Trump lowers taxes... bad news for the world

Donald Trump already has his brand new tax law. A declaration of social war, domestically, and global war on his partners and enemies, externally. He combines massive tax cuts for the richest 1% with draconian spending cuts on social programs: healthcare and food aid. And he mocks the world, demanding that it spend more money on weapons and raise taxes or cut essential portions of its welfare states to finance them, while he dedicates himself to building paradise on earth for the wealthiest in his country.

One of the most difficult paradoxes to grasp about the functioning of US economic hegemony is its ability to constantly transform its ever-increasing public deficits into incentives for economic growth. For the rest of us, running an uncontrolled public deficit for more than half a century would have meant ruin.

The exact opposite is true for the United States. Its power shines the more money it owes the world. Think of Ronald Reagan and his victory over the Soviet Union, or the Bush brothers, father and son. It's also true of Barack Obama, Trump's first term, and Joe Biden's. Bill Clinton was the exception that proves the rule. From Richard Nixon's presidency (1969-1974) to Trump's current one, the best slogan summarizing US monetary policy is "America first."

Many analysts have been predicting the collapse of Washington's hegemony for decades because these deficits and the resulting debt they generate, besides being indisputable proof of its weakness, would be unsustainable. The French essayist Emmanuel Todd was the sharpest proponent of this idea, at the very beginning of the 21st century, when the U.S. still had nearly two decades of glorious supremacy ahead of it.

The new tax law engineered by Trump and his insatiable plutocratic colleagues will once again skyrocket the US deficit and public debt. With it, it will remain the king of growing global demand and consumption on a planet where it is decreasing everywhere, from Europe to Latin America to China itself. It's the imperial tax: you keep my dollars, it costs me nothing to print them, and you have to accept them at a much higher value, and thanks to them I live beyond my means, true; but I grant you the privilege of access to my market, the largest and richest in the world.

A new cycle of instability is accelerating, which will soon lead to another financial crisis.

It's true that the way Trump has articulated his economic policy—combining economic expansion through deficits and a trade war with his main suppliers—is generating seemingly contradictory reactions. Higher debt costs and a decline in the dollar, with losses on the stock market.

Perhaps the taxation of the wealthy he is preparing to implement would have been greeted with relative calm, as has been the case with the previous budget plans of his predecessors in the White House, if he hadn't threatened this trade war. It's contradictory to design an economic expansion program that contemplates a huge deficit and therefore the massive sale of dollars to the world if those potential buyers aren't allowed access to the US market for that currency. They keep the dollars because they sell their products and buy securities, companies, and buildings from Americans.

Despite everything, nothing indicates that investors are doubting the solvency of the Federal Reserve's printing press, even if it is operating at full capacity. According to the latest data, US Treasury bonds held by foreigners have grown by 12% annually. The world continues to trust the greenback despite the Trump-inspired turbulence. And this is because, despite the fact that at times it seems that the US economy no longer produces goods but only banknotes, the dollar's power derives from other levers of power. Such as military hegemony and sales of its derivative industries to the world; control of energy supplies (always oil; now, thanks to the war in Ukraine, gas); Wall Street, the heart of global finance, the investment arteries that reach every corner of the planet through its banks and giant capital funds; and technology firms, which reap dizzying profits across the globe. The dollar sums it up in a concentrated way: the exorbitant privilege defined in the 1960s by Valéry Giscard d'Estaing, France's finance minister.

What will be the consequences for the rest of the world, for Spain, of Trump's tax law? First, as is already being debated, is the increase in military spending to offset the trade deficit. Cutting-edge technology and military industry sales are the two main pillars of the US.

In the US, lower taxes on the rich; in Europe, more to finance weapons or less social spending.

Despite all the pretense, Europe is following the path set by Trump, who, even before taking office, told NATO partners that they would have to spend 5% on defense (see La Vanguardia, January 12). This objective has already been officially adopted on this side of the Atlantic. This will reduce spending in other areas, as it is not merely a budget adjustment. Trump is exporting social war. His policy will raise voices on the Old Continent in favor of applying Trump's tax prescriptions here as well, radical tax cuts, which will further aggravate the problem of financing public accounts.

Also, more financial instability, possibly inflation and interest rate hikes... and ultimately, after an accelerated incubation period, a new financial crisis, that gift that American deficits always leave behind in each of their expansionary cycles.