In his first term as president of the United States, Donald Trump launched a trade war against China. In his second term, he has expanded that trade war to many countries around the world.
In a ceremony outside the White House on April 2, which the US president dubbed “Liberation Day”, Trump announced sweeping new tariffs on dozens of countries, including high taxes on imports from top US trading partners: 54% on China, 46% on Vietnam, 25% on South Korea, 24% on Japan, and 20% on the European Union.
Trump falsely claimed that these tariffs were “reciprocal”, but they were actually unilateral. The White House calculated its duty rate on each nation not based on the tariffs it charges on US goods, but rather according to the trade deficit that the United States has with that nation.
It is not surprising necessarily that Trump has expanded US tariffs. During his presidential campaign in 2024, he told supporters at a rally, “The word tariff is the most beautiful word in the dictionary, more beautiful than love, more beautiful than respect”.
However, what was surprising about the tariffs that Trump announced on April 2 was how massive and broad they were. They will have an enormous impact not only on the US, but on the global economy, and could potentially even cause a recession.
All countries on Earth will face a minimum tariff of 10%. Additional duties will be levied depending on how big a country’s trade surplus is with the US.
The completely contradictory and inaccurate way in which the Trump administration tried to justify this trade war on much of the planet was a reflection of the half-baked and ill-conceived strategy that the White House has proposed to supposedly revive manufacturing in the United States, reduce the chronic trade deficit, and create a new international financial order.
In reality, Trump’s tariff tactics are likely to backfire significantly, fueling high rates of inflation and failing to reindustrialize the US, while incentivizing countries around the world to accelerate their search for alternatives to the United States and the dollar system.
The Trump White House doesn’t understand its own tariff formula
To begin, it must be emphasized that the Trump administration’s claim that US tariffs are “reciprocal” is patently untrue.
The financial journalist James Surowiecki emphasized that the White House “didn’t actually calculate tariff rates + non-tariff barriers, as they say they did. Instead, for every country, they just took our trade deficit with that country and divided it by the country’s exports to us”. He called the methodology “extraordinary nonsense”.
In response, White House Deputy Press Secretary Kush Desai criticized Surowiecki and wrote, “No we literally calculated tariff and non tariff barriers”. (This is false, and it earned a community note correcting it on Twitter.)
Desai linked to an official statement that was published on the website of the Office of the US Trade Representative (USTR), explaining how the tariff rates were determined. This note argued that “individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible”, and instead posited that “their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero”.
The USTR then published the formula that it used to determine the tariff rate. Although it employed Greek letters that made the mathematics look complicated, it was in fact very simple: (exports – imports) / imports x 0.5.
When the formula was applied, the tariff rate that the White House announced on all countries could be easily determined and plotted in a straight line:
In other words, the White House spokesperson was wrong and the journalist Surowiecki was correct: the Trump administration’s tariff rates were not based on the tariffs that other countries charge the US, but rather on the trade balance that the US has with other countries.
That is to say, by definition, they are not “reciprocal”; they are unilateral, and aggressive.
What this scandal also showed is that White House spokesmen don’t understand the simple formula that was used to determine Trump’s tariff rate.
Even more absurdly, the statement published by the US Trade Representative cited an academic article that it clearly didn’t read, because it detailed how international trade has been good for US consumers by significantly reducing the costs of goods.
In January, when Trump threatened 25% tariffs on the United States’ neighbors and top two trading partners, Mexico and Canada, the Wall Street Journal editorial board dubbed it “the dumbest trade war in history”. Trump has now expanded that dumbest of trade wars to most of the world.
54% tariffs on China, 46% tariffs on Vietnam, high duties on other top US trading partners
Following “Liberation Day”, top exporters to the US will face very high tariffs.
Trump hit China with tariffs of 54% (34% plus the 20% that was already applied). China is the number one exporter to the US, selling it $438.9 billion in goods in 2024. Top Chinese exports include phones, computers, electric batteries, machine parts, toys, and textiles.
The US president likewise targeted Vietnam with a staggering 46% tariff. Vietnam is the sixth-biggest exporter to the US, selling it $136.6 billion in goods in 2024. Top Vietnamese exports include computers, phones, furniture, semiconductors, machine parts, microphones, and textiles.
Most of the electronics imported into the US come from Asian economies that have been seriously impacted by Trump.
40.7% of US imports of computers are from the Chinese mainland, along with 27.5% from Mexico (which faces potential tariffs of 25%). Another 15% come from Taiwan (which was hit with a US tariff of 32%). An additional 9.42% are from Vietnam.
Sources of US imports of computers
South Korea, the number seven exporter to the US, will endure a 25% tariff.
Japan, the fourth-biggest exporter to the US, will take on a 24% tariff.
Germany is the number five exporter to the US, and will face a tariff of 20%, which is the rate that Trump chose for the European Union as a whole.
51.8% of US imports of electric batteries come from mainland China, plus 16.6% from South Korea, 6.5% from Japan, 5.39% from Mexico, 5.17% from Germany, and 2.72% from Vietnam.
Sources of US imports of electric batteries
28.3% of the phones imported into the US come from the Chinese mainland, along with 23.1% from Mexico, 9.35% from Taiwan, and 7.54% from Vietnam. An additional 7.03% come from Malaysia (which was hit with a US tariff rate of 24%), and 5.25% from Thailand (which faces tariffs of 36%).
Sources of US imports of phones
Because the tariff rate charged by the Trump administration is based on the trade balance a country has with the US, small nations that export a bit to the US but import little to nothing were hit with enormous tariffs.
The Trump White House absurdly claimed that Cambodia and Laos have trade barriers of 97% and 95%, respectively, so they will face “reciprocal” tariffs of 49% and 48%. The US likewise accused Madagascar of having trade barriers of 93%, so it will endure 47% tariffs.
Most ludicrous of all were the Trump White House’s claims that the tiny African nation of Lesotho (with a population of just over 2 million) and the French territory of Saint Pierre and Miquelon (with a population of less than 6,000) have trade barriers of 99%, so they got hit with a 50% “reciprocal” tariff.
Inflation is coming back in the US
Trump has often falsely claimed that foreign countries will pay for these tariffs, but this is not true. It is US importers that have to eat the cost of tariffs, and they often pass these price increases onto consumers, which causes inflation. (Sometimes a foreign country’s currency will slightly fall against the US dollar in response to tariffs, which can compensate a little for the higher price, but not entirely, and especially when tariffs are as high as 40-50%, any small changes in the exchange rate will not make up for this huge price shock.)
Even before Trump announced the sweeping new tariffs on “Liberation Day”, consumer price inflation was rising in the United States.
The University of Michigan does a survey every month studying inflation expectations in the US.
These surveys show that US businesses were already expecting higher rates of inflation before Trump’s “Liberation Day”. When businesses expect inflation, they hike prices, driving inflation.
The University of Michigan survey has likewise shown a major increase in inflation expectations among US consumers. This has led people to go out and buy products now, before they expect prices to rise, further contributing to inflation. (Charts by Joseph Politano.)
Prices are expected to markedly increase not only for consumer goods like cell phones, TVs, and computers, but also food. As CNBC reported, “Food and consumer business CEOs say tariffs on a wide range of countries will pressure thin margins in an economy where inflation is already elevated”.
Coffee is a clear example. The National Coffee Association points out that, “Since coffee cannot grow in most of the United States—only Hawaii and Puerto Rico—more than 99% of America’s coffee must be imported”. It notes that the US imports 32% of its coffee from Brazil, 20% from Colombia, 8% from Vietnam, and 7% from Honduras.
According to the National Coffee Association, more than 70% of American adults drink coffee at least once per week. So Trump has increased the price of a staple enjoyed by the majority of Americans.
The situation is even starker with fruits and vegetables. The United States imports around 60% of the fresh fruit and 40% of the fresh vegetables sold in the country, according to the US Department of Agriculture (USDA).
Trump’s tariffs will therefore significantly increase the price of produce in the US, especially considering that there are many fruits and vegetables — like, say, bananas, avocados, or mangoes — that cannot be produced in most states in the country.
The fact that Trump’s tariffs are likely going to lead to high levels of consumer price inflation in the US is deeply ironic, because the main reason that Trump won the 2024 presidential election was due to the high rates of inflation suffered in 2022 and 2023, following the Covid-19 pandemic.
Around the world, most incumbent parties lost elections due to this inflation, which was global, and was largely caused by supply chain shocks and the fall in the production of goods during the pandemic lockdowns.
Polls show that the poor state of the economy was the most important issue in the 2024 US election, and many voters associated Democratic President Joe Biden and Vice President Kamala Harris with the inflation. Trump exploited the widespread dissatisfaction with the economy, and he promised to bring down prices. His tariffs will now do the opposite.
Potential goals of Trump’s tariffs
Given the obvious negative side effects, there has been a heated debate as to what exactly Donald Trump’s goals are with these sky-high tariffs.
There are four main theories about why Trump is imposing these tariffs. These potential explanations are not exclusive, and can overlap:
- He wants to reduce the US current account deficit (the country’s trade deficit with the rest of the world).
- He wants to reindustrialize the United States.
- He wants to pressure other countries to agree to a “Mar-a-Lago Accord”, which would help the US reshape the international financial system (that the US itself created) to even better serve its interests.
- He wants to use tariffs to replace government revenue lost due to large tax cuts on the rich and corporations.
Reduce the US current account deficit?
Using tariffs to try to reduce the US current account deficit does not make sense, given the role of the dollar as the global reserve currency (which will be addressed in a following section), as well as the inevitable retaliation by US trading partners.
If Trump thinks he can use tariffs to bring the US trade deficit with each country to zero, he clearly has underestimated the ability of other countries to respond with tariffs of their own.
If the US wants to reduce its trade deficit with other countries, by definition it has to export more to them. But other nations have announced that they will respond to Trump’s unilateral, aggressive tariffs with actual reciprocal taxes on US goods.
This means that Trump’s tariffs will cause US exports to those countries to fall, even as their exports to the US fall.
China and the European Union immediately made it clear that they would respond to Trump’s unilateral tariffs with their own reciprocal measures.
Moreover, consumers in countries targeted by Trump’s tariff threats, from Canada to France, have vowed to boycott US goods in protest, which could make the trade deficit even worse, or least cause overall trade to fall.
Reindustrialize the United States?
In his White House speech dubbing April 2 “Liberation Day”, Trump claimed the date “will forever be remembered as the day American industry was reborn”.
Nevertheless, if Trump truly wants to reindustrialize the US, imposing tariffs on the rest of the world is not going to magically do that on its own.
Every single advanced economy that has industrialized in history has done so with a concerted industrial policy, in a state-led industrial-upgrading campaign in which the government drove investment in infrastructure, education, and key manufacturing sectors; developing human capital, training workers, and providing subsidies and cheap loans to strategic firms.
Rebuilding US manufacturing will take many years, if not decades. It requires enormous investment in infrastructure, the physical construction of large factories, the reshoring of complex global supply chains, and the training of workers. Relying on the private sector alone to do this is totally unrealistic.
Targeted tariffs in specific industries where a country wants to “catch up” could be a useful tool, but only as part of a larger industrial policy. If the US wanted to promote local manufacturing of, say, semiconductors, electric vehicles, or solar panels, limited tariffs in those sectors could help. This is what the Joe Biden administration attempted. However, what Trump is doing is completely different. Widespread blanket tariffs on countries around the world are not a tool of industrial policy; they are a form of trade war.
Instead of crafting a coherent industrial policy, Trump is imposing austerity and eroding government capacity, mixing Reaganomics with protectionism.
Rather than investing in education and job training programs for reindustrialization, Trump is signing executive orders to dismantle the Department of Education.
Trump has even torn up the very bare-bones attempt at industrial policy that was pursued by the Biden administration, undoing the Inflation Reduction Act (IRA) and attacking the CHIPS Act.
This will not reindustrialize the United States. In fact, it was exactly this kind of neoliberal ideology that led the US economy to be deindustrialized in the first place.
The US financial sector was deregulated under Ronald Reagan in the 1980s, and then Bill Clinton in the 1990s. This deregulation, combined with the emergence of new digital technologies, made it much more profitable for US capitalists to invest in the financial sector, not in manufacturing.
The Jack Welch model of CEOs incentivized corporate executives to pump up stocks, promising fat bonuses for those who did so.
Instead of investing in expanding production, US corporations plowed their net income into stock buybacks. In 2014, Bloomberg reported that among the top 500 publicly traded companies in the US, in the S&P 500 stock market index, 95% of their earnings went to buying back their own stocks and paying dividends to shareholders.
Until the US government fundamentally changes its policies toward the financial sector, heavily taxes capital gains, and incentivizes companies to invest in local manufacturing, they are going to continue to prioritize financial speculation over tangible production.
The fact that the US private equity industry is flourishing is the perfect symbol of how US capitalists don’t want to create a new company or build new factories, because it is considered too risky and not profitable enough. They can much more easily earn high returns on investment by simply buying up existing companies, laying off their workers, and asset stripping them. That’s the entire business model of private equity’s infamous corporate raiders, who have gotten fabulously wealthy in the neoliberal era.
Instead of trying to solve those deep, structural problems, Trump is doing the exact opposite: the billionaire US president and the dozen other billionaires in his administration are slashing taxes on the rich and corporations, implementing austerity, and weakening the state. This will not reindustrialize the economy.
A “Mar-a-Lago Accord”?
Another explanation given for Trump’s tariffs is that he hopes to use them as leverage to force countries to come to the negotiating table for a so-called Mar-a-Lago Accord.
According to this idea, Trump wants to restructure the international financial system — which was designed by the United States at the end of World War Two to serve its interests, but which Washington is no longer happy with, because it has lost its former unipolar hegemony.
The narrative of the Mar-a-Lago Accord is that it will be a grand deal that will allow Trump to bring down the overvalued US dollar, force “allies” (read: vassals) to pay for US military “protection”, and help reduce the US federal debt by ordering vassals to buy long-dated Treasury securities (like, say, 100-year bonds) with low coupon rates, meaning they will lose value over time and act as a kind of foreign subsidy for the US government.
The man Trump appointed as the chair of the Council of Economic Advisers, Stephen Miran, published a report outlining a very loose framework for a hypothetical Mar-a-Lago Accord, which has been discussed with bated breath in the financial press.
The problem with this idea is that the United States will have to force other countries to violate their own interests on behalf of Washington. For so-called “allies” who have been militarily occupied by the US for decades, like Japan, South Korea, or Germany, this may be possible (although even that is not guaranteed).
But it is highly, highly unlikely that Trump will be able to pressure large countries of global macroeconomic significance, like China, Russia, India, or Brazil (in other words, BRICS nations), to agree to a Mar-a-Lago Accord.
Reagan’s Plaza Accord of 1985 is often cited as Trump’s model. However, this deal was imposed on US vassals Japan, the UK, West Germany, and France, which have a close military partnership with the US. Moreover, their position in the world economy today is much weaker than it was then.
Chinese economists and policymakers have closely studied the disastrous effects that the Plaza Accord had on Japan, by overvaluing its currency, hurting the competitiveness of its exports, and fueling a catastrophic asset price bubble. It is practically impossible to imagine that China would agree to sign a similar deal that could lead to the same outcome.
Trump thinks access to the large US market is the silver bullet that can be used to pressure countries to sign such a Mar-a-Lago Accord. He would love China to raise the value of its currency, the renminbi, so Washington can devalue the dollar, but this would hurt China’s own manufacturing sector on behalf of the US.
For China, US market access is not as important as it once was. China does still export a lot to the United States, but the situation is shifting rapidly. ASEAN, the Association of Southeast Asian Nations, has already overtaken the US as China’s largest trading partner.
Although 14.67% of China’s exports still went to the US in 2024, that figure had fallen substantially from 19.23% in 2018.
China has already spent a decade diversifying its trade relations, so it is no longer so reliant on the US.
Ending dependence on trade with the US was one of the key goals of China’s Belt and Road Initiative, which was launched in 2013 to create the physical infrastructure needed to economically integrate the Global South in a post-US world.
Signs of this increasingly multipolar world can be seen everywhere.
A clear example was the fact that, in response to Trump’s tariffs threats, Vietnam invited China’s President Xi Jinping and European leaders to meet in Southeast Asia to discuss trade plans.
The Trump administration may believe it can strong-arm the world into signing a metaphorical or literal Mar-a-Lago Accord, but it is unlikely to have the impact that it wants in a world where the US has lost so much of its dominance.
In 1944, when the Bretton Woods Conference was held, the United States made up roughly 35% of global GDP, and it was the world’s manufacturing superpower.
Today, China represents more than 19% of world GDP (PPP), compared to less than 15% for the US, and China’s share is growing over time, whereas that of the US is shrinking.
China is now the world’s manufacturing superpower, and the US is frantically scrambling to reindustrialize.
The situation is completely different, and Washington no longer has the leverage it enjoyed at the end of World War Two, when most of the world’s advanced economies were physically destroyed and the US was the only real game in town.
The role of the US dollar
The role of the US dollar as the global reserve currency is at the center of the contradictions faced by the Trump administration.
If Donald Trump’s goal with his tariffs is to reduce the trade deficit that the US has with the rest of the world (its current account deficit), one of the best ways to do that would be to end the role of the dollar as the global reserve currency.
However, Trump is doing the exact opposite of that. The aim of the Mar-a-Lago Accord is to save US dollar dominance by creating a new US-dominated international financial order.
Trump is so desperate to preserve the “exorbitant privilege” of the US currency that he has threatened 100% tariffs on BRICS members and other countries that de-dollarize and drop the use of the dollar in their international trade.
“We will keep the US dollar as the world’s reserve currency”, Trump pledged during his 2024 presidential campaign. “Many countries are leaving the dollar. They’re not going to leave the dollar with me. I’ll say, ‘You leave the dollar, you’re not doing business with the United States, because we’re going to put 100% tariff on your goods'”.
As president, Trump has claimed that “BRICS is dead” due to his tariff threats. “I told them if if they want to play games with the dollar, then they’re going to be hit with a 100% tariff”, Trump said in a press conference in the White House. “Since I mentioned that, BRICS died”.
Despite Trump’s false claims to the contrary, BRICS continues to expand apace. In January, the Global South-led organization accepted as a new member Indonesia, the fourth-most populous country, with the world’s seventh-largest economy. A few days later, BRICS added as a partner Nigeria, Africa’s most populous nation.
BRICS represents 54.6% of the world population and 42.2% of global GDP (PPP), as of January, despite Trump’s threats.
Trump’s desire to maintain dollar dominance while also reducing the US trade deficit is utterly contradictory. One of the main reasons for this massive deficit is because of the role that the US plays in the world economy as the issuer of the global reserve currency, and essentially the banker of the planet.
By definition, the inverse of the US current account deficit is the US capital account surplus.
What does that mean? It means that, because the dollar is the global reserve currency, other countries around the world need to get access to dollars. How do they get those dollars? The US has to run a trade deficit with other countries, otherwise they won’t have the dollars they need for the dollar to remain the global reserve currency.
This is part of the famous Triffin Dilemma, which has been popularly discussed for six decades.
Foreign businesses that export products to the US are paid in dollars. The US essentially prints debt and buys those products with that debt. Those dollars go into the bank account of the foreign exporter. Foreign investors then use those dollars to invest in US assets, buying US stocks, real estate, and Treasury securities. This causes the capital account to go into surplus.
If Trump wants to end the current account deficit, he would also have to end the capital account surplus, which would mean an end to net foreign capital flows into the US.
This would be catastrophic for Wall Street — one of the main constituencies of billionaire Trump and the fellow billionaires who fill his administration.
If somehow Trump managed to reduce the US current account deficit to zero, other countries wouldn’t have the dollars they need to keep using the currency in international trade. But Trump has warned that if those nations stop using the dollar in international trade, he is going to hit them with 100% tariffs. This would in fact force them to de-dollarize their international trade.
So what does he want?
It appears that Trump does not understand the basics of the balance of payments, which is why his contradictory policies make no sense.
The real solution to this structural problem would be to move to a different kind of system, like the model that was originally proposed by John Maynard Keynes at the Bretton Woods conference in 1944.
Keynes wanted to create a Bancor, an international unit of account whose value would be based on a basket of different commodities and/or currencies. This would be supplemented by an International Clearing Union that could help reduce global trade imbalances, by incentivizing surplus countries to increase imports and deficit countries to boost exports.
Credit: Radhika Desai
That would be an actual solution. But instead of doing anything remotely similar, Trump and his alleged “Mar-a-Lago Accord” plan seek to preserve US dollar dominance by rewriting the rules of the international financial system that were written by the United States in the first place, and blackmailing and bullying any countries that refuse to go along with it.
The more the US pushes nations around, nevertheless, the more they will seek alternatives to the US-led imperial order — which is precisely what has been happening for the past decade.
Replacing income taxes with tariffs
This leaves the final theory to explain Trump’s tariffs: that they could be an alternative revenue source for the US government.
Trump has publicly stated that he would like to replace income taxes with tariffs. It now seems that he is attempting this with his huge tariffs on countries around the world.
While Trump slashes taxes on the rich and corporations, he hopes to make up for lost revenue by taxing imports. This will disproportionately hurt the majority of the population, while benefiting a small handful of wealthy elites.
This idea is mathematically illiterate, as tariffs could not generate nearly enough revenue to make up for reduced income taxes — but that has never stopped Trump before.
Tariffs are essentially a tax on consumption, given the US imports so many consumer goods. Tariffs are also an extremely regressive tax. They put the burden of taxation on the poor and working class, who spend much more of their paychecks on cheap imported consumer goods, and have a high marginal propensity to consume.
Consumption by the rich is not significantly impacted by tariffs, and they have a low marginal propensity to consume. So tariffs are Trump’s way of imposing an enormous regressive tax, moving the burden of taxation off of capital and onto labor.
The US income tax system is already quite regressive in practice. On paper, it is supposedly progressive, but there are many loopholes for wealthy elites, and thanks to Trump’s tax cuts on the rich during his first administration, as of 2018, billionaire families in the US payed a lower tax rate than the bottom half of poor and working-class Americans.
Tariffs will be even more regressive. The Budget Lab at Yale University published an analysis in response to Trump’s April 2 “Liberation Day” tariffs estimating: “The price level from all 2025 tariffs rises by 2.3% in the short-run, the equivalent of an average per household consumer loss of $3,800 in 2024$. Annual losses for households at the bottom of the income distribution are $1,700”.
In short, if Trump’s alleged attempts to reindustrialize the US and/or broker a Mar-a-Lago Accord fail, at the very least, Trump and his billionaire allies will see their taxes significantly reduced, and the burden of taxation will have been moved onto poor and working-class Americans.
For Trump, that seems to be more than enough reason to impose sky-high tariffs.
Jc
2025-04-04 at 12:05
The only missing piece that the American people in general forget (that include President Trump) is that, since the US is the “reserved currency” that put the country in a unique position where it can print money and trade it with other countries in exchange for goods.
There is a huge demand for USD around the world.
That creates a trade deficit… you are getting free stuff for nothing!
No other countries can do that and that’s a perk… not a ripped off!
Rubicon
2025-04-04 at 15:38
The issue of what Trump & His press secretary ARE saying to the public may be very off Base to what Trump’s Billionaire Team are actually doing behind The Green Curtain.
In other words, there’s a transaction issue between what Trump & his Press Secretary is NOT understanding what his Billionaire Buddies are doing.
Eric Arthur Blair
2025-04-04 at 15:38
Ben is 100% correct. His explanation is the only thing that makes sense when confronted with the NONSENSICAL imposition of universal tariffs on all imports into the USA.
This is essentially a consumption tax which profoundly hurts the US poor and (vanishing) middle class, but which has zero real effect on the rich due to their vastly differing marginal propensities to consume.
Meanwhile income tax on the super rich is falling asymptotically to zero.
This is a FUTILE gesture to try to balance the massive budgetary US deficits, which would most effectively be dealt with by immediately redirecting the > $1 trillion of military spending to domestic rejuvenation of productive agriculture and industry and research / education, and also imposing a >90% tax on the super rich corporations and individuals.
The import tariffs are yet another means of stealing from the poor to give to the rich, an obvious manifestation of CLASS WAR that the knuckledraggers are too stupid to perceive.
Yet more conclusive proof that the USA ain’t no democracy, it is rule of, by and for the rich.
Interestingly, NO tariffs were imposed on imported Russian fertiliser, fossil fuels or uranium. Why? Apart from the US having already sanctiioned/tariffed all unimportant Russian imports, these remaining untariffed items are essential raw resources sorely needed to run US agriculture and industry, without which the US economy will collapse.
Oil and gas in particular are of utmost importance. I have written the following many times, concepts based on the physics of geology and the second law of thermodynamics, but almost nobody seems to acknowledge or understand these facts, blinded by stupidity and ignorance:
The boasts that the USA is the largest producer of oil in the world and thus is fossil fuel independent, are firstly empty and secondly UNTRUE.
The USA may be a high GROSS producer of oil (low energy density LTO, NOT high energy density crude), but it is a low NET producer of oil and in NO WAY is the USA fossil fuel independent.
Cheap, high EROEI conventional crude is essentially DEPLETED from the USA. Since peaking in the early 1970s, EROEI of US conventional crude has plummeted so low, it has long been unprofitable to extract.
The only reasons the USA has been able to extract high volumes of unconventional fracked oil the past 2 decades is because of the petrodollar privilege and FRAUD. It takes huge quantities of diesel to wildcat thousands of dry frack sites (each miles deep) before one sweet spot is found. It takes huge quantities of diesel to mine and transport a special, specific type of sand and pump it under extremely high pressure into the fracking wells to keep the fractures open. It takes huge quantities of energy (=money) to extract groundwater and pump it under extremely high pressure into the much deeper level fractures to push out the LTO. It takes huge sums of money (=energy) to synthesize special solvents then transport them to the fracking sites to be pumped under extremely high pressure into the fractures.
The LTO extracted CANNOT be handled by most US refineries and hence must be EXPORTED for processing.
LTO can be turned into petrol but CANNOT be turned into the mainstay ESSENTIAL industrial workhorses of diesel or jet fuel, unless blended with higher energy density “heavy” products, eg from cheap IMPORTED Russian conventional crude or from IMPORTED Canadian tar sand oil, the latter representing very low EROEI and hence being SUPER EXPENSIVE compared with conventional crude.
The only reasons the USA has been able to fund such abject stupidity are because of
1. US petrodollar privilege, which means it costs them NOTHING to import valuable foriegn crude oil denominated in USD
2.FRAUD: fracked oil was been funded by huge government subsidies, and previously during their startups by ZIRP, and by fraudulent promotion to attract sucker investors into a Ponzi scheme, further driven up by company share buybacks.
If monetary price is a proxy for energy, then US LTO net energy production must actually be NEGATIVE because in aggregate, US fracked oil has LOST money, it has NEVER turned a profit, when considering total life cycle production from ALL fracking wells, and remember, it takes ENERGY (=MONEY) to drill dry wildcat holes. Fracking “sweet spots” cannot be easily identified in the same way that conventional oil pockets can easily be seismically identified (the latter now all gone in the USA).
The only people who made money from shale oil are those who rode the Ponzi tide of the shareprice rise** and pulled out before the inevitable Minsky moment, or less commonly those who by dumb luck happened to invest in sweet spots.
**shareprice was driven by animal spirits, nothing to do with the value of actual oil production, just like Dutch tulip frenzy.
Unconventional fracked shale gas suffers from the same disease, a very low EROEI, a stupid, stupid, stupid scheme perpetrated by greed and fraud.
Unconventional shale LNG sold by the US to the stupid Germs is >6x more expensive than conventional piped gas from the Russians, and also multiple times more expensive than conventional LNG from Qatar, the latter being mostly unavailable to the Europeans because Qatar was already at maximal capacity exporting LNG to meet prior long term commitments to East Asia.
Note that high productivity industrial agriculture is IMPOSSIBLE without the application of millions of tonnes of nitrate fertilisers which are ENTIRELY made from natural gas using the Bosch-Haber process.
Using super expensive shale LNG to make fertiliser will render US food super expensive, which is why affordable US food production is >90% dependent on supercheap Russian fertiliser made from supercheap Russian conventional gas. Russian nitrate fertiliser is essentially a solid form of cheap natural gas export, without which the USA will COLLAPSE.
Summary: The USA is a brain dead zombie economy making loud guttural noises emanating from an odious bloviating orange conman.
The USA is essentially FAAAARKED.
Eric Arthur Blair
2025-04-04 at 15:57
April 1 is April Fool’s day. April 2 should now be designated as Trumpty Dumpty Imbecile’s day.
Rubicon
2025-04-05 at 14:23
Thank you, Eric for your understanding of The Oil World. It’s rather complicated, but important.
What we find so disconcerting is the abject ignorance of the American public. Protests going on in the US will provide NO relief to the upcoming suffering of low and middle income citizens along w/ college graduates buried knee deep in massive Loan Debts.
The last time we had an educated society was back in the late ’50s-80s. This was most prevalent in wealthy States such as California, Maryland and elsewhere. They sparked massive revolts rather than merely standing around with protest signs.
We have two options: leave the US, Or hold out some type of hope in the upcoming Mid-Term Elections.
JonnyJames
2025-04-06 at 09:19
And to think that BigOil is also subsidized to top off the offshore tax breaks. The DT2 regime wants to take over Canada and regime change Venezuela to secure heavy crude. The starvation-siege warfare against Venezuela (and Cuba) needs more coverage.
And control of the flow of oil/gas in the Persian Gulf region: they got rid of Assad, and want to regime change Iran. I would think that Iran is of strategic value (as it has been for centuries) to the west due energy pipelines (Russia-Iran pipeline, Iran-Pakistan pipeline proposals) and China’s BRI.
KSA, the Gulf States, Egypt, are already vassals. Libya and Syria have been destroyed and made “failed states” So the last country on the list is Iran.
John Coffman
2025-04-05 at 02:59
What no one talks about relating to food in the next few years is the fack that real climate change conitions are making MASSIVE deficits in soil, which cannot to replaced. It washes away to sea and is gone. So, it appears that this terrible two-year old in the sandbox everyone calls the White House is throwing a hissy-fit and cannot be reasoned with. Someone above did say there may be adults in the room. Let’s hope so.
istudios
2025-04-05 at 09:36
The tariffs and stock market crash could have been by deliberate design. Never underestimate or trust Trump one iota; he has plenty of hidden agendas.
(1) If trade imbalances were really the issue, he could have started off with low tariffs or impose them on only a handful of countries, as a ‘warning’ to other countries, and then incrementally raise those tariffs and/or widen the net, over time. He didn’t do it that way. By executive order and at one fell swoop, he imposed debilitating tariffs across the board on all US’ trading partners, friend and foe alike.
(2) He must have known the US economy would not be able to stomach this sudden and severe knockout blow. He is a businessman after all. But he shows complete unconcern and makes flippant, unfounded comments about the tariffs and stocks. Crashing the stock market was part of the plot. He is also an oligarch, as are his cronies. With stocks at historical lows, Big Business will buy them all up. With corporations, businesses and farms going bust, Big Business will also buy them all up. Would be interesting to see who ends up buying up the cheap stocks.
(3) Notice he wasn’t happy with China’s retaliatory actions, of imposing matching tariffs, stopping exports of rare minerals to US and banning Chinese companies from doing business with 11 US defense companies. This seemed to have got Trump’s goat. It is telling that he is upset about this but nonchalant about global reaction to the tariffs and stock market crash.
JonnyJames
2025-04-06 at 09:50
Great article that breaks down the relationship between capital and current account, deficits, and “exorbitant privilege” of the USD. If folks have not read Super Imperialism, the classic from Michael Hudson, I would recommend it, but Ben does a great job of explaining how it all works. The discussions with profs Hudson and Desai also contributed to this.
Side note: The DT shows signs of mental illness, and cognitive decline. Like his senile predecessor, Genocide Joe, we are not supposed to notice. He is widely believed to be a speed freak (prescription Adderal). To be crude, we have a drug-addled, nutjob as the emperor with no clothes. If we think it is “bad” now, just wait a couple more years eh. Fun times ahead.
My man EAB always says the US is fahrrked, but it is the entire empire and vassals who are fkd. Just look at the UK, France, Germany etc. It’s tragic, pathetic, and maddening all at once. Let’s get it over with and fully privatise the NHS in the UK, so the US and UK will be almost identical. The UK might as well formally join the US after that.
Of course, the oligarchy of the US and vassals will asset-strip the place while the majority of the populations are sacrificed.
Eric Arthur Blair
2025-04-06 at 10:08
JJ: You are right.
The USA may be faaarked but the UK, France and Germany are double faaarked.
Eric Arthur Blair
2025-04-06 at 10:09
Especially thanks to the USA faarking the Nordstream pipelines.
JonnyJames
2025-04-06 at 10:21
The Russians believe it was the British SBS that blew up Nordstream. The dynamic duo of the US/UK partners in crime.
Eric Arthur Blair
2025-04-06 at 10:21
Here is what Deutschland Deutschland unter alles has to look forward to, given present circumstances :
The new fuhrer of the Germs, Friedrich Merz AKA Mr Blackrock, will use his vulture capitalist expertise to asset strip and to slash and burn what remains of German industrial infrastructure, to the delight of US vultures like Finky Fink, Mr. Blackrock of the Yanks, waiting in the wings, salivatingly eager to pick on the Germy bones.
Merz, teaming up with Ursula Fond-of-lying, intends to raise >€850 billion to go to war against Russia, money to be taken from social support, education, health and pension funds, which will drive ordinary Germs into penury and poverty. What could possibly go wrong?
Meanwhile Germy Neonazi skinheads, teaming up with Banderite UkroNazi skinheads (refugees who fled from a Ukraine wrecked by NATO skullduggery) will wage a violent race war on the streets against dusky skinned refugees (who fled from Middle Eastern countries wrecked by NATO skullduggery). What could possibly go wrong?
JonnyJames
2025-04-06 at 11:00
Cheers for that EAB, oh the tragic humor of it all!
Ursula and the crew are still bitter that the Red Army trashed the Nazi Reichstag in 1945 – still seeing red.
https://en.wikipedia.org/wiki/Raising_a_Flag_over_the_Reichstag#/media/File:Raising_a_flag_over_the_Reichstag_-_Restoration.jpg
Eric Arthur Blair
2025-04-10 at 15:19
Europe has descended into collective madness.
“Abandon all hope ye who enter here”
https://www.youtube.com/watch?v=3eAsfD2J53E
JonnyJames
2025-04-06 at 10:17
“double faarked” LOL!
JonnyJames
2025-04-06 at 10:39
Another side note that relates to the “big picture”:
I have seen the opinion elsewhere that Iran has little geo-strategic value to the West, and that plans to bomb Iran is almost solely for the benefit of Israel. Some believe that all US policy in West Asia, is down to Israel, however it looks much more than that.
Given the huge oil/gas assets of Iran (recall the overthrow of the Mossadegh govt. by the UK/US in 1953), pipelines under construction (Pakistan, Iran “peace pipeline”) and future pipelines proposed (Russia Iran pipelines), I would say Israeli interests are secondary. Too add, Iran’s participation in BRI (Belt and Road Initiative) could be blocked if the US/UK/Israel can affect “regime change” there and install a compatible government, or break up Iran into more manageable rump states. The pipeline projects could be stopped or “blown up” like Nordstream.
Of course Iran is an obstacle of the Greater Israel project, but it looks like Iran has much more strategic value than that.
Energieerhaltungssatz
2025-04-06 at 16:01
Since the debt and service export of the United States is much larger than the actual production and export of material goods, the equation for the “reciprocal tariffs” should be divided with xᵢ, not mᵢ:
Δτ = ( xᵢ-mᵢ ) / ( ε * φ * xᵢ )
Now it resembles more the equation for the magnetic leakage factor (without the damping and amplifier constants ε and φ):
σₘ = (Φᵢ – Φₖ) / Φᵢ
JonnyJames
2025-04-07 at 11:00
What does the debt have to do with imposing “reciprocal tariffs” in the first place? To be crude: the formula is worthless, a bunch of BS
JonnyJames
2025-04-07 at 17:08
My apologies, I missed the sarcasm.
Eric Arthur Blair
2025-04-07 at 19:52
If you divide by Xi and multiply by JinPing you will get the result
= theUSAisFaaaarked
Eric Arthur Blair
2025-04-08 at 12:47
Yanis Varoufakis has a fantasmagorical take on the recent Trump Tariffs, very different from more reality based economists.
https://youtu.be/FisWeqvblvQ
Varoufakis argues that because the USA successfully navigated beyond the Nixon / Volker shocks of the early 1970s (USD going off the gold standard, super high interest rates), hence the USA can successfully navigate beyond the Trumpty Dumpty tariff shocks of today.
Varoufakis is absolutely, completely, totally WRONG. The USA of the 1970s was entirely different from today. Varoufakis’ assertion is an article of faith that simply ignored the following facts:
First, the USA was still producing vast amounts of high EROEI cheap petroleum in the 1970s, hence the real costs to power agriculture and industry then were much lower, and the products thereof were therefore much more affordable.
Second, the USA had the world’s most highly developed, well functioning, industrial and transport infrastructure then, which was the basis of real material productivity, unlike their parlous deindustrialised situation with crumbling infrastructure today.
Third, it did not have such a monstrously parasitic FIRE rentier sector and overextended parasitic MIC back then, which today fatally suck the blood away from productive US economic enterprises.
Fourth the USA had properly heavily invested in STEM and research and had very affordable higher education back then, thus producing the most advanced technology to outcompete other countries (today China leads in 57 out of 64 key technological fields according to an Australian study). Today the smartest US students join the parasitic FIRE sectors to make money, whereas other new graduates live under the burden of student loans that they will never be able to pay off, permanent penury.
Fifth the USA had competent leaders back then who despite being evil were strategically capable of wrangling their way past thorny problems eg Kissinger. Remember that Nixon imposed a draconian price freeze on all essential commodities especially food, preventing inflationary hardships on ordinary domestic households. Today’s US “leaders” (actually puppets of the super rich) are simply accelerating cost of living pressures on ordinary people which will cause them to default on their housing, car, credit card and student loans. What happened back in 2008 with major mortgage defaults?
Sixth and most important of all was crafting the petrodollar privilege, which by 1974 ensured that oil could internationally ONLY be bought in USD, which made the USD even more valuable than when it had been when gold backed. Declining domestic US oil production no longer posed a potential problem because the US could now get foreign oil for FREE by simply electronically printing money. Since 2023 however many countries are increasingly trading in oil and gas in other currencies.
The USA of 2025 is ENTIRELY different from the 1970s. The rest of the world is also completely different, especially China.
What are the modern day consequences of the Trump tariffs of 2 April 2025?
https://youtu.be/ms_7EkiJbGo
Eric Arthur Blair
2025-04-15 at 18:04
In this dual interview with Yanis Varoufakis and Michael Hudson,
https://www.youtube.com/live/JmAeVwCJWoU,
Varoufakis yet again repeats his wrongheaded meme that because the USD and US economy successfully navigated past the early 1970s Nixon /Volker shocks, therefore it is possible the USD and US economy can survive the Trumpty Dumpty / Scott Pissant / Stephen Moron shocks of today.
Varoufakis is wrong, wrong, wrong.
Varoufakis seems utterly blind or wilfully ignorant of the facts that
1. The single major factor that restored the value and exorbitant privilege of the USD in the early 1970s was the establishment of the US petrodollar which ensured that all countries of the world needed USD to buy petroleum and related fossil fuels eg natural gas.
2.Furthermore the USA was still the premier industrial power in the world back then, the USD was strongly backed up by real material output, which has today withered miserably.
NEITHER factor applies today*.
Varoufakis talks about the power of US cloud capital and cloud finance and crypto currencies today.
Those may enable technofeudal control and surveillance over the populations that are forced to use them, but they do NOT enable real world production of food and goods or material services eg transportation, which fossil fuels absolutely do.
As petroleum geophysicist Dr Colin Cambeell said, you cannot eat the Internet.
Norman Borlaug’s so-called Green revolution was actually a Brown revolution, utterly dependent on fossil fuels for all aspects of high output agriculture.
The German invented Haber-Bosch process, which miraculously converted CH4 to NH4, then to fertiliser, using atmospheric nitrogen, was aptly described as “brot aus luft”.
Declining fossil fuel reserves and the climate consequences of their combustion are a whole other conversation with profound economic and existential implications, which unfortunately THIS WEBSITE HAS YET TO ADDRESS .
Eric Arthur Blair
2025-04-15 at 18:36
*Colin Campbell