[Column] A costly war and a debt crisis… is a ‘Trump shock’ on its way?

President Donald Trump faces two major challenges during his presidency: the situation in Iran and the Treasury crisis. The parallels between the current crisis and the dollar crisis of the early 1970s have led some to wonder if a "Trump shock" is on the horizon. Back then, the US was entangled in the Vietnam War, which led to a trade deficit, a fiscal deficit, and finally, President Richard Nixon took the unprecedented step of halting the conversion of dollars into gold in August 1971.

This move, known as the "Nixon shock," was aimed at stabilizing the dollar. However, the crisis was further exacerbated by the oil shock triggered by the Yom Kippur War in October 1973. Eventually, the US managed to overcome this challenge by establishing the petrodollar system and reshaping its industrial base to focus on high-tech industries and financialization.

Now, with the US national debt exceeding $40 trillion and Treasury yields at their highest level in two decades, Washington finds itself compelled to buy back its own debt. Interest on the national debt now consumes 20% of federal tax revenue and 15% of the federal budget, and a mere 0.1 percentage point rise in interest rates adds roughly $35 to $38 billion to the annual interest burden.

As Big Tech pours astronomical sums into data center expansion, competition for financial markets and driving up Treasury yields even further, the US finds itself at an inflection point of industrial competitiveness. The fate of sanctions against Iran will ultimately hinge on the staying power of dollar hegemony. However, questions arise as to whether the US possesses the resolve or capability to impose such sanctions, and whether these actions would disrupt the global economy or challenge the dollar's role as the world's reserve currency.