Republican presidential candidate Donald Trump has unveiled a plan to impose massive tariffs of up to 100% on countries that try to trade outside the dollar-based financial system, in an effort to protect the dollar’s status as the world’s reserve currency.
These statements came during a rally in Wisconsin, where he said, “We will keep the US dollar as the world’s reserve currency, and it is currently under great siege.”
In a report published by Bloomberg, Trump’s use of tariffs as a political tool during his first term was highlighted, and the report indicated that he plans to expand their use if he wins the next elections.
At the same time, Trump has downplayed the effectiveness of economic sanctions, despite using them extensively in his first term, saying sanctions should be used with extreme caution while calling tariffs “fantastic.”
During his rally, Trump said the tariffs could also be used to feed a new sovereign wealth fund and offset losses from proposed tax cuts, though economists have questioned the benefits, warning that trade barriers could slow economic growth and raise prices, hurting consumers.
Impact of tariffs
Trump has indicated he will raise tariffs on imports to 60%, after focusing his first term on restructuring trade with China. But there are signs that Trump may use tariffs as a tool to address problems beyond trade, according to Bloomberg.
In 2019, he threatened to impose a 5% tariff on Mexican imports in order to stop the flow of illegal immigrants across the border, a threat that ended with the two countries reaching an agreement on immigration.
Although sanctions have been a major part of U.S. economic policy, the Bloomberg report explained that sanctions have become less effective in limiting the influence of targeted countries, especially as some countries, such as the BRICS, increasingly try to avoid the dollar in their trade transactions.
Criticisms and warnings
Some economists and experts have expressed reservations about Trump’s plan. According to Eswar Prasad, a senior fellow at the Brookings Institution, “Using tariffs in this way could have the opposite effect, encouraging countries to reduce their dependence on the dollar and thus reduce their exposure to the volatility of U.S. policies.”
Ulrich Lochtmann, a strategist at Commerzbank AG, also warned that the move could cause major disruption to the global economic system.
Although sanctions and tariffs were widely controversial in Trump’s first term, they have continued as a common tool in American policy. Current President Joe Biden has kept many of these policies, and added some, and Kamala Harris has not announced any intention to change them if elected.
The report noted that the use of financial sanctions has increased dramatically since the beginning of this century, prompting US adversaries and even some of its allies to question whether heavy reliance on the dollar makes them vulnerable to US political goals.
According to US Treasury Secretary Janet Yellen, the great power of sanctions is due to the important role the dollar plays in the global financial system.
