Their thinking is hard-wired onto a misconception of how capital, trade and money move around the globe. Like the brewer who gets drunk on his own ale, centrists ended up believing their own propaganda: that we live in a world of competitive markets where money is neutral and prices adjust to balance the demand and the supply of everything. The unsophisticated Trump is, in fact, far more sophisticated than them in that he understands how raw economic power, not marginal productivity, decides who does what to whom — both domestically and internationally.

Though we risk the abyss staring back when we attempt to gaze into Trump’s mind, we do need a grasp of his thinking on three fundamental questions: why does he believe that America is exploited by the rest of the world? What is his vision for a new international order in which America can be “great” again? How does he plan to bring it about? Only then can we produce a sensible critique of Trump’s economic masterplan.

So why does the President believe America has been dealt a bad deal? His chief complaint is that dollar supremacy may confer huge powers on America’s government and ruling class, but, ultimately, foreigners are using it in ways that guarantee US decline. So what most consider to be America’s exorbitant privilege, he sees as its exorbitant burden.

Trump has been lamenting the decline of US manufacturing for decades: “if you don’t have steel, you don’t have a country.” But why blame this on the dollar’s global role? Because, Trump answers, foreign central banks do not let the dollar adjust downwards to the “right” level — at which US exports recover and imports are restrained. It is not that foreign central bankers are conspiring against America. It is just that the dollar is the only safe international reserve they can get their hands on. It is only natural for European and Asian central banks to hoard the dollars that flow to Europe and Asia when Americans import things. By not swapping their stash of dollars for their own currencies, the European Central Bank, the Bank of Japan, the People’s Bank of China and the Bank of England suppress the demand for (and thus the value of) their currencies. This helps their own exporters boost their sales to America and earn even more dollars. In a never-ending circle, these fresh dollars accumulate in the coffers of the foreign central bankers who, to gain interest safely, use them to buy US government debt.

Suggested reading

Rachel Reeves, the pound shop George Osborne

By Wolfgang Münchau

And there’s the rub. According to Trump, America imports too much because it is a good global citizen which feels obliged to provide foreigners with the reserve dollar assets they need. In short, US manufacturing has been in decline because America is a good Samaritan: its workers and middle class suffer so that the rest of the world can grow at its expense.

But the dollar’s hegemonic status also underpins American exceptionalism, as Trump knows and appreciates. Foreign central banks’ purchases of US Treasuries enable the US government to run deficits and pay for an oversized military that would bankrupt any other country. And by being the linchpin of international payments, the hegemonic dollar enables the President to exercise the modern-day equivalent of gunboat diplomacy: to sanction at will any person or government.

This is not enough, in Trump’s eyes, to offset the suffering of American producers who are undercut by foreigners whose central bankers exploit a service (dollar reserves) America provides them for free to keep the dollar overvalued. For Trump, America is undermining itself for the glory of geopolitical power and the opportunity to accumulate other people’s profits. These imported riches benefit Wall Street and realtors but only at the expense of the people who elected him twice: Americans in the heartlands who produce the “manly” goods such as steel and automobiles that a nation needs to remain viable.

And that’s not the worst of Trump’s concerns. His nightmare is that this hegemony will be fleeting. Back in 1988, while promoting his Art of the Deal on Larry King and Oprah Winfrey, he bemoaned: “We are a debtor nation. Something’s going to happen over the next number of years in this country, because you can’t keep on losing $200 billion a year.” Since then, he has become increasingly convinced that a terrible tipping point is approaching: as America’s output diminishes in relative terms, the global demand for the dollar rises faster than US incomes. The dollar then has to appreciate even faster to keep up with the reserve needs of the rest of the world. This can’t go on forever.

For when US deficits exceed some threshold, foreigners will panic. They will sell their dollar-denominated assets and find some other currency to hoard. Americans will be left amid international chaos with a wrecked manufacturing sector, derelict financial markets and an insolvent government. This nightmare scenario has convinced Trump that he is on a mission to save America: that he has a duty to usher in a new international order. And that’s the gist of his plan: to effect in 2025 a decisive anti-Nixon Shock — a global shock that cancels out the work of his predecessor by terminating the Bretton Woods system in 1971 which spearheaded the era of financialization.

Suggested reading

Europe is clinging to yesterday

By Wolfgang Münchau

Central to this new global order would be a cheaper dollar that remains the world’s reserve currency — this would lower US long-term borrowing rates even more. Can Trump have his cake (a hegemonic dollar and low-yielding US Treasuries) and eat it (a depreciated dollar)? He knows that the markets will never deliver this of their own accord. Only foreign central banks can do this for him. But to agree to do this, they need to be shocked into action first. And that’s where his tariffs come in.

This is what his critics do not understand. They mistakenly think that he thinks that his tariffs will reduce America’s trade deficit on their own. He knows they will not. Their utility comes from their capacity to shock foreign central bankers into reducing domestic interest rates. Consequently, the euro, the yen and the renminbi will soften relative to the dollar. This will cancel out the price hikes of goods imported into the US, and leave the prices American consumers pay unaffected. The tariffed countries will be in effect paying for Trump’s tariffs.

But tariffs are only the first phase of his masterplan. With high tariffs as the new default, and with foreign money accumulating in the Treasury, Trump can bide his time as friends and foes in Europe and Asia clamor to talk. That’s when the second phase of Trump’s plan kicks in: the grand negotiation.

Unlike his predecessors, from Carter to Biden, Trump disdains multilateral meetings and crowded negotiations. He is a one-on-one man. His ideal world is a hub and spokes model, like a bicycle wheel, in which none of the individual spokes makes much of a difference to the functioning of the wheel. In this view of the world, Trump feels confident that he can deal with each spoke sequentially. With tariffs on the one hand and the threat of removing America’s security shield (or deploying it against them) on the other, he feels he can get most countries to acquiesce.

Acquiesce to what? To appreciating their currency substantially without liquidating their long-term dollar holding. He will not only expect each spoke to cut domestic interest rates, but will demand different things from different interlocutors. From Asian countries that currently hoard the most dollars, he will demand they sell a portion of their short-term dollar assets in exchange for their own (thus appreciating) currency. From a relatively dollar-poor eurozone riddled with internal divisions that increase his negotiating power, Trump may demand three things: that they agree to swap their long-term bonds for ultra-long-term or possibly even perpetual ones; that they allow German manufacturing to migrate to America; and, naturally, that they buy a lot more US-made weapons.

Can you picture Trump’s smirk at the thought of this second phase of his masterplan? When a foreign government acquiesces to his demands, he will have chalked up another victory. And when some recalcitrant government holds out, the tariffs stay put, yielding his Treasury a steady stream of dollars which he can dispense with any way he deems fit (since Congress controls only tax revenues). Once this second phase of his plan is complete, the world will have been divided into two camps: one camp shielded by American security at the cost of an appreciated currency, the loss of manufacturing plants, and forced purchases of US exports including weapons. The other camp will be strategically closer perhaps to China and Russia, but still connected to the US through reduced trade which still gives the US regular tariff income.

Trump’s vision of a desirable international economic order may be violently different from mine, but that gives none of us a license to underestimate its solidity and purpose — as most centrists do. Like all well-laid plans, this may, of course, go awry. The depreciation of the dollar may not be sufficient to cancel out the effect of tariffs on prices US consumers pay. Or the sale of dollars may be too great to keep long-term US debt yields low enough. But besides these manageable risks, the masterplan will be tested on two political fronts.

The first political threat to his masterplan is domestic. If the trade deficit begins to shrink as planned, foreign private money will stop flooding Wall Street. Suddenly Trump will have to betray either his own tribe of outraged financiers and realtors or the working class that elected him. Meanwhile, a second front will be opening. Regarding all countries as spokes to his hub, Trump may soon discover that he has manufactured dissent abroad. Beijing may throw caution to the wind and turn the BRICS into a New Bretton Woods system in which the yuan plays the anchoring role that the dollar played in the original Bretton Woods. Perhaps this would be the most astonishing legacy, and comeuppance, of Trump’s otherwise impressive masterplan.

A road trip across the United States reveals how much of its heartland is now desolate. Once-proud towns struggle to keep their post offices, and shopping malls open amid rising homelessness and an epidemic of deaths of despair. Trailer parks, Amazon warehouses and the odd giant prison occupy vast tracts of once-happier vistas. Meanwhile, prosperous city dwellers fly over these wastelands as they commute from one ultra-rich, usually coastal, city to another. How did America get into this sorry state?

It’s a far cry from the Golden Age of American capitalism. In the two decades after the Second World War, the United States was a surplus country. As Europe and Japan lay in ruins, US authorities not only fixed exchange rates between the dollar and the currencies of its allies, but also sent huge quantities of dollars to them (both as aid and loans) so that friendly foreigners could afford to buy American goods. With these two bold moves, America dollarised Europe and Japan.

The Bretton Woods system worked because the US surplus meant that, with every Cadillac, every Westinghouse fridge, every Boeing jet that European and Japanese customers imported from America, the dollars sent to Europe and to Japan were being repatriated. It was a mutually advantageous global recycling process.

But then, at the height of the Vietnam War, two developments changed everything. Firstly, the productivity of American factories fell behind those of Germany and Japan, causing the US trade balance to slip into the red. America was now importing more than it was exporting. Secondly, a large amount of the dollars the Pentagon was spending on the Vietnam war ended up in European and Japanese banks. A constant flood of dollars was therefore leaving America’s shores to form dollar lakes in Europe and Japan.

This money ended up in foreign central banks. For a while, America’s trading partners took advantage of the fixed exchange rate of their currency to swap their dollars for their own currency or to buy gold at a fixed exchange rate. But, in August 1971, President Nixon blew this system up.

The Deutschmark and the yen, along with many foreign currencies, skyrocketed. Foreign central banks did not know what to do with the dollars in their vaults. If, for example, the Bundesbank were to use these dollars to buy Deutschmark, the demand for the German currency would increase, damaging Germany’s exports. So, foreign central banks decided to use their dollars to buy US government debt.

Thus it began. The US trade deficit financed, indirectly, the US government, while providing foreign capitalists with the demand they needed for net exports to America. In turn, the Germans, Japanese, Saudis and the like took their dollars to the US to buy government debt, real estate in New York, California and Miami, as well as shares in the very few companies that Washington allowed them to purchase.

And this is why, a decade later, Ronald Reagan’s unfunded tax cuts did not cause inflation or a dollar crisis. The increase in the US government deficit boosted world demand and oiled the wheels of financialisation. Foreign capitalists bought more debt and more real estate. Asset prices rose across America. While Reagan basked in the glory, America was becoming an expensive place to do business in.

Around the time of American financialisation, Deng Xiaoping was opening up China, a move Washington welcomed. As China entered this strange global dollar-recycling mechanism — one driven by US trade and government deficits — Chinese development both benefitted from and turbocharged it. But that’s when US conglomerates had an epiphany: with America becoming an expensive place for business, why not send their production lines to China in search of much cheaper land and labour? Even the dollars that Chinese business collected eventually returned to America, bolstering the US government budget, the Wall Street banks, and the realtors on America’s East and West Coasts.

A Chinese official once, unofficially, described all this to me as a lucrative Dark Deal between US rentiers, US conglomerates, the US government and Chinese capitalists. And the losers? Mainly, the American working and middle classes. Not to mention global stability. For as the tsunami of debt-dollars swamped Wall Street, its bankers discovered fiendishly complicated ways to bet on asset prices and, catastrophically, on each other’s bets. These debt-fuelled bets eventually caved, yielding the Great Financial Crisis in 2008.

Suggested reading

American industry must rise again

By Julius Krein

Barack Obama became president by promising voters to come to the aid of the many victims of the crisis while punishing the few who had caused it. Tragically, he did the exact opposite. In the swiftest political betrayal in American history, Obama appointed to the Treasury the very men (Tim Geithner and Larry Summers) who had allowed Wall Street to go berserk. Their remit was to bail out the criminal bankers and impose austerity on most Americans. In this light, Mr Trump owes his political career to Mr Obama.

Taking a longer view from the Seventies to today, who lost the most from the aforementioned Dark Deal? The answer is: the majority of Americans, 60% of whom live paycheck-to-paycheck and can barely afford a house or even the bare necessities.

So Trump is not wrong to decry the way America’s ruling class trapped the American people into the indignity of being fundamentally poor in a ridiculously rich country. He is also not wrong in his hunch that America’s wars are a distraction from what kept America powerful after it lost its surplus in the late Sixties: the control of the global dollar-debt recycling system.

But he is spectacularly wrong if he thinks that he can stop Middle America’s “carnage” by means of sky-high tariffs for Chinese and European exports into the US, all while keeping in rude health his beloved real estate sector and the stock exchange. If tariffs undermine the Dark Deal which returns to the US debt-dollars funding foreign capitalists’ net exports to America, the dizzying wealth of America’s rentiers and financiers will evaporate instantly. To help the majority whose vote he just secured, Trump will have to turn on his own class of rentiers and financiers.

In conclusion, Trump can choose one of two options. He can shatter the Dark Deal so as to be true to the majority and risk the wrath of the real estate and the financial markets he so reveres. Or he can maintain the US financial and real estate markets in rude health, thus betraying the majority who returned him to the White House. He can never achieve both. No prizes, dear reader, for guessing which of the two he will choose.

I want to suggest the opposite: that under the rules that operate within the EU, the very formation of the NHS would not have been possible. For written deep within the DNA of the European Union is a commitment to precisely the sort of neoliberal economics that would have completely undermined the very possibility of a National Health Service.

More from this author

Why won't Remainers talk about family?

By Giles Fraser

The story begins 75 years ago this month, with the gathering of economic experts at the Mount Washington Hotel at Bretton Woods in New Hampshire. Seeking to construct a new economic order amid the ashes of the Second World War, the economists at Bretton Woods, including John Maynard Keynes as a representative of the British government, set up a global financial architecture that laid the groundwork for an unparalleled period of peace and financial stability.

Lasting from 1944 until the early 1970’s, the financial system designed protected the great projects of national reconstruction from international financial speculation. Exchange rates were to be pegged to the value of gold, capital flows in and out of a country were to be limited and managed. During this period, there were no significant financial crashes. And Western governments, responding to their democratic mandates, were able to fulfil the wishes of their electorates unperturbed by the sort of financial speculation that might have undermined them.

In the UK, Clement Attlee came to power a year after Bretton Woods. He was the most successful Labour Prime Minister there has ever been, establishing the welfare state, the NHS and full employment. No Prime Minister did more for the poor and the vulnerable than Clement Attlee. He was dead against joining the EU. Total hero.

Compare and contrast what was possible for Attlee and what proved to be impossible for another socialist leader who came to power in the post-Bretton Woods era. François Mitterrand was elected President of France in 1981. French voters had rejected the austerity policies of the Seventies and Mitterrand set about preparing for a programme of government – increase in public spending, nationalisation of the banks, greater taxation of the wealthy and an increase in social security. The global financial markets reacted with horror and invested capital began rapidly to flee from France. This is precisely what Bretton Woods, with its strict capital controls, had protected the Attlee government against.

Suggested reading

Don't scorn Boris's ambition

By Mary Dejevsky

As the French crisis deepened, a heated argument broke out within the French cabinet between those who wanted to tough it out and stand up to the financial markets, and those who accepted that capital flows represented a new financial reality and that it was useless to resist them. It was a pivotal debate. Who was to be boss: democratically elected governments or capital markets? What was more powerful: one person one vote or one dollar one vote?

I owe the insight to the American financial journalist Robert Kuttner and the fascinating challenge of his 2018 book Can Democracy Survive Global Capitalism? For Kuttner, what he calls “the disgrace of the centre left” was its adoption of neoliberal economics as an unquestioned reality.

When asked about her finest achievement, Margaret Thatcher thought about it for a moment and then answered: “Tony Blair.” It’s a telling reply. With Bill Clinton and Tony Blair, the Left pivoted from a desire to manage and control capitalism to a full-on acceptance of neoliberal economics. The markets were king. Clinton and Blair disguised this surrender by reaching out towards identity politics and individual rights as the new marker of Left-wing identity.

Suggested reading

Why the Iron Lady is an icon for our times

By Ian Birrell

So, why would the foundation of the NHS be impossible under the European Union? Well, the leader of the anti-Mitterrand group in the French cabinet was finance minister, Jacques Delors. It was Delors who derailed Mitterrand’s socialist plan, and it was Delors who was most responsible for the return to precisely the sort of austerity politics that the French electorate had rejected and the capital markets were demanding.

In 1985, Jacques Delors became the President of the European Commission (1985-1995) and he set about arguing for the European Union to adopt strict controls on national debt and the dropping of capital controls. His crowning achievement was the Maastricht Treaty of 1992.

Thank God we did not join the Euro. Because, as the people of Greece discovered to their cost, that was a tipping point in the balance of power between capital markets and democratic governments. But even outside the Euro, the abandonment of Bretton Woods style protections that shielded us against the power of financial speculation, the desire of socialist governments to introduce welfare reform would still be undermined by capital flight. A future Corbyn led government might yet discover this.

And here we come to the heart of the Left-wing case against the European Union. Personally, I believe it was Bretton Woods and not the European Community that was most responsible for post-war peace and prosperity – and the Maastricht Treaty was the final nail in its coffin.

For Maastricht inscribed neoliberal economics into the founding structures of the EU: capital was free to flow as it pleased, unrestricted by the democratic wishes of electorates. National governments were no longer allowed to run up debts, even if their electorates wanted them to. Democracy had to play second fiddle to capital markets. Under these conditions, the Attlee project would have been totally impossible.

More from this author

Who broke the Left?

By Giles Fraser

The question of the EU and democracy is not just about its desire to overturn the wishes of the largest mandate this country has ever given to anything. It is a question about whether democracy can survive global capitalism. And if we do not leave on 31 October, the answer will surely be no.

“Basically there are two solutions” wrote the economist and philosopher Karl Polanyi in 1935: “The extension of the democratic principle from politics to economics, or the abolition of the democratic ‘political sphere’ altogether.”