Trump’s Ignorance by Hugo Salinas Price for Plata
The president elect of the US, Mr. Trump, does not know what he is doing when he proposes protectionist measures to encourage the reindustrialization of the US and bring home again, the American industry that emigrated to foreign lands.
The US lost their industry as a result of the Bretton Woods Agreements, which were signed (under pressure) by representatives of the allied countries and of the countries conquered by the US in World War II. Those Agreements established the world’s monetary system for the post-war world, after the victory of the Allies, which was already in sight in 1944.
The monetary system was to be based on gold, which would be the world’s reserve currency, supplemented by the American dollar, which was to be considered “as good as gold”. So the world’s monetary system was founded upon a lie: that a promise can be as good as the physical thing it promises.
This lie has accumulated a negative “karma” for the US since the moment it was pronounced, and the financial disaster which will overtake the world in the not distant future is its consequence.
In 1960, the economist Robert Triffin detected the central problem residing in the Bretton Woods Agreements. I detected the same problem without having any knowledge of “Triffin’s Paradox”, as it has come to be known. Many years ago, sitting in my office smoking my cigar and contemplating the world’s financial situation, I came to the same conclusion as Triffin.
In a few words, it turns out that in order for the international monetary system established at BrettonWoods to function, the US is forced to run a permanent trade deficit with the rest of the world. Year after year, the US must purchase more from the rest of the world, than what the US sells to the rest of the world, thus creating a permanent flow of dollars to the rest of the world. This flow makes possible the creation of Monetary Reserves in the Central Banks of the rest of the world.
Without this constant flow of dollars from the US to the International Reserves of the Central Banks of the world, the currencies issued by those Central Banks would cease to exist. If Banco de México, the Mexican Central Bank, does not have dollars in its Reserves, then Mexicans do not have money: without dollar Reserves, the Mexican peso would not be worth peanuts – at least, in international terms.
In order to obtain dollars, it is necessary to sell to American customers some product at a lower price than that demanded by an American producer. It is self-evident that there is no other form of introducing an export into US territory, than by means of underselling an American competitor.
This is the reason why a large part of what was once the great American manufacturing industry has disappeared: the overwhelming need of the rest of the world to export to the US, in order to obtain dollars, caused the deindustrialization of the US.
It is quite unjust to blame the rest of the world for having caused the deindustrialization of the US, and to point an accusing finger at Mexico, for instance, as an enemy of the US because it has been a successful exporter of manufactures to the US. Mexico has simply been operating according to the rules established by the US itself in the Bretton Woods Agreements: the dollar is the world’s currency, and at all costs, it is imperative to have dollars in order for Mexico to have a monetary system.