President Trump has been in office for just over one year, having been inaugurated on January 20, 2017. He campaigned on a populist agenda–anti-globalism was a core message. Specifically, his “America First” mantra railed against free trade deals, suggesting they were poorly negotiated, supported immigration restrictions and called on allies to shoulder more of their defense burdens.
In this report, we are going to focus on the trade situation following his first year in office. We will begin with a review of American hegemony and trade, including how trade is affected by saving patterns both in the U.S. and abroad. This analysis will include commentary on the effects of fiscal policy on administration trade policy, showing how they are working at cross purposes. One critically important aspect of administration trade policy is how foreign nations react to the threat of tariffs and sanctions. We will argue that the administration’s goal should be employment and show how foreign companies may be adjusting to Trump’s policies in a way that won’t help narrow the trade deficit but could improve the job market. As always, we will conclude with potential market ramifications.
To provide the reserve currency, the Bretton Woods system fixed exchange rates to the dollar and fixed the dollar to gold at $35 per ounce, creating a dollar/gold reserve system.
At the time of the agreement, the U.S. economy was dominant; it represented over 35% of global GDP. Much of the developed world was devastated from the destruction of WWII. Within a few years after the war, the Soviet Union closed off the communist bloc and those nations generally used countertrade2 or used the ruble. Thus, the
burden of providing the reserve currency was somewhat reduced because the dollar wasn’t used in the communist nations.
In the early years of the Bretton Woods system, the U.S. held 70% of the world’s gold reserves. However, as time passed, the amount of gold dwindled.