TRUMP’S TARIFFS, THE GOLD STANDARD, GLOBALIZATION, AND MONETARY SOCIALISM

Saturday, April 5, 2025

TRUMP’S TARIFFS, THE GOLD STANDARD, GLOBALIZATION, AND MONETARY SOCIALISM

How the U.S. Reached Its Current Point According to the Trump Administration and Its Ideological Circle

The ideological circle surrounding Trump describes how the United States arrived at its current situation based on the following sequence of economic events:

Since World War II, the U.S. spearheaded a process known as globalization. Countries with previously closed markets worked to open and integrate their economies, driven by technological advancements in communication and transportation as well as political decisions aimed at eliminating trade barriers and fostering international partnerships. The motivations behind this opening were as follows: Economically, the Theory of Comparative Advantage suggests that if each nation specializes in producing what it can do most efficiently, the resulting trade will benefit everyone. Politically, especially after World War II and during the Cold War, the United States sought to strengthen anti-communist alliances. Granting access to the U.S. market was deemed critical and, later, integrating former Soviet countries and China into the global economic system was seen as a way to promote their liberalization and democratization. As Thomas Friedman put it: “Countries with McDonald’s never go to war with each other.” “If we’re all so economically dependent on one another, we’ll have to find a way to get along, and that’s the policy we’ve been pursuing.” However, these theories didn’t materialize as expected. China strengthened its economy, yes, but it didn’t democratize; on the contrary, it also bolstered the Chinese Communist Party (CCP) and its military power, often exploiting the system it was integrated into at the expense of the nations that promoted its inclusion. Economically, instead of a balanced exchange of goods, many industries moved out of the United States. Supply chains shifted from the U.S. to countries that implemented policies to attract manufacturing, resulting in significant trade deficits for the United States. This led to the loss of industrial bases and the transfer of national assets abroad, mortgaging future economic prosperity in exchange for cheaper goods. Economists like Paul Krugman argued that trade deficits would self-correct. When this didn’t happen, others suggested it didn’t matter, as the primary goal was to maximize consumption. This perspective overlooked critical aspects like job quality, the trajectory of innovation, and national security. Globalization hasn’t worked as anticipated. It has harmed many communities and workers. It’s essential to reconsider and reverse some of these policies. Thus, the Trump Administration reflects a rejection of the globalization model that dominated for so long and failed to meet expectations.

The prevailing ideology within Trump’s circle asserts that it’s important to recognize that what happened isn’t what economists expected. What happened was that things simply moved out of the United States. Each year, the U.S. buys about a trillion dollars more in goods from the rest of the world than it sells to the rest of the world. How is this paid for? With assets. Let’s see.

Since the U.S. cannot pay for all its imports with exports, the difference is covered with:

• Treasury bonds and government debt → Foreign investors, including governments like China’s, buy U.S. debt, meaning the U.S. will have to pay them back with interest in the future.
• Stocks and corporate ownership → Foreign companies buy stakes in U.S. firms, meaning some of the profits from these companies go abroad instead of staying in the U.S.
• Real estate and physical assets → Foreign investors buy U.S. properties, transferring wealth and control over tangible assets out of the country.

This model is unsustainable because:

• The U.S. is losing control over its economy: More and more American companies and land are in foreign hands.
• It’s mortgaging the future: The debt issued today will have to be repaid by future generations.
• The country becomes more dependent on the outside world: If foreign buyers of U.S. debt or assets decide to sell or stop buying, the dollar could weaken, and the U.S. economy would face serious trouble.

In short, they’re saying the U.S. isn’t simply “printing money” to pay for its imports but is trading away future wealth and real assets to sustain a lifestyle based on excessive consumption and reliance on foreign goods.

In summary, economic laws didn’t work, liberalism failed, economists got it wrong, and globalization, as implemented, didn’t function; it created winners and losers. Trump (backed by what seems to be the vast majority of the electorate) is addressing these disparities to build a more equitable and sustainable economy, with tariffs as his most potent weapon.

What’s Omitted in This Narrative?

The definitive abandonment of the Gold Standard (Nixon, 1971) and the adoption of Monetary Socialism are left out.

MONETARY SOCIALISM

What Would Have Happened if Nixon Hadn’t Severed the Gold Standard in 1971?

If the gold standard system, as established under the Bretton Woods agreements, hadn’t been abandoned, the United States wouldn’t have had the flexibility to finance its trade deficit. Under the gold standard, the amount of dollars in circulation was tied to the country’s gold reserves. This imposed a physical, tangible constraint: you couldn’t “print” more money (or issue more debt) than the gold reserves allowed, because other countries could demand their dollars be converted into gold at a fixed rate (35 dollars per ounce at the time).

How Would This Have Affected the Situation in the Previous Narrative?

• Inability to finance massive trade deficits with unrestricted debt: In a gold standard system, if the U.S. imported more than it exported (like the current trillion-dollar annual deficit), it couldn’t simply issue Treasury bonds or financial assets without limit to cover the gap. Creditor countries (like China today) could have demanded gold in exchange for their surplus dollars. If U.S. gold reserves ran out, the country would have been forced to balance its foreign trade quickly, either by exporting more or importing less. In other words, the trade deficit couldn’t have reached current levels without immediate adjustment.
• Less asset sales: Without the ability to issue massive debt or unlimited dollars, the U.S. couldn’t have “sold its future” so easily through bonds, stocks, or real estate to foreign investors. It would have had to rely more on domestic production and exports to pay for imports, limiting the transfer of control over American companies and land abroad.
• Forced sustainability, but perhaps at a cost: The current model’s unsustainability is criticized. Under the gold standard, that unsustainability wouldn’t have been an option: the system would have collapsed much earlier or forced painful adjustments (like devaluations or recessions) to maintain balance. This would also have meant less excessive consumption and less debt-based economic growth over recent decades. However, growth would have been healthier, more sustainable, not manic-depressive (in the words of Huerta de Soto).
• Impact on the dollar as a reserve currency: Abandoning the gold standard allowed the dollar to become a global fiat currency, accepted without physical backing because countries trust the U.S. economy and its ability to issue debt. If Nixon hadn’t made that decision, the dollar wouldn’t have the same hegemony, and the U.S. couldn’t finance its current lifestyle so easily. Gold might have remained the global standard.

What Wouldn’t Have Happened?

The scenario where the U.S. finances a massive trade deficit by selling debt, stocks, and physical assets wouldn’t have been possible on this scale under the gold standard. The country would have had to live closer to its real means, which likely would have resulted in:

• Less consumption of imported goods.
• An economy more focused on domestic production and exports.
• Less reliance on foreign investment to sustain the deficit.

U.S. economic growth might have been slower, and the country might not have enjoyed the same credit-based prosperity it has had since the 1970s. But trade tensions (like Trump’s “tariff orgy”) wouldn’t have arisen, or would have done so on a smaller scale and much earlier, as a response to the need to protect the trade balance.

Monetary Socialism and Globalization

The Trump narrative argues that globalization, driven by the theory of comparative advantage and political motivations (like integrating China and ex-Soviet countries), didn’t deliver on its promises. Instead of benefiting everyone, it led to deindustrialization, massive trade deficits, job losses, and wealth transfer abroad in the U.S. It’s criticized for harming workers and communities, proposing protectionist policies like tariffs, industrial subsidies, and trade rebalancing to prioritize manufacturing and local welfare over global consumption.

This is a flawed approach to opposing globalization. Blaming globalization is shortsighted because the problem isn’t trade itself. Without the abandonment of the gold standard and the adoption of monetary socialism, the economy would have grown more slowly but in a “healthier” way.

Limited Globalization Under the Gold Standard

With the gold standard, the U.S. couldn’t have sustained trade deficits as large as the current trillion dollars annually. The need to balance the trade account would have restricted the ability to import massive amounts of cheap goods from countries like China. This would have slowed globalization as we know it: fewer global supply chains, less factory outsourcing, and more balanced trade. In this sense, the loss of industry and jobs due to globalization wouldn’t have occurred on this scale because the monetary system wouldn’t have allowed it.

Slower but “Healthy” Growth

The economy would have grown more slowly but more evenly. Without the flexibility of a fiat dollar, the U.S. couldn’t have financed excessive consumption or accumulated debt to import goods. This would have forced an economy more focused on domestic production and exports, preserving more manufacturing jobs. We could say it would be “healthier” because it would depend less on debt and asset transfers abroad, something seen as “mortgaging the future.” However, it would also mean less access to cheap goods and a more modest standard of living for U.S. consumers.

If the gold standard had persisted, many of the ills attributed to globalization—deindustrialization, trade deficits, loss of control over assets—wouldn’t have materialized as intensely. Globalization wouldn’t have reached its current level, and the U.S. wouldn’t have “lost” as much to competitors like China. This weakens the critique, because the scenario Trump deplores depends on the abandonment of the gold standard and the subsequent hegemony of the fiat dollar, which allowed the U.S. to consume beyond its means and companies to outsource without restraint.

Protectionism as a Flawed Solution

Measures like tariffs, subsidies, and trade rebalancing aim to reverse globalization’s effects, but under the gold standard, they wouldn’t have been necessary because the system would have self-imposed trade discipline. In today’s world, however, these policies could raise goods’ prices and provoke trade retaliation.

Gold Standard and Globalization

Under the gold standard, there’s no reason the U.S. wouldn’t have seen technological innovation (driven by global competition), access to affordable goods, and the expansion of sectors like services and technology, which have been engines of prosperity. The Trump narrative focuses on the losers (manufacturing workers) without acknowledging that aggregate growth has raised the general standard of living. The period from 1870 to 1914, known as the “first globalization,” occurred under an international gold standard. However, globalization likely wouldn’t have reached the scale or form of today’s globalization. In contrast, the fiat system allows the U.S. to finance deficits by issuing debt without immediate physical limits, amplifying global trade and modern supply chains. With the gold standard, globalization would have less reliance on massive imports and outsourcing because trade imbalances would correct faster. China couldn’t have accumulated trillions in dollar reserves under the gold standard without draining U.S. gold, limiting its rise as the world’s factory. The gold standard imposed discipline: countries couldn’t devalue their currencies for competitiveness or expand the money supply without backing.

The Practical Impossibility of Monetary Planning

A central bank, like the Fed, operates in a fiat system where it decides the money supply (issuing or withdrawing money) and interest rates to influence the economy. But determining the “correct” rate is impossible for several reasons:

• The economy is a complex system with millions of actors (individuals, companies, governments) making decisions based on local knowledge and expectations.
• The Fed can’t know all these variables in real time: how much people want to save, invest, or spend, or how they’ll react to a specific rate. Hayek called this the “knowledge problem”: information is dispersed, constantly changing, inarticulable, and can’t be centralized in an authority like the Fed.
• Monetary policies have delays and unpredictable effects: they take months or years to fully impact (lag effect). For example, raising rates in 2022 to curb post-pandemic inflation didn’t have immediate effects, and the Fed had to adjust on the fly, sometimes exacerbating volatility.
• It has distorted incentives: The Fed and central banks respond to political pressures.

Economic Laws Didn’t Fail; Politics Did

The predictions of Economic Theory came true: global growth, specialization, creative destruction. That monetary socialism is impossible was also confirmed: socialist countries that survived (China, Vietnam) did so by adopting markets. The failure lies in the political management of capitalist countries that adopted monetary socialism. That statism/socialism has led the U.S. to face a public debt exceeding 35 trillion dollars (April 2025, per current trends) and an annual trade deficit of about a trillion. And now what?

Conclusion

If the gold standard had persisted, globalization would have existed, but the U.S. wouldn’t face the current level of deficit, deindustrialization, or dependence on China, because the system would have forced adjustments earlier. Trump’s “tariff orgy” perhaps seeks to artificially replicate that discipline, but with the gold standard, it wouldn’t have been necessary: the market would have regulated it. Globalization and the gold standard aren’t incompatible; they coexisted historically and could today. It wouldn’t be like modern globalization, with its persistent deficits, global supply chains, and reliance on fiat debt, but we wouldn’t be in the unsustainable situation of a global debt exceeding 300 trillion dollars, three times the world’s GDP.

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Bonus Track

“There is no way to avoid the final collapse of every boom unleashed by credit expansion. The only choice is between triggering the crisis sooner by voluntarily ending the credit expansion or letting the disaster and total ruin of the monetary system occur a bit later on their own” (Ludwig von Mises).

With a global debt exceeding 300 trillion dollars, tripling the world’s GDP, a litmus test is posed for Mises’ maxim. Let’s see.

We’re facing a structural credit expansion. In the modern fiat system, money is debt. When a central bank (like the Fed) or commercial banks create money, they do so through loans:

• Central banks: Issue money by buying assets (e.g., Treasury bonds) and recording it as a liability on their balance sheet. Every new dollar is system debt.
• Commercial banks: Multiply the money supply by lending under the fractional reserve system, recurrently refinanced by the central bank.

This is, in essence, a perpetual credit expansion. Since Nixon abandoned the gold standard in 1971, this dynamic was unleashed without a physical anchor (gold), allowing debt to grow exponentially. The 300 trillion in “public” global debt (per 2025 estimates from the Institute of International Finance) reflects this process: governments, companies, and households have accumulated liabilities far exceeding real production (global GDP ~100 trillion).

Mises’ quote—“There is no way to avoid the final collapse of every boom unleashed by credit expansion…”—stems from his critique of fiat money and expansive monetary policies. His reasoning is:

• Artificial credit expansion: When money (debt) is injected without backing in real goods, it creates a temporary economic boom: more consumption, investment, and growth.
• Inevitable distortions: This boom distorts prices and market signals, leading to malinvestments (bubbles) that don’t reflect real productive capacity.
• Inevitable collapse: Eventually, the debt must adjust to economic reality. This can happen in two ways:  
  • Voluntary abandonment: Stop the expansion (raise interest rates, reduce issuance), triggering a controlled but immediate crisis.
  • Delayed catastrophe: Keep expanding until the system collapses from unsustainability (hyperinflation, massive defaults).

Mises saw fiat money as a doomed experiment because, without a natural limit (like gold), the temptation to issue more debt is irresistible but unsustainable long-term. The past five decades have been a debt-driven boom. Since the 1970s, global debt grew from ~50% of GDP to over 300% today, thanks to low rates, QE, and stimulus (2008, 2020). This matches Mises’ “unleashed boom.” Housing bubbles (2008), stocks, and sovereign debt are visible distortions, showing investments inflated by easy credit, not real productivity. Adjustment attempts: When the Fed raises rates (2022-2023) to curb inflation, it triggers mini-crises (regional banks collapse, markets tremble), suggesting that “voluntary abandonment” leads to recessions, as Mises predicted. A debt three times the global GDP means each dollar of production supports three of debt. If economic growth (2-3% annually) can’t pay rising interest (with higher rates), the system seems on the brink. The dollar’s reserve status delays the “total disaster.” Countries like China hoard U.S. debt (Treasury bonds), but if they lose faith and sell, Mises’ predicted collapse could accelerate. Inflation as a signal: Post-2020 inflation (9% in the U.S., higher elsewhere) shows the limits of issuing unbacked money. If it spirals (hyperinflation), it would be the “total ruin” Mises foresaw.

Why Hasn’t It Collapsed Yet?

• System inertia: The dollar’s hegemony and global interconnection act as buffers. No one wants a total collapse because everyone would lose (U.S., China, EU).
• Innovation and productivity: Though debt triples GDP, technological growth (AI, energy) has boosted real production, delaying the adjustment.
• Political manipulation: Central banks and governments keep “kicking the can” with more debt or bailouts, avoiding “voluntary abandonment” and postponing the catastrophe. This seems unsustainable.

Mises’ maxim rests on pure economic logic, and the 300 trillion in global debt is a ticking time bomb validating his warning.

• Option 1 (crisis soon): If the Fed or other central banks halt expansion (sustained high rates, end of QE), we’ll see defaults (governments, companies) and severe recessions in the coming years. This started in 2023-2024 with bankruptcies and fiscal strains.
• Option 2 (delayed ruin): If they keep issuing to refinance debt, the collapse will be bigger: hyperinflation, loss of faith in fiat currencies, or a global reset (digital currencies?). This could take decades but is inevitable if debt outpaces GDP.

Evidence suggests Mises is right: there’s no escape from adjustment. The question is whether governments choose pain now or delay it for a bigger disaster. The real situation (inflation, record debt) indicates we’re on the path he predicted.

Trump and His “Tariff Orgy” in This Context

Trump’s policies (tariffs, protectionism, factory relocation) can be seen as an attempt to address the symptoms of monetary expansion and globalization as we know it, but they don’t tackle the root monetary problem.

Trump wants to reduce the trade deficit (a trillion annually) so fewer dollars flow abroad and less debt is needed to finance it. This could be interpreted as a partial “voluntary abandonment” of reliance on external credit, aligning with Mises’ option of triggering an early crisis. However, it doesn’t address domestic debt (35 trillion in the U.S.) or Fed money issuance. Tariffs don’t generate enough tax revenue to pay that debt; on the contrary, if they raise prices (inflation), refinancing costs could rise. Bringing factories back to the U.S. aims to boost real production, which could theoretically narrow the debt-to-GDP gap. But the process is slow (beyond one term), and the boom is so advanced that tariffs are just a patch. In 2018-2019, tariffs on China reduced the bilateral deficit, but the U.S. total deficit barely budged because consumption still relied on imports (now from Vietnam, Mexico). Monetary expansion didn’t stop. If tariffs spark retaliation and slow global trade, economic growth (which sustains debt) could collapse sooner, forcing Mises’ predicted adjustment. This would be the “crisis sooner,” but uncontrolled: inflation, recession, and defaults, not an orderly fix. Alternatively, if it fails and the deficit persists, it only delays the “delayed disaster,” leaving debt intact. Trump’s approach is nationalist (strengthening the U.S. vs. China), not a critique of the fiat system. Without curbing money issuance or debt, his strategy doesn’t avert collapse; at best, it shifts who suffers most when it comes (U.S. vs. rivals).

Globalization, as we’ve known it since the 1970s, is a product and amplifier of credit expansion. It allowed the U.S. to consume beyond its production, financing deficits with debt that countries like China hoard (Treasury bonds). This is the credit boom in action: more money/debt circulating globally, inflating the money supply to 300 trillion. Without the fiat dollar and globalization, this level of imbalance wouldn’t have been possible under the gold standard, as we saw earlier. The deindustrialization Trump criticizes is an effect of cheap credit: companies outsource because the fiat system allows it, not because economic laws failed. China benefited, but its domestic debt (40% of the global total) also ballooned, showing everyone’s trapped in the same boom. Mises predicted it: artificial credit expansion distorts real production, creating bubbles (manufacturing in China, services in the U.S.) that will collapse when adjustment comes. Global interdependence makes Mises’ “delayed disaster” more catastrophic. If a key country (U.S., China) defaults or hits hyperinflation, supply chains and financial markets collapse in a domino effect. Example: If China mass-sells Treasury bonds, the dollar falls, but its economy suffers too (fewer exports). No one escapes. There’s no quick reversal: Trump wants to undo globalization, but 50 years of integration don’t unwind in one term. The debt already exists, and the system depends on it. Stopping it abruptly (tariffs, protectionism) could hasten Mises’ crisis, but it doesn’t avoid it. Trump’s strategy might be a clumsy attempt to force “voluntary abandonment” by reducing external dependence, but it doesn’t strike the root (money issuance). If it succeeds partially, it delays collapse; if it fails or overreaches, it accelerates it. In either case, the maxim holds: the credit boom isn’t sustainable. Globalization is the vehicle of the boom Mises critiques. It maximized growth but also debt and distortions. Its scale ensures the collapse, when it comes, will be global and devastating, fulfilling the “total ruin” if action isn’t taken sooner.

Vision of the Future

The 300 trillion in global debt embodies the credit boom Mises warned of. Trump and globalization are symptoms and responses within this fiat system, but neither solves the underlying issue. Trump can move pieces (tariffs, deficit, manufacturing), but he doesn’t defuse the debt time bomb. His tariffs are like treating cancer with painkillers: they ease local pain, but the disease persists. Globalization has stretched the boom to its limit, but also the rope that will snap. Ludwig von Mises’ predicted collapse seems inevitable, and globalization ensures it’ll be a global domino effect. What a lovely picture. The maxim will hold: either central banks halt expansion (crisis soon, perhaps with Trump as an unwitting catalyst) or we head to “total ruin” (hyperinflation, global defaults). Evidence (recent inflation, rising rates, record debt) suggests we’re near the limit, but political inertia and faith in the dollar prolong it.

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Txus Alonso (Kaialde)
April 5, 2025

Translated by IA

Original article here:

https://la-accion-humana.blogspot.com/2025/04/los-aranceles-de-trump-el-patron-oro-la.html