Only one country in the world issues a currency that is held and recognized in every country in the world. The U.S. dollar has been de facto the world currency since the Bretton Woods accords of 1944.

Having your money accepted for payment in other countries means the U.S. does not have to earn foreign currency abroad or borrow in other currencies.

Other countries try to earn U.S. dollars by selling more than they buy from the rest of the world. When not earning U.S. dollars, countries have to borrow dollars.

Borrowed U.S. dollars have to be repaid in newly earned dollars. Such U.S. dollar-denominated debt is a real constraint on governments the world over.

The “exorbitant privilege” of being the world reserve currency means the U.S. has no such constraints. It can spend to the limit of its capacity to carry domestic debt.

The U.S. has long been reluctant to modify its domestic priorities because it is the issuer of the world currency. In 1971, John Connally, treasury secretary under U.S. President Nixon, famously remarked, “The dollar is our currency, and your problem,” after the U.S. defaulted on its pledge to redeem U.S. dollars held by foreign governments for gold.

The U.S. provides outflows of real investment capital as a foreign investor abroad.

Freedom of movement of capital was not a part of the original Bretton Woods accords, but the U.S. had it added in the mid-1970s to give U.S. corporations leverage as they established branch plant operations or acquired competitors abroad.

With the advent of Donald Trump, international trade has taken centre stage in U.S. politics. Trumponomics suggests that the rest of the world has been cheating the U.S. out of jobs and wealth.

The evidence for this claim is the negative balance of trade between the U.S. and Mexico, or China, or any other country in the same position.

Focusing on goods and services trade masks the positive impact of an outflow of U.S. dollars in providing the world economy with liquidity.

If the U.S. were to start running a trade surplus with the world and repatriating dollars on a large scale, banks around the world would have to cut back on U.S. dollar lending for trade and investment.

A serious effort to impose a U.S. surplus on current payments would slow the world economy, shrink markets and work against U.S. interests in expanding its foreign exports. Nonetheless, Team Trump intends to do just that.

Proposals such as levelling a five per cent tax on all imports are being kicked around in Washington.

Trump has threatened to penalize U.S. companies that have set up abroad in order to import back into the U.S. The U.S. branch plants operating in Canada are potential targets of his wrath.

Trumponomics finds trade agreements such as NAFTA or the proposed Trans-Pacific Partnership guilty of stealing from the U.S. Trump will kill the TPP and has declared he will renegotiate NAFTA to make it more favourable to the U.S. or dump it altogether.

Trumponomics has unsettled Team Trudeau. The Calgary cabinet retreat Jan. 23-24 is focused on how to limit the damage a rampaging Trump can do to Canada-U.S. trade.

The Canadian Ambassador to the U.S. is floating the idea that Canada could cut itself loose from its NAFTA partner Mexico, and make a deal with the U.S. alone. Justin Trudeau is operating under the illusion that Canada’s “friendship” with the U.S. will allow us to avoid American protectionist pressures.

Canada may be the largest customer for U.S. exports. That will not stop Trump from trying to improve the trade balance by shifting Canadian production of say, autos, to the U.S.

The whole world is going to have a problem with Trumponomics. The best way to deal with it is together through the World Trade Organization (WTO).

In 2005 former Canadian foreign minister Lloyd Axworthy suggested Canada withdraw from NAFTA and rely on the WTO.

Every country in the world wants to combat American protectionism. If Canada wants to be “back” on the world stage, it should be looking for allies and figuring how best to make world trade and finance work for all countries, not just for the U.S.  

Duncan Cameron is former president of and writes a weekly column on politics and current affairs.

PMO Photo by Adam Scotti

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