.New analysis by the non-profit research advocacy group Food and Water Watch (FWW), shared exclusively with the Guardian, shows that Trump’s first-term tariffs were particularly devastating for farmers in the Maga rural heartlands.Farm bankruptcies surged by 24% from 2018 to 2019 – the highest number in almost a decade – as retaliatory tariffs cost US farmers a staggering $27bn.Numbers of farms fell at the highest rate in two decades with the smallest operations (one to nine acres) hardest hit, declining by 14% between 2017 and 2022. Meanwhile, the number of farms earning $2.5m to $5m more than doubled.Losses from the first-term trade war were mostly concentrated in the midwest due to the region’s focus on export commodities such as corn, soy and livestock that are heavily reliant on China. States with more diverse agricultural sectors such as California and Florida experienced lower rates of insolvency and export declines than in previous years, suggesting the trade war played a role, according to Trump’s Last Tariff Tantrum: A Warning.The breakdown in closures suggests that Trump’s $28bn tariff bailout package in 2018-19 disproportionately benefited mega-farms while smaller-scale farms and minority farmers were left behind.The top tenth of recipients received 54% of all taxpayer bailout funds. The top 1% received on average $183,331 while the bottom 80% got less than $5,000 each, according to previous analysis.The number of Black farmers fell by 8% between 2017 and 2022, while white farmer numbers declined by less than 1%.View image in fullscreen“President Trump’s first-term trade war hurt independent farmers and benefited corporations, offering a warning of what is to come without a plan to help farmers adjust,” said Ben Murray, senior researcher at FWW.“Trump’s latest slap-dash announcements will likely further undermine US farmers while benefiting multinationals who can easily shift production abroad to avoid high tariffs. Farmers’ livelihoods should not be used as a foreign policy bargaining chip. Chaotic tariff tantrums are no way to run US farm policy.”The first 100 days of Trump 2.0 have led to turmoil and uncertainty for consumers, producers and the markets, amid an extraordinary mix of threats, confusing U-turns and retaliatory tariffs from trading partners.Trump’s second trade war could prove even more damaging for US farmers and rural communities, as it comes on top of dismantling of agencies, funds and Biden-era policies to help farmers adapt to climate shocks, tackle racist inequalities and strengthen regional food markets. By the end of April, more than $6bn of promised federal funds had been frozen or terminated, according to the National Sustainable Agriculture Association’s tracker.Rural counties rallied behind Trump in 2024, giving him a majority in all but 11 of the 444 farming-dependent counties, according to analysis by Investigate Midwest.Last week, the agriculture secretary, Brooke Rollins, played down the likely harm to Trump’s farmer base, but said the administration was preparing a contingency bailout plan if farmers are hurt by escalating trade wars. “We are working on that. We are preparing for it. We don’t believe it will be necessary,” Rollins told Fox News. “We are out across the world, right now, opening up new markets.”US farm policy has long incentivized large-scale monocropping of export commodities such as wheat, corn, soy, sorghum, rice, cotton – and industrial animal farming – rather than production for domestic consumption. This globalized agricultural system favors large and corporate-owned operations, while undermining small, diversified farms and regional food systems. It is a system inextricably tied to global commodity markets, and therefore extremely vulnerable to trade wars.The 2018-19 bailout payments were set up in a way that, inadvertently perhaps, “subsidized, encouraged and promoted” the loss of smaller and mid-size farms to the benefit of mega-farms – in large part because the tariffs were implemented without a coherent plan to reform US farm policy and help farmers transition to domestic markets.The number of large farms – those earning more than $500,000 – grew by 18% between 2017 and 2022. “The taxpayers are essentially being asked to subsidize farm consolidation,” the Environmental Working Group said at the time.Trump’s first-term tariffs hit soybean farmers, who are highly dependent on China, hardest, with exports slumping 74% in 2018 from the previous year. The number of soybean farms fell almost 11% between 2017 and 2022 – a significant turn of fortune given the 9% rise over the previous decade. In fact, the only winners after Trump’s trade war were big farms, those harvesting at least 1,000 acres of soybeans, the FWW analysis found.The 2018/19 tariff bailout package was also used to facilitate contracts and commodity purchases. A significant share went to the billion-dollar corporations which already have a stranglehold on the US food system, and rural communities.skip past newsletter promotionafter newsletter promotionArkansas-headquartered Tyson Foods received almost $29m in federal contracts and purchases between August 2018 and July 2019, while Brazil-based JBS secured nearly $78m. JBS used its market power to undercut competition, winning over a quarter of the total $300m in taxpayer dollars allocated towards federal pork purchases, according to FWW.The two multinationals currently control 40% to 50% of the US beef market, 45% of poultry and, along with two other corporations, 70% of the pork market.Things could be even worse under Trump 2.0, with the president no longer seeming concerned by the markets or the polls.John Boyd Jr, a fourth-generation Black farmer, has been unable to secure a farm operating loan since Trump’s tariffs sent commodity prices tumbling. USDA field offices that help farmers apply for credit and government subsidies, which Black, Native and other minority farmers were already disproportionately denied, are being closed in the name of efficiency.View image in fullscreen“This administration is putting the heads of Black farmers on the chopping block and ridiculing us in public with no oversight and no pushback from Congress,” said Boyd, president and founder of the National Black Farmers Association, who farms soy, wheat, corn and beef in Virginia. “Trump’s tariffs are a recipe for complete disaster, and this time his voters in red states will also get punched in the face.”Trump 2.0 tariffs against China are higher and broader, and also target scores of other agricultural trading partners. China is better prepared, having diversified its import markets to Brazil and other Latin American countries since Trump’s first trade war, while US domestic farm policy has barely changed.“The administration seems completely blind to the harm that was done previously, and in many ways what’s happening now is already worse … The concern is that trades are stalled and nothing’s really flowing,” said Ben Lilliston, director of rural strategies and climate change at the Institute for Agriculture and Trade Policy.In late April, China cancelled a 12,000-tonne order of US pork – the largest cancellation since the start of the Covid pandemic, suggesting Trump’s tariff war is already sabotaging trade.“The lesson from last time is we didn’t get the money to the right farmers. But the longer-term lesson is that the US lost credibility in trade. US Secretary Rollins is going overseas to try to open up export markets but they seem to be in deep denial right now about the harm that’s already been done to these relationships,” Lilliston said.A USDA spokesperson said: “President Trump is putting farmers first and will ensure our farmers are treated fairly by our trading partners. The administration has not determined whether a farmer support program will be needed at this time. Should a program need to be implemented in the future, the department’s goal will always be to benefit farms of all sizes.”JBS, Tyson and the American Farm Bureau Federation, a lobby group, have been contacted for comment. More
- in US Politics
UK officials land in Washington as talks over trade agreement continue
A team of senior British trade negotiators has landed in Washington as talks over a deal between the two countries gather pace.Officials from the business and trade department are in the US for much of this week, attempting to get an agreement signed before the planned UK-EU summit on 19 May.Downing Street did not deny reports the deal could be signed as early as this week, although government sources said the recent announcement by the US president, Donald Trump, of film industry tariffs had proved a significant setback.One person briefed on the talks said: “We have a senior team on the ground now, and it may be that they are able to agree something this week. But the reality is the Trump administration keeps shifting the goalposts, as you saw with this week’s announcement on film tariffs.”Another said Trump’s threat of 100% tariffs on films “produced in foreign lands”, which could have a major impact on Britain’s film industry, had “gone down very badly in Downing Street”.UK officials say they are targeting tariff relief on a narrow range of sectors in order to get a deal agreed before they begin formal negotiations with the EU over a separate European agreement. A draft deal handed to the US a week ago would have reduced tariffs on British exports of steel, aluminium and cars, in return for a lower rate of the digital services tax, which is paid by a handful of large US technology companies.The Guardian revealed last week the Trump administration had made negotiating a trade deal with the UK a lower-order priority, behind a series of Asian countries. UK officials said they have been able to continue talks with their US counterparts despite that, describing the Trump administration’s approach as “chaotic”.Officials from the trade department arrived in Washington this week hoping to reach an agreement on two outstanding issues, pharmaceuticals and films.Trump has said he will impose tariffs on both industries, mainstays of the British economy, but has not yet given details.This week, the US president said the US film industry was dying a “very fast death” because of the incentives other countries were offering to draw American film-makers, and promised to impose a 100% tariff on foreign-made films. Britain offers producers generous reliefs on corporation tax to locate their projects there, which help support an industry now worth about £2bn, with major US films such as Barbie having recently been shot in Britain.Trump also said that he planned to unveil tariffs on imports of pharmaceutical products “in the next two weeks”. The UK exported £6.5bn worth of such goods to the US last year.Keir Starmer, the prime minister, has ruled out reducing food production standards to enable more trade of US agricultural products, as officials prioritise signing a separate agreement with the EU, which is likely to align British standards with European ones.Officials are racing to sign the US agreement before the planned UK-EU summit, at which both sides will set out their formal negotiating positions. Leaked documents revealed on Wednesday the two remain far apart on their demands for a youth mobility scheme, with Britain demanding that visas issued under the scheme should be limited in number and duration, and should exclude dependents.EU ambassadors met in Brussels on Wednesday to discuss the progress of the deal. One diplomat said: “Negotiations are going well, the mood is still good but it is a bit early to see bold moves from one side or another.”This week Starmer also signed an agreement with India after giving way on a demand from Delhi for workers transferring to the UK within their companies to avoid paying national insurance while in the country.The concession has caused some unease in the Home Office, with Yvette Cooper, the home secretary, not having been told about it in advance.It was also criticised by Kemi Badenoch, who accused the prime minister of bringing in a “two-tier” tax system. The Tory leader denied reports, however, that she had agreed to the same concession when she was business secretary.The prime minister defended the deal on Wednesday, telling MPs at PMQs it was a “huge win” for the UK. Other senior Tories have also praised the deal, including Steve Baker, Oliver Dowden and Jacob Rees-Mogg, the latter of whom said it was “exactly what Brexit promised”.British officials say they have been surprised at the willingness of the Labour government to sign agreements which have been on the table for years but previously rejected by the Conservative government.With economists having recently downgraded the UK’s growth outlook, Starmer is understood to have decided to sign deals such as that with India, even though they do not include a number of British demands, such as increased access for services.One source said the approach was to clinch a less ambitious agreement and use that to build a fuller economic partnership in the coming years. More
- in US Politics
Why Donald Trump’s plan to weaken the dollar is flawed | Kenneth Rogoff
Now that US President Donald Trump’s tariff war is in full swing, investors around the world are asking: what’s next on his agenda for upending the global economic order? Many are turning their attention to the “Mar-a-Lago Accord” – a plan proposed by Stephen Miran, chair of Trump’s Council of Economic Advisers, to coordinate with America’s trading partners to weaken the dollar.At the heart of the plan is the notion that the dollar’s status as the world’s reserve currency is not a privilege but a costly burden that has played a major role in the deindustrialisation of the American economy. The global demand for dollars, the argument goes, drives up its value, making US-made goods more expensive than imports. That, in turn, leads to persistent trade deficits and incentivises US manufacturers to move production overseas, taking jobs with them.Is there any truth to this narrative? The answer is yes and no. It’s certainly plausible that foreign investors eager to hold US stocks, bonds, and real estate could generate a steady flow of capital into the United States, fuelling domestic consumption and boosting demand for tradable goods such as cars and non-tradables such as real estate and restaurants. Higher demand for non-tradable goods, in particular, tends to push up the dollar’s value, making imports more attractive to American consumers, just as Miran suggests.But this logic also overlooks crucial details. While the dollar’s reserve-currency status drives up demand for Treasuries (Treasury bills, Treasury bonds, and Treasury notes), it does not necessarily increase demand for all US assets. Asian central banks, for example, hold trillions of dollars in Treasury bills, to help stabilise their exchange rates and maintain a financial buffer in the event of a crisis. They generally avoid other types of US assets, such as equities and real estate, since these do not serve the same policy objectives.This means that if foreign countries simply need to accumulate Treasury bills, they don’t have to run trade surpluses to obtain them. The necessary funds can also be raised by selling existing foreign assets such as stocks, real estate, and factories.That is precisely what happened in the 1960s through the mid-1970s. By then, the dollar had firmly established itself as the global reserve currency, yet the US was almost always running a current account surplus – not a deficit. Foreign investors were accumulating US Treasuries, while American firms expanded abroad by acquiring foreign production facilities, either through direct purchases or “greenfield” investments, in which they built factories from the ground up.The postwar era was hardly the only time when the country issuing the world’s reserve currency ran a current account surplus. The British pound was the undisputed global reserve currency from the end of the Napoleonic wars in the early 1800s until the outbreak of the first world war in 1914. Throughout that period, the UK generally ran external surpluses, bolstered by high returns on investments across its colonial empire.There is another way to interpret the US current account deficit that helps explain why the relationship between the exchange rate and trade imbalances is more complicated than Miran’s theory suggests. In accounting terms, a country’s current account surplus equals the difference between national savings and investment by the government and the private sector. Importantly, “investment” here refers to physical assets such as factories, housing, infrastructure, and equipment – not financial instruments.When viewed through this lens, it is clear that the current account deficit is influenced not just by the exchange rate but by anything that affects the balance between national saving and investment. In 2024, the US fiscal deficit was 6.4% of GDP, significantly larger than the current account deficit, which was under 4% of GDP.While closing the fiscal deficit would not automatically eliminate the current account deficit – that would depend on how the gap is closed and how the private sector responds – it is a far more straightforward fix than launching a trade war. Reducing the fiscal deficit would, however, involve the difficult political task of convincing Congress to pass more responsible tax and spending bills. And unlike a high-profile trade confrontation, it wouldn’t cause foreign leaders to curry favour with Trump; instead, it would shift media attention back to domestic politics and congressional negotiations.Another key factor behind the current account deficit is the strength of the American economy, which has been by far the most dynamic among the world’s major players in recent years. This has made US businesses particularly attractive to investors. Even manufacturing has grown as a share of GDP. The reason employment has not kept pace is that modern factories are highly automated.skip past newsletter promotionafter newsletter promotionMiran’s plan, clever as it might be, is based on a flawed diagnosis. While the dollar’s role as the world’s leading reserve currency plays a part, it is just one of many factors contributing to America’s persistent trade deficits. And if the trade deficit has many causes, the idea that tariffs can be a cure-all is dubious at best. Kenneth Rogoff is professor of economics and public policy at Harvard University. He was the IMF’s chief economist from 2001-03.© Project Syndicate More
- in US Politics
The Guardian view on Trump’s shock therapy: warehouse and transport workers are the first victims of a class war | Editorial
The White House, eager to win a trade war it barely understands, has yanked the emergency brake on China-US trade without checking who’s inside the vehicle. Donald Trump’s early April trade decree has taken a month to hit the economy – that’s how long Chinese containers need to reach Los Angeles. And on cue, US pacific ports registered a 45% drop in container bookings this week from China. When warehouses fall quiet and trucks idle in California, the silence will creep eastward. Unemployment will surely tick upwards.Even if Washington reverses course by the end of May, and Beijing plays nice, the best-case scenario is delayed damage. Some goods are being rerouted to avoid charges, but you can’t reboot global logistics overnight. This isn’t strategic decoupling – it’s economic self-harm. By the time the Trump administration notices, it will be too late. The consequences of the US president’s rash tactics will reverberate through Main Street. Mr Trump offers a flippant excuse: blame 11-year-olds with too many dolls – not his own tariffs – for rising hardship.US gross domestic product just shrank for the first time in three years – despite Mr Trump’s promise of a “golden era”. His tariffs are steering the world toward a downturn. Even the International Monetary Fund (IMF) knows it. According to its latest modelling, the fund now sees the probability of global growth falling below 2%, a threshold widely seen as equivalent to a global recession, as approaching one in four. That’s double the risk it estimated six months ago. Escalating US tariffs, says the IMF, are the main reason behind the darkening skies.What does this mean for the world? Below 2% global growth, much of the per capita gains vanish. Most of what’s left is soaked up by expanding giants in Asia and Africa – places with the people and industrial catch-up capacity to grow even in a weakened global economy. The UK does not have this. Britain is an ageing, post-industrial economy in a productivity slump without the momentum of demographics or the slack of underdevelopment. That’s why Labour can’t afford to sit back. Rising living standards and real economic security require government to invest, build and redistribute – because the market alone won’t.Commentators still blindly cling to David Ricardo’s 1817 theory of comparative advantage – as if today’s global capitalism mirrors Georgian England’s trade in wine and cloth. It doesn’t. Ricardo assumed nations specialise based on domestic costs. But in a world of mobile capital, it’s companies that specialise, not countries. That’s what the economist Dani Rodrik warned in the late 1990s: free capital flows undermine comparative advantage. Development now depends not on obeying trade patterns, but on shaping them – through industrial policy.But Maga protectionism isn’t rebuilding US industry – it’s shock therapy. Mr Trump engineers a trade crisis to hike prices, kill off “uncompetitive” firms and clear the way for a leaner, capital-heavy economy. Meanwhile, tax cuts hand America’s oligarchic tendency even more power to reshape markets in its image. Mr Trump’s narrative promises a revival for US workers – particularly the unionised holdouts in places such as Detroit – but what they will get is higher costs, stagnant wages and patriotic slogans. This isn’t industrial policy. It’s class politics disguised as economic nationalism – a controlled demolition of what remains of US labour’s bargaining power, sold as a populist renaissance.Do you have an opinion on the issues raised in this article? If you would like to submit a response of up to 300 words by email to be considered for publication in our letters section, please click here. More
