Trump’s Inadvertent War on the Dollar Reserve System

And the Greatest Reason Ever to Own Gold & Silver

On Monday, President-elect Donald Trump announced on Truth Social that he would impose a 25% tariff on the United States’ three largest trading partners – Mexico, Canada, and China. This is a part of his “America first” agenda as well as an incentive to reduce the influx of migrants and drugs across the border. Currently, 83% of Mexico’s exports, 75% of Canada’s exports, and 16% of China’s exports flow into the U.S. Together, these three countries represent 44% of U.S. imports. Trump has previously said he would also add a blanket tariff of 10-20% on all imports regardless of origin country.

The main goal of the President-elect’s tariff ambitions is to stultify global trade so as to return a large portion of the $3.83 trillion import market back to American manufacturers and to make America more self-sufficient and less dependent on our potential adversaries. He also hopes to use tariffs as leverage in negotiations regarding a number of issues, including migration, crime, drugs, mutual defense compacts, etc.

While many of those goals may be reasonable, there’s another aspect of America’s global trade deficit that isn’t addressed by the former President – the global U.S. Dollar reserve standard. Currently, half of global trade, three-fourths of Asia-Pacific trade, and 90% of foreign exchange transactions are denominated in U.S. dollars according to the Bank for International Settlements. 58% of foreign reserve holdings worldwide are dollars (U.S. Treasury bonds). The next most-used currency, the Euro, is only 20% of foreign reserve holdings. Foreign countries hold about 30% of publicly-held U.S. Treasury bonds, or about $8.7 trillion. China holds $772 billion of that. Canada $370 billion. Mexico about $96 billion. This isn’t by accident. In order for the U.S. to meet the global demand for dollars for global trade, we must run a large current account deficit, i.e. importing far more than we export. This keeps the global markets liquid while giving us the “exorbitant privilege” (according to French finance minister Valéry Giscard d’Estaing) of being able to run sustained fiscal deficits and issue global debt denominated in the currency we ourselves print.

When Trump institutes his declared tariff policies, he will inadvertently trigger the Triffin Dilemma. Named after economist Robert Triffin, the Triffin Dilemma describes a fundamental conflict of interest that arises when a national currency (in this case, the U.S. Dollar) serves as the world's primary reserve currency. Triffin argued that in the process of the U.S. meeting the global demand for dollars (as foreign governments and institutions hold U.S. dollars in their reserves), running persistent current account deficits (and therefore running up a huge national debt), combined with undermining the national productive capacity due to cheap imports, can undermine confidence in the Dollar’s value. The U.S. faces a conflict between the domestic need to maintain economic stability (which might require reducing deficits and bolstering domestic manufacturing) and the global need for the U.S. to keep supplying dollars for international trade and finance.

Jacking up tariffs on U.S. trade partners will necessarily reduce the amount of trade, reduce the current account deficit, and dry up the flow of dollars around the world. The immediate effect of this will be to send the value of the Dollar soaring as foreigners struggle to find dollars to buy dollar-denominated goods and to pay dollar-denominated debts. This will actually help Americans to afford to finance the tariffs since the dollar value of imports will drop dramatically. But it will also throw the global economy into a tailspin and make it almost impossible for foreigners to buy American exports, including U.S. Treasury bonds.

The knock-on effects of this could be seriously negative for the Dollar and the American economy. Firstly, with a third of Treasury buyers out of the market, the Federal Reserve will have to finance the U.S. government’s deficits, which will drive inflation soaring. Foreign countries will also sell all of their Treasury holdings, which the Fed will also have to monetize. This will rapidly depreciate the Dollar’s purchasing power. Furthermore, confidence in the Dollar as the global reserve currency will plummet. Countries around the world will seek alternative trade relationships, including bilateral agreements between trading partners and the potential for a different reserve currency, such as the BRICS currency which has been in development (which includes a precious metals settlement facility) or precious metals directly. On top of that, many or most dollar-denominated debts will be defaulted upon, destabilizing the global financial system. And the gravy train of entitlements, welfare, military hardware, and other U.S. government spending will need to end, since without a foreign sink for those printed dollars, we’ll see hyperinflation that can only be solved by balancing the federal budget and defaulting on virtually all debt.

Between a severely weakened U.S. economy and military capability, and the retaliatory imperative of former trading partners, conflicts will explode around the world. There will be a reorientation of power to those countries who can establish stable trade relationships, such as the BRICS nations, and they will try to consolidate that power through conquest and hegemony. Americans may enjoy a burgeoning new domestic manufacturing sector, however their purchasing power abroad and ability to project influence abroad will have cratered, much like Britain’s in the 20^th century. Our military might will dwindle to a defensive posture only.

When this series of events plays out, the 50+ year experiment of floating fiat currencies will have ended in failure. Future money will have to be tied to actual stores of value, whether precious metals, other commodities, real estate, equities, etc. I expect we may see currencies which act like ETFs, with an underlying basket of valuable holdings. I would anticipate the most desired reserve commodity for stable currencies will be gold, followed by silver, platinum, and other metals. Serving its monetary function, precious metals will catapult to historical levels of purchasing power, far exceeding current exchange rates. Anyone hoping to survive and thrive through this tumultuous time should acquire precious metals without delay.

I would highly recommend putting assets into an *allocated* precious metals account which is regularly audited to ensure that all of the metal is there 100% backing your deposits and not subject to any creditor claims whatsoever. Here are two that I recommend:

• BullionVault - https://PassantGardant.com/BullionVault

• OwnX - https://PassantGardant.com/OwnX

Either of these companies will be able to store your wealth in gold, silver, or platinum in any number of fully insured vaults around the world. BullionVault has vaults in New York, London, Toronto, Zurich, and Singapore. OwnX has vaults in Delaware and Texas. Both will allow you to transfer money to and from any bank account and trade metals online. Not only will keeping your wealth in precious metals protect against bank runs and money market runs, but it'll also protect you against inflation and hyperinflation.

What about holding physical gold and silver directly? Yes, absolutely, that's a good idea up to a certain amount. Having too much in your own possession can be risky because of theft, but having enough on hand to barter for food, fuel, etc., for up to a month or two would be a great idea, especially if there's a bank holiday and you can't access cash. You can also document your precious metals holdings to your home insurance in case of theft or fire to be at least partly protected. My recommended dealer for physical precious metals is:

• MoneyMetals - https://PassantGardant.com/MoneyMetals

The other important way to prepare yourself for the coming currency crisis, global trade crisis, and hyperinflation is with capital assets — like solar panels, a garden, your own water well, etc. And purchase ahead of time any replacement parts only available from China or elsewhere around the world.