Use Trump’s ego to clear a path for global financial rebalancing

US President Donald Trump is an enigma. He has correctly identified the two most unsustainable elements of the global economic order, but his attempts to bring about their creative destruction threaten disaster. Has he perhaps revealed a paradoxical truth that such destruction is the only practical way to go?

It was never going to be possible for the United States to remain the “consumer of last resort” indefinitely, thereby allowing other economies to pursue unsustainable export-led growth. It was also never going to be possible for the US to finance its level of consumption indefinitely by accumulating debt.

The two matters are intimately connected. The ability of the US government to take on debt – now at a record US$36.2 trillion, according to US Treasury data – depended upon trust among creditors or bondholders, and Trump himself has largely destroyed that with his punitive tariffs.

But it also depended upon the continuance of record low interest rates globally, a situation which has now ended. This means a potentially crippling debt service burden for the US government, whose interest payments account for 16 per cent of total federal spending and are rising.

Whether consciously or not, Trump has uncovered these inconvenient truths which few, if any, in Washington were prepared to countenance, at least publicly. However, he has approached the issue with all the delicacy and finesse of the proverbial bull in a china shop, raising the question of whether he is an anarchist or the ultimate realist.

The Biden administration that predated Trump’s second term could not have been unaware that the US debt situation was unsustainable in a changing, tightening international financial environment, and that it would soon create a crisis of debt service and impact America’s ability to import both goods and capital.

  

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