President Donald Trump's condemnation of tariffs as the sole raison d'être for US manufacturing woes without addressing deeper imbalances of currency manipulation and monetary privilege and unleashing of a retaliatory “tariff tsunami” is a misreading of the moment.
For decades, the United States has enjoyed a silent monetary advantage being the de facto global currency hegemon. As custodian of the world's reserve currency together with its ability to inflate and overvalue the dollar at will, the United States has had disproportionate influence in shaping the rules of trade while insulating itself from the vulnerabilities others must bear.
Not only has it tilted global trade in its favour distorting competitiveness and suppressing equitable exchange but it has also used the dollar to develop economic, political and even military muscle which it has not shied away from using.
Free and fair trade with the US is a myth in the face of its unparalleled currency advantage. True free trade assumes a level playing field where currencies reflect economic fundamentals and trade flows respond to comparative advantage, not self-incentivising monetary structures. Today none of the Western currencies including the dollar reflects the strength of their respective economies. Yet the US and the West are able enforce their currency dominance over others.
In this light, tariffs may not be unfair trade barriers, but rather attempts at restoring balance by others to offset this unfair currency advantage that the US enjoys. A mechanism of equity rather than protectionism.
The imposition of tariffs by these nations is not a declaration of hostility but a defensive correction. A response to decades of monetary asymmetry and a desperate effort to level the playing field of global trade.
Through historical serendipity born out of the post-war monetary mechanism created at Bretton Woods, the US emerged as the custodian of the world's reserve currency in the US dollar. As a global custodian it was incumbent upon the US to use this monetary privilege in a fair and just manner for the benefit of all without parochial self-interest. But did it?
The Nixon shock, Plaza accord, weaponizing the dollar, printing at will, sanctions, creating debt to subsidise inefficiency, running persistent trade deficits yet maintaining its purchasing power do not assure us that they did. It has in fact often used its privilege to use the dollar less as a medium of exchange and more as an instrument of economic pressure. Often a silent weapon wielded without declaration.
Much of the Western world too has benefited from its umbilical association with the US gaining a currency advantage over others. Remember this advantage was on top of the colonial advantage these countries had for at least two centuries before that. Nowhere is the burden of this currency imbalance felt more acutely than in emerging economies.
These nations, reliant on exports and foreign capital, find themselves trapped in a game where rules are dictated by currency values beyond their control. Their industries struggle to compete, their intellectual power is bought out cheap, their natural resources are exploited and their monetary policies are constrained by the need to maintain currency stability. Tariffs, in this context, become a tool of survival, not protectionism.
But being in a comfort zone and having the privilege of buying cheap from whoever and wherever you desire can be a twin-edged sword. It corrodes your own ability to manufacture and sell to the world. This really is the problem the West and the US faces. To then blame tariffs or China or India for its manufacturing woes would be missing the wood for the trees.
A misplaced persecution complex that the world has been unfair to the US and that retaliatory tariffs are justified may be short sighted and not yield the desired result to kick-start domestic industry inside the United States. Because tariffs after all are mere tactical and even temporary trade related tools. It is the currency and exchange rate that are more fundamental in impacting a country’s ability to manufacture and sell globally.
The US may even succeed through its geopolitical muscle to arm-twist everyone to fall in line on tariffs but it would take some political guts to tweak its own currency downward to get manufacturing back on its feet again. The latter will mean facing the risk of inflation and rising prices of essentials in the short run. Will the average American accustomed to cheap holidays in Asia, cheap gas, inexpensive maple syrup and eggs have the patience to bear the consequence? And will American corporations who enjoy the dollar advantage welcome a devalued dollar?
But one thing is certain. The time for rebalancing exchange rate discrepancies and by incidence asymmetries of global trade is on us. This rebalancing will require a sober reassessment of both tariff policy and currency frameworks. Focusing on the former and brushing the latter under the carpet will not do. And it will call for mature accountability from the US and its currency allies in the West. Exchange rates will have to reflect realistic relative strength of countries that promote genuine competitiveness.
This rebalancing will in fact benefit the US and West in the long run. But the process may be a bitter pill to swallow. What could be the options? Go back to the gold standard? May not be practical. Accounting for 8000 tonnes of gold that the US is rumoured to hold barely translates to a trillion USD at the current gold price of 3000 USD per ounce. Not enough to justify the status of a global reserve currency. Or Crypto perhaps? But then regulation and blockchain will necessitate a democratic and equitable monetary structure. Will the US be ready to give up its currency sceptre and crown easily?
Tariffs after all are not the disease but a symptom of a deeper malaise. If the world is to move toward a fairer, more inclusive trade system, it must first confront the hidden hierarchies embedded in its monetary architecture. The primary responsibility for this lies with the incumbent currency hegemon, the US. Condemning just tariffs would be misreading the entire moment.
(The author is a corporate & policy strategist. He posts @vikramlimsay on “X”)
