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Happy new Year Everyone!!! 2025 will be a new start and also a challenging time. Today I will discuss 2025 Donald Economic, USD and China.

Donald Trump faces a complex economic conundrum as he seeks to balance two key objectives: boosting U.S. exports to create jobs and reduce the trade deficit, while maintaining the dominance of the U.S. dollar in global transactions. These goals, however, are inherently contradictory, as achieving one often undermines the other.

Trump's Economic Dilemma

A Weaker Dollar for Trade Goals Trump has long advocated for policies that would lower the dollar's value to make American exports more competitive and shrink the trade deficit. However, the very measures he champions—such as imposing tariffs and cutting taxes—could paradoxically strengthen the dollar instead.

Tariffs and Uncertainty Global uncertainty, often exacerbated by U.S.-led policies, typically drives foreign capital into the U.S., raising the dollar’s value. If tariffs generate widespread concern in key regions like China or the EU, any initial reduction in imports may be offset by a surge in dollar value, negating gains in trade balance.Tax Cuts and Capital Inflows Large tax cuts, particularly for corporations and the wealthy, attract foreign investment. This inflow further boosts the dollar, increasing the gap between U.S. savings and investment—one of the root causes of the trade deficit.

The "Exorbitant Privilege" of the Dollar The global reliance on the U.S. dollar, while a strategic advantage, creates challenges for Trump's trade goals. The dollar’s hegemony ensures its value rises during crises, worsening the trade deficit and undermining job growth during periods of reduced demand.

While addressing this "exorbitant privilege" might help reduce the trade deficit, Trump is unlikely to pursue such a path, as it risks undermining U.S. global dominance and alienating financial elites who benefit from the current system.

If Donald Trump were genuinely committed to reducing the American trade deficit, he would need to address the "exorbitant privilege" of the U.S. dollar. However, it is unlikely he would take such a step. His close ties with financiers and elites, who benefit from the dollar's dominant status, make it improbable that he would risk becoming the first post-World War II president to diminish the United States' economic hegemony.

Some argue that Trump's strategy may involve using the threat of substantial tariffs against global players like China and the European Union to negotiate a devaluation of their currencies, such as the yuan and the euro.

The Shadow of the Plaza Accord

Some analysts speculate that Trump might attempt a modern equivalent of the 1985 Plaza Accord, where the U.S. pressured allies like Japan to appreciate their currencies. Such an approach would involve threatening tariffs to coerce countries like China and the EU into currency devaluation agreements. In that agreement, Japan was pressured into significantly appreciating the yen under the threat of heavy tariffs. While Japan complied, leading to a sharp slowdown in its economic growth, China is unlikely to follow a similar path.

In 1985, the dollar's strength was severely impacting American exporters, particularly in the auto industry. U.S. Treasury Secretary Jim Baker signaled a willingness to negotiate measures to weaken the dollar. These efforts culminated in the Plaza Accord, a coordinated agreement among the Group of Five economies. The initiative proved highly effective, with the dollar losing more than half its value against the yen and the deutschmark by the end of 1987.

However, China is not Japan. Unlike Japan, which was under heavy U.S. control post-WWII, China is an independent power with little incentive to comply. Beijing is unlikely to accept a unjust deal that mirrors the Plaza Accord, especially given its strategic priorities and economic positioning.

The Role of China and BRICS

This leaves Trump facing a fundamental contradiction: his dual goals of shrinking the trade deficit and preserving the dollar’s global dominance are mutually exclusive. Achieving both simultaneously in 2025 seems highly improbable.

Looking ahead, the real question revolves around China's strategy. Will Beijing bide its time, allowing U.S. internal contradictions to play out, or will it move decisively toward creating an alternative economic system? Such a shift could involve transforming the BRICS bloc into a new Bretton Woods-like framework, with the yuan at its core and fixed exchange rates among BRICS currencies. This would enable China to recycle its trade surpluses within the bloc, posing a significant challenge to the dollar's dominance.

China’s response will be pivotal. One possibility is that Beijing might capitalize on U.S. contradictions, allowing time to weaken America’s global economic grip. Alternatively, China may pursue a transformative shift by establishing the BRICS area as an economic bloc centered around the yuan, creating a rival system to the dollar-dominated Bretton Woods framework.

Such a move could include fixed exchange rates among BRICS currencies and recycling China’s surpluses within the bloc—a direct challenge to the dollar’s dominance. Whether China decides to make this leap remains uncertain, but its potential implications could reshape global economic dynamics.

Conclusion

As 2025 unfolds, Trump’s ability to reconcile his conflicting objectives remains doubtful. While he may seek to shrink the U.S. trade deficit, the enduring dominance of the dollar and resistance from global powers like China will likely thwart his efforts. The real question lies with Beijing: will China wait for U.S. contradictions to deepen, or will it lead a reimagined global economic order through BRICS? The coming years will provide answers, with profound consequences for the international financial system.

While this scenario has yet to materialize, its potential implications for the global economy are profound. The years following 2025 may reveal whether China takes this bold step or continues to navigate a path of strategic patience.

Stay tuned, and until then, take care. Happy New Year.

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