[Skybird]

[FAZ] Is this Trump's grand economic plan?
By Gerald Braunberger

In the United States, ideas for a reorganization of the world's trade and financial system are circulating. Anyone who wants to be defended by America should buy American government bonds.

In 2002, the conservative American politician and journalist Patrick Buchanan wrote a book entitled "The Death of the West." As a Bible-believing Christian, he equated "global capitalists" with Cain and "true conservatives" with Abel, and predicted: "Because it is an elite project of unknown and unloved architects, globalism will founder on the Great Barrier Reef of patriotism."

Donald Trump may not cite Buchanan. But, as political scientist Hal Brands writes in an article for "Foreign Affairs," not only has Trump also recognized that globalization has gone too far, he also intuitively understands what many liberal internationalists have forgotten: order arises from power and can hardly be maintained without it. Trump isn't wrong in this perception, Brand believes. Especially in a world of expanding autocracies, "a superpower with sharp elbows might not be the worst thing right now."

The superpower is also showing sharp elbows in economic matters, with announcements of tariffs and the occasional swift retraction of these announcements by its hyperactive leader. Behind these seemingly erratic decisions, however, there may be a blueprint developed by conservative think tanks and discussed by other scholars that comprehensively summarizes political, military, and economic requirements, which in more unbiased times would have been called a "grand strategy."

The starting point is the thesis that in a more conflict-ridden world, the United States must rely more heavily on its own industry to secure its defense capabilities. "Without steel, you don't have a country," Trump once said. The severe loss of industry in recent decades is seen in this regard as an obstacle to its own arms production. However, the loss of industry is not explained by a lack of international competitiveness, but rather as the result of an overvaluation of the dollar, which is detrimental from the industry's perspective and which arises in part from global investors' demand for US government bonds as a safe investment for the world.

The United States also does not want to forgo the dollar's international role for security policy reasons. Because it secures power through the dollar's dominance in the world's capital markets. And because this makes it possible to use the dollar as a weapon, for example, in the form of economic sanctions. This creates a dilemma for Washington: From an industrial perspective, the dollar is too strong – but from an economic perspective, it must not become too weak.

In November 2024, Stephen Miran developed economic policy options for such a situation. At the time, Miran worked for the financial firm Hudson Bay Capital; he recently chaired the President's Council of Economic Advisors. "Contrary to much discussion on Wall Street and in academia, there are effective tools with which a government can influence the conditions of foreign trade, the value of the currency, and the structure of international economic relations," Miran wrote in November. "The Trump administration will likely increasingly link trade policy with security policy by viewing the provision of foreign exchange reserves and a security umbrella as intertwined and seeking a shared burden-sharing for both."

From the perspective of Germany, which has fallen into a deep geopolitical slumber in recent decades, linking economic and security policy seems alien. It is rather commonplace for the "grand strategy" of a global power; but its implementation is usually accompanied by diplomacy rather than by blows with a square of timber.

For trade policy, it is important to note that the average tariff rate levied by the United States on goods and services is lower than the average tariff rate levied by the European Union, the People's Republic of China, and many other countries. Trump's complaints about the United States being disadvantaged compared to its trading partners have a basis. What is more surprising is the idea of ​​a virtually borderless unrelenting power of tariff policy, which is intended to punish and discipline other countries while simultaneously filling the American coffers – and to do so without harming the United States in the long term. "This policy can help secure the American advantage in high-quality industrial production, slow and prevent the exodus of industry, and improve the negotiating position for obtaining from other countries the opening of their markets to American products or the defense of American intellectual property rights," writes Miran.

Securing the dollar as the leading currency and US Treasury bonds as a safe investment poses challenges other than trade policy. Miran emphasizes that his considerations should not be understood as a list of economic policy recommendations, as they have either never been tried before or come from the distant past. At their core, they involve the establishment of a new exchange rate system in the world, combined with restrictions on the free movement of capital that are uncharacteristic of the United States and potentially dangerous for the status of its Treasury bonds.

A new agreement on exchange rates had previously been proposed by Zoltan Poszar, one of the most widely read economists on Wall Street; Since then, it has circulated in the financial world under the name "Mar-a-Lago Accord." The name borrows from the "Louvre Accord" and the "Plaza Accord," two rather short-lived agreements on exchange rate targets between the leading Western industrial nations in the 1980s.

Poszar had drawn close links between exchange rate and security policy for a future "Mar-a-Lago Accord." His principles are: A common security zone with the United States is a public good, to be financed by its members through the purchase of US Treasury bonds. A common security zone is an investment, which should therefore be financed by 100-year US Treasury bonds and not just short-term government securities. And third, a common security zone is, so to speak, supported by barbed wire: Members who exchange 100-year bonds for shorter-term securities are penalized with tariffs. It would also be conceivable to increase the cost of selling US Treasury bonds through penalty fees.

For the Americans, the forced purchase of 100-year government bonds by central banks and sovereign wealth funds from security partners would have major advantages: They would not have to worry about refinancing even very large government deficits in the long run. Partners could be "convinced" of such an arrangement by first imposing high tariffs on them, which would then be lifted after they enter into a "Mar-a-Lago Accord."

These are, of course, economist considerations that in no way need to become part of official American policy. Even Miran recommends the utmost caution in the event of its implementation – a trait that seems rather alien to Trump. Wall Street's reactions to the new administration's performances so far already indicate a damaging influence of the uncertainty generated by Trump. Miran admits that the path to a successful combination of economic and security policy is narrow.

Political scientist Brands, on the other hand, is more blunt about what Trump has promised so far. "This program could fail due to its own contradictions," he warns, adding: "Trump will have a difficult time simultaneously increasing military spending, cutting taxes, and reducing the deficit."

Also in "Foreign Affairs," political scientist Michael Kimmage describes the devastating consequences of an overly aggressive tariff policy. "If Trump imposes the extreme 60 percent tariffs he has threatened, he will hit China's export-dependent economy hard," writes Kimmage. "Aggressive protectionism would diminish the collective prosperity that has long held the democratic world together and destroy the cohesion needed to contain a mercantilist China." Brands succinctly summarizes: "The potential benefits of a Trump presidency are considerable. The potential downsides are an abyss."