Donald Trump Really Doesn't Get It

Donald Trump sees America as the selfless benefactor of the world.  In his worldview, America gives, everybody else takes.

The Big Orange Behemoth figures that, if he wins the White House, he'll change all that, balance the books with other countries, especially America's allies. Trump's policy has a name - "America First."

It sounds like a plan - until you turn your mind to some things Trump doesn't factor in. There's America's constantly growing foreign debt. Then there's America's perpetual balance of trade deficit. Then there's America's mortal reliance on the US dollar as the world's reserve currency. Put them all together and you've got a double edged sword that America can only wave around at its own peril.

Every month America buys more than it sells. It imports more than it exports. To do this it borrows money - from foreign lenders.  America can keep this going, year in and year out, because it buys and sells and borrows in greenbacks, the US dollar, which happens to be the world's reserve currency. So long as the rest of the world remains content that the US dollar should be the world's reserve currency, the country that prints those dollars and decides how many of them there should be can live beyond its means by recalibrating those means as and when it likes.

America's role in the world, the one that Trump thinks everyone else should pay for? That's a big part of why the world puts up with the USD as its reserve currency. If America starts bullying the rest of the world, pretending that it's a victim of this arrangement of convenience, it could encourage the discontents to demand a new reserve currency, perhaps one anchored in a basket of leading currencies - the dollar plus the yen plus the yuan plus the euro, all of them averaged out. The Saudis have already floated this idea. So too have the Chinese and the Russians mutter about it from time to time.

A reserve currency not slaved to the US dollar would be calamitous for the US and for world commerce generally but not uniformly. America would be hardest hit but countries with large holdings of American debt would also suffer from a plunge in the value of the greenback against other currencies.

Putting America back on a pay-as-you-go footing would be painful. A world no longer governed by America's monetary policy could be less predictable. But we're already embarked on an unpredictable mid and long-range future. Even the end of the fossil fuel era triggers great unpredictability. There has always been upheaval whenever the world has transitioned from one energy source to another whether it be sail, coal or oil. Climate change will be another, probably even greater than the energy transition. Resource shortages, especially freshwater, and other drivers such as overpopulation - all of these forces factor in to deny us much certainty for the future.

Maybe this is the worst possible time for America to be flirting with a bombast like Donald Trump.