The core challenge of the American economy lies in the fiat currency system and inflationary pressures.

Written by: Ghaffar Hussain

Translated by: Daisy, Mars Finance

Why Trump's Tariffs Can't Fix the Broken Fiat System

Trump's tariff policy is unlikely to revitalize the American economy as he hopes, but perhaps Bitcoin can play a role where tariffs fall short.

Trump successfully campaigned on an "America First" platform, promising to reshape the global trade landscape in favor of the United States. This includes encouraging companies to produce domestically, bringing jobs, industries, and prosperity back to areas that have declined due to free trade and outsourcing. Supporters argue that the U.S. has increasingly relied on cheap imported goods produced in countries with lower labor and transportation costs, leading to the emergence of "rust belt" areas, declining living standards for blue-collar workers, and increasingly hollowed-out cities.

The strategy for achieving this economic restructuring seems to be trade tariffs. By imposing tariffs on imported goods (especially from China), Trump hopes to raise the cost for consumers to purchase foreign products and for companies to outsource production. He claims this will revitalize the industrial heartland of America, making the country more self-sufficient during crises while reducing the trade deficit and lessening the impact of currency manipulation (which Trump accuses China of) and consumer dependency.

Another key point of Trump's tariff policy is its impact on the dollar. By imposing import tariffs, Trump hopes to weaken the dollar—because global demand for the dollar will subsequently decrease. This move aims to make American products more competitive in the global market, thereby boosting exports. Trump expects this to bring long-term stability and prosperity to the American economy, rewarding his strong blue-collar voter base.

However, tariffs not only have serious economic flaws that cast doubt on their effectiveness, but they also fail to address the root of the problem. Tariffs are essentially taxes on imported goods, which may benefit some domestic producers in the short term by raising foreign product prices, but they also increase the import costs for American consumers and businesses. These rising costs, coupled with potential retaliatory tariffs from trade partners, will harm American consumers—price increases on a range of goods from electronics to clothing will hinder economic growth.

In fact, China has announced a 34% retaliatory tariff and is even considering no longer protecting American intellectual property, which could deal a devastating blow to American businesses. The EU, as well as India, Turkey, and others, are also preparing countermeasures that will harm American exports. Although the U.S. has a vast domestic market coveted globally, American businesses are also highly dependent on global consumer markets. Given the multitude of factors involved, tariffs could trigger unpredictable consequences and are far from a quick fix for America's economic woes.

Moreover, after decades of outsourcing, it is impossible to suddenly revitalize domestic industry overnight. High-quality manufacturing requires significant investment in machinery, skilled workers, and infrastructure, all of which have sharply declined in the U.S., while countries like China continue to advance. This vast gap cannot be closed in just a few years. The increasing prevalence of automation and artificial intelligence also means that domestic manufacturing is unlikely to bring back jobs and economic prosperity to America's depressed regions, as these technological advancements reduce reliance on manual labor.

Even if the rust belt suddenly saw a surge in blue-collar jobs, they would not produce the effects that Trump's supporters expect. The average annual salary for American blue-collar workers is about $53,000, with a post-tax monthly income of around $3,300. The average monthly rent is about $1,750, average health insurance is about $700, average food expenditure is about $350, and average utility bills are about $600. In other words, such an income barely allows a worker to live alone, let alone support a family or partner.

The real challenge facing the American economy can be traced back to a deeper issue: the decoupling of the dollar from the gold standard in 1971. Prior to this, the dollar was tied to gold, meaning the government could only issue currency based on reserves. This system imposed natural limits on the money supply and controlled inflation. When President Nixon ended the convertibility of the dollar to gold, the U.S. government was able to print money freely without any backing, leading to the rise of fiat currency.

Fiat currency is not backed by any physical commodity and is essentially just a government-issued IOU. While this system provides flexibility in the short term, it leads to inflation in the long term. As more money is printed for government spending and to pay off national debt, the purchasing power of each dollar declines. In reality, this means that everyday goods and services become more expensive, while wages rarely keep pace with rising prices, making it harder for people to maintain their standard of living. This is why an average blue-collar worker in the 1980s could easily buy a house, own a car, and support a family, while today they cannot. As the saying goes, quantitative changes can lead to qualitative changes.

What the U.S. truly needs is an alternative to fiat currency and a form of money whose value is determined by market forces rather than government policy. Such a currency could hedge against the inflationary pressures exacerbated by decades of fiat currency policy. It could also create conditions for fairer trade and stabilize the global economy by providing an alternative store of value that is not affected by central banks, the traditional banking system, or currency fluctuations. Fortunately, Bitcoin is precisely such a currency.

Trump's trade tariffs are unlikely to achieve the goal of revitalizing the rust belt or addressing the deep systemic issues of the American economy. Because they do not touch upon the core issue that has led to declining living standards, namely the fiat currency and the inflationary pressures brought about by continuous money printing. Addressing these challenges may require a fundamental shift in monetary policy, and Bitcoin, with its decentralized nature and limited supply, now offers a viable alternative.

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