As this site has noted, the April 2 Trump Tariffs, even as they were suspended for 90 days on April 9, effectively have ended those norms and expectations that underpin a Liberal World Order. A massive stock market rally April 9 took back part of the slide, but the slide resumed the next day, and in any case it is the markets’ instability that matters most. Unstable markets signal unclear prospects. Whatever actual ups and downs may occur, whatever political ups and downs may follow, whether or not the US suffers a recession in coming months, or inflation, or neither or both, we are in a new world.
One incipient danger for America is coming into focus. Greg Ip, among others, notes that a broad stock market slide is normally accompanied by a rise in US Treasury bond prices, as investors seek safer investments. With the “tariff slide,” this didn’t happen. The US Treasury bond, goes the concern, may no longer be viewed as a safe haven.
US government debt should not, by the numbers, be an investor’s safe haven. It is not really “risk free,” as bond pricing conventions used to call Treasury bond yields. Debt levels are way too high for a borrower with huge and long-running budget deficits, for starters. But for years, first, there has been no other safe haven investment, and, second, the US government could, in theory, either raise taxes or inflate away the debt slowly. The latter provision presumed normal monetary, fiscal, and economic policy management by American leadership. As the image of a steady hand and the patina of stability ebbs, US government securities will be assessed more and more on cut and dried analytics: federal cash flows, aggregate debt, bond maturities, and other performance measures.
If those assessments do not look good, investors in US Treasury notes will likely lose money as well as their appetites. The US dollar will lose value in the short and long term. Furthermore, unsteady economic management – and unfriendliness to imports – makes the dollar all the less valuable, and T-notes that much less attractive, again.
We can all too easily contemplate a loss of the dollar’s status as global reserve currency, and of the benefits that come from that status. Its loss would mean, first, market rates on T notes will be much higher, making deficits and debt levels much harder to manage, let alone reduce. Economic impacts could be enormous, with unforeseeable social consequences. Our capacity to level effective sanctions will be reduced, beyond the point where we can impose meaningful punishment on anyone, at least without broad alliances with other economic powers. Our own economy will be that much more subject to others’ economic policies. China, for instance, might find it easier to dump their Treasury holdings, driving up our interest rates and damping our economy, among other things. Islamic nations may have more power to restrict oil flows to enforce their own policy preferences. The list goes on.
In short, much of our well being, and much of our power, whether used for economic, political, or moral interests, for ourselves as well as others, is now in doubt going forward.
Note – for anyone who considers tariff and economic policy a reason to oppose Donald Trump, recall that these tariffs pose a policy question, entirely separate from concerns about due process, retributive law enforcement, or constitutional malfeasance. There can be honest, intellectually fair, reasons for widely divergent trade and tariff policies, regardless of how competent any administration might be in executing on any of them. But lumping tariff policy with matters of principled governance reduces the latter, from ethical principle to tool to support my politics. If I put them on a par, I politicize both equally, and belie any claims to oppose Trump as a “dictator” or the like.
That said, if the tariff policy – and other policies that would exacerbate its effects – is as consequential as feared, what can be done about those consequences?
First, if political opposition can be mounted cogently, in its own lane uncluttered by inflammatory politics, there may be votes in Congress to restrain deeply damaging policy moves, or instill other approaches.
As to the replacement of the norms that have carried an economic “order,” there is no reconstructing that old order, as this site noted last week. Rather, once America has a basis for coherent economic discourse, we must look to the future. That means, today, we need people to look past today’s politicians in their partisan slogan slinging, and at least start sorting through the diverse interests and needs on the table. How much should we sacrifice to reduce federal debt levels? On what basis do we see value (or not) in international trade? How hard should we try to keep the dollar as global currency? How important are economic sanctions for our foreign policy needs? What measures can we take to build our own export engines?
Answers to such questions will only come in open policy discourse, likely through multiple administrations and policy ventures, tested against our markets and industries. But any coherent discourse, to enable people to pursue their enterprises, espouse fair assessments of policy measures, and permit real discussion about the nation’s economic choices, can only occur in a climate of basic national comity.
This comity will only arise as Americans see our founding creed, of unalienable rights equally endowed in all, and government that exists to secure them, as something we truly share, above and beyond current political allegiances. It may be the economy, stupid, but we the people have to choose its shape.
Common Conviction 