Afrasianet - Ibrahim Alloush - The fall in the price of the dollar, oil, is the desired effect of the policy of raising tariffs, not a sign of collapses in the US economy.
On the sidelines of President Trump's tariff hikes, a storm is rocking the corners of economics faculties at Western universities. Supporters of the neoclassical school of economics, which strongly rejects government intervention in the economy, including foreign trade, almost thought that they had tightened their grips on the trends of economic thought globally, until they were surprised by Trump's crude interventions, from their point of view, in international trade, and with them new voices that torpedoed their theories, and with it the "monopoly of experience" that they imposed on the world with the force of their complex mathematical models.
The father of the classical school of economics, Adam Smith, was the author of The Five Books Making Up The Wealth of Nations (1776), a response to the mercantile thought that governed the central states in the 18th century when they were still in the process of building their institutions and armies. This was illustrated, in particular, in the fourth book of The Wealth of Nations, in which Smith waged a fierce campaign against:
(a) Imposing customs duties to protect the local industry.
(b) Nations seek to accumulate precious metals such as gold and silver, through export rather than import.
The fourth book on "The Wealth of Nations" was also one in which the expression "invisible hand" appeared to refer to the role of the free market in maximizing the wealth of nations on their own, without any government interference in the economy.
Since Smith and another classical economist, David Ricardo, the 1817 developer of comparative advantage, economics is based on Smith's "axiom" that the economies of nations grow most when free trade is unleashed and when nations stop trying to become self-sufficient and catch up, instead turning to trade and specialization only in those goods and services that they can produce more efficiently than others, in absolute relative or relative terms.
It is the core idea that has been vigorously revived in the era of globalization in the context of the rise of transnational corporations across the planet and the shaking off the effects of government intervention in the economy.
The lesson is that what Trump has collided with is nothing less than a "sacred theology" in international trade science since Adam Smith. Trump's tariff war is clashing not only with the forces of globalization in the spheres of business, politics, courts and the media, but also with a very rich heritage of classical and neoclassical theories, rooted in centuries back in Western academia, theories that have also imposed themselves as a reference for international economic institutions, led by the International Monetary Fund (IMF). What a disappointment those who joined the "liberalization of the economy from government interference" late!
Trump is fighting a tariff war on that second front, theoretical and intellectual, with two spearheads, represented by two men, one more famous than the other in the media, and his name is Peter Navarro, and his official description is currently "the president's first adviser on trade and manufacturing."
The second-in-command, less well-known and influential man in economic policymaking, is Stephen Meeran, who is currently officially described as "Chairman of the Council of Economic Advisers," a council that reports directly to the Office of the President of the United States since it was founded in 1946.
Both men hold a Ph.D. in economics from Harvard University, an elite university (Ivy League Schools). Navarro, older than a younger person, has more than 12 books, the first of which was published as a doctoral student in 1984, including titles such as "China's Next Wars" (2006) and "Death by China" (2011). He is an anti-Chinese extremist.
Peter Navarro has been a university professor in California for more than two decades and has run repeatedly for local elections there, unsuccessfully.
In Trump's first election campaign in 2016, Navarro became his economic adviser, advocating protectionist and isolationist policies. He was attracted to the post by Trump's son-in-law, Jared Kushner, according to media reports.
Stephen Meeran, the youngest from Navarro, has little information on the Internet, except that he received his Ph.D. from Harvard University in 2010 and is a senior strategist at a hedge fund called Hudson Bay Capital, which manages only $31 billion in capital, a U.S. fund with global headquarters, including Dubai.
This fund is led by two well-known Zionists, Sander Gerber, who is credited with "crediting" the launch of the campaign to stop the salaries of the families of martyrs, in 2017, by the Palestinian Authority, and Yoav Roth, and you find his name directly under the name of his partner Gerber at the head of a petition promoted by the two, and asked the directors of major investment funds to sign it, calling for the fight against "anti-Semitism", support for the Zionist entity and its "right" to defend itself against Hamas, against all people (so literally!) and countries and organizations that threaten the "State of Israel". and the "Jewish people."
Stephen Meeran, the first strategic planner for these two at their company and now chairman of the Council of Economic Advisers in Trump's office, is associated with a prestigious conservative hawk think tank, also called the Manhattan Institute, as an adjunct fellow, as the limited information available about his biography indicates.
William Casey, former head of the CIA under Ronald Reagan, and British businessman Anthony Fisher founded the Manhattan Institute in 1978. Born in 1915, Fischer killed his father in Gaza in World War I when he was two years old. Fisher is an economically neoliberal extremist and was one of the world's largest founders of think tanks and associations.
Importantly, Stephen Meeran, a financial investment man usually in the shadows, published a 41-page paper in November 2024, on the eve of Donald Trump's election as president, in which he crystallized the theoretical underpinnings of what would become Trump's policy of actually tariff war.
Although Stephen Meeran served as an adviser to the Treasury secretary between 2020 and 2021, in Trump's last first term, he insisted in his paper, published on Hudson Bay Capital's website as its "former" senior strategist, that it represented only his personal views, not President Trump, his team, or the company.
Meeran's paper is a response to all of Adam Smith's legacy of international trade theory, from the far right and from the home of one of the most important institutions of international financial capital, through the website of an investment fund that manages tens of billions of dollars in assets and represents the embodiment of organic unity with global Jewish networks on both sides of the position on globalization.
Therefore, everything related to that paper is a very striking paradox. It would not have been so if the free-trade principles had been attacked by the radical left or advocates of independent development in the Global South.
Because Stephen Meyeran's paper is theoretically coherent, its author is well versed in neoclassical economics, and because its recommendations are currently being implemented, especially after its author became the head of the Office of Economic Advisers in Trump's office, it came as a real shock to economics schools at Western universities.
The media circulated the attack of billionaire Elon Musk, one of Trump's senior advisers currently, on Peter Navarro, whom Musk described as a "fool", according to Axios on 5/4/2025, after the capital value of Tesla fell by $ 18 billion, until that date, after the waves of tariffs that Trump began to impose, knowing that Musk owns more than the price of the shares of that company.
But Navarro is at the forefront of media defense of Trump's tariffs, addressing the public and contributing to policymaking. As for Miran in his paper, he addresses specialists, and does not hide his launch, in his paper, from calculations that are not limited to economic theory, but go beyond it to national security, that is, to politics, which returns economic thought to the political economy box, away from the economic dimension "pure". This is a kind of "blasphemy" in the tradition of the neoclassical school of economics.
The transition from the classical school to the neoclassical school of economics began nearly a century later than Adam Smith, by economist Alfred Marshall. One sign of this shift was the emphasis on supply and demand in determining value, rather than the old classical vision that focused on the supply element by making human labor the basis of value, and from which Karl Marx derived the theory of "surplus value".
Neoclassicism also made economics a mathematical science, changing its name to "economics" only, instead of the term "political economy" adopted by Adam Smith and classical economists.
This is not a cosmetic change as it might seem at first glance, but is based on the ideological dictum of neoclassical thought: if economics is a very different affair from politics, and if the state or public bodies cannot interfere in it, then that field of study is supposed to be a purely economic, not a "political" economy. When any non-economic factor is considered from the point of view of its impact on the economy, it is assumed that it is done with "neutral" mathematical and statistical tools of economic analysis.
For example, international trade students at universities study the negative impact of tariffs and non-tariff barriers to international trade on social welfare, whose drawbacks have been highlighted by international trade theories.
In the third or fourth academic years, students of international trade are supposed to learn in detail, using graphs, the negative effects of tariff and non-tariff barriers in international trade on the rising prices and quality of goods and services, on their role in reducing production, and thus employment and employment, in the target sector, and in the deterioration of the consumer welfare of the commodity or service targeted by those barriers.
But even using the tools of neoclassical analysis of the impact of tariffs on the economy, we can show the following:
(a) The situation in which the domestic consumer pays all customs duties imposed on imports is a situation limited to small economies. The larger the importing economy, the larger the foreign producer pays a greater proportion of import tariffs. What about the US market, which is the largest import market in the world, worth $ 3.3 trillion in 2024?
(b) The proportion paid by the foreign producer from the customs duties imposed on imports to the large market increases exponentially the less elastic the supply of imports, that is, the steeper the import supply curve, and the more the curve of US demand for those imports is more flexible, i.e. flatter.
This means that Iraqi oil exported to the American market, for example, may pay a larger percentage of US tariffs compared to what the American consumer pays because there are many alternatives to buying it in the United States, and because the alternatives to selling it, outside the large American market, to the Iraqi producer are relatively less.
This also means that a large country that imposes tariffs on its imports can reap from the foreign product a large rentier return that exceeds the price increase paid by the domestic consumer, so that the impact on the general welfare of tariffs is positive for the United States, even if it is harmful to international trade as a whole, and to the rest of the world. Therefore, what Trump is doing can be justified even by neoclassical analysis tools.
In any case, the theories of absolute advantage and comparative advantage, on which the idea of free trade is based, suffer from a fundamental loophole in the fact that they are based on the classical theory of "labor is the origin of value", a theory that does not take into account other production costs, such as raw materials, capital, etc.
When this gap has been overcome in models such as the Heccher-Olen theory, another methodological gap rears its head is the failure to take into account the demand factor and its impact on the market price.
From the perspective of the Global South, comparative advantage theory, which some peer-reviewed research attributes to Adam Smith, not David Ricardo, implies an international division of labor whereby advanced economies specialize in goods and services that produce the most value-added products, such as technology, while developing economies specialize in the production of raw materials or goods and services based on cheap labor.
But Stephen Meeran does not start from any of the above, but argues that the chronic US trade deficit is the result of the dollar increasing the value of the dollar globally by about 25% than it would have been if the dollar (and US Treasury bills) were not an asset required for itself, such as a competitor to gold.
It is obvious that the appreciation of a country's currency makes its goods and services abroad, such as tourism, more expensive, which reduces the demand for them. The appreciation of the dollar also makes imports less expensive for Americans. The obvious consequence of a country's high export price and lower import price is a chronic trade deficit.
This deficit, in Meran's view, stems from the "burden" that the United States bore, on behalf of the world, when the US dollar became the world's currency, without losing sight of the benefits of such a "burden" in giving the US the ability to consume more than it produces, and to punish countries that are politically out of its will.
What is needed, then, is to make the rest of the world, partners, allies and competitors alike, pay a fee for the "sacrifice" they make in exchange for bearing the burden of protecting the world's security militarily, and in exchange for using the US dollar for their monetary reserves or for international trade and investment.
This requires these countries to pay tariffs on their exports to the U.S. market, without daring to respond in kind to U.S. exports, Meeran said. It also requires you to voluntarily buy long-term US government bonds (for 50 or 100 years) instead of short-term US Treasury bills, which means that the US government borrows from those countries indefinitely effectively. It also requires them to accept agreements with the United States under which they "voluntarily" agree to buy their local currency in U.S. dollars whenever their price drops against the U.S. dollar, so as not to accumulate trade surpluses with the United States.
This is the meaning of the "trade deals" that Trump is demanding with the countries of the world. Those who do not accept all this "voluntarily" must endure the wrath of the United States, which is represented by the imposition of progressive tariffs on their exports to the US market that increase compoundly by 2% per month, in addition to the familiar sanctions regime.
Let it be clear that Trump and Meran do not want the US dollar to stop being the "currency of the world", but rather want its value to fall by about 20% initially, so that the US trade balance improves. They want the global price of oil to fall to absorb part of the inflationary impact of tariffs, hence seeking to remove legal barriers related to the environment for energy companies under the slogan Drill, baby drill!
The idea is that the fall in the price of the dollar, and oil, is the desired effect of tariff hikes, not a sign of a collapse in the US economy.
Another desired effect, of course, is to force foreign companies to move their factories to the United States, in exchange for reducing their profit taxes to a global minimum if they do.