Trump's bets on China and Argentina are souring fast

When it comes to US foreign economic polic policy, President Donald Trump’s administration has two problems on its hands.

- BARRY EICHENGREEN

Following what has become something of a pattern for this administration, both problems are of its own making.

In South America, Trump & Company are heavily exposed to a dubious effort to stabilize the Argentine peso, a task to which they have committed more than $20 billion. In Asia, they are engaged in an on-again-off-again trade war with China, in which Chinese President Xi Jinping has the upper hand.

Argentina's President Javier Milei [who assumed office on 10 December 2023] has made good on his promise to take a chainsaw to his country’s budget deficit. But to reinforce the fall in inflation, he has propped up the peso’s dollar exchange rate, which has hurt exports and slowed economic growth, leading to uncomfortably high unemployment.

The question is whether a restive public will continue to support Milei’s policies indefinitely. History suggests that it will not, notwithstanding last month's legislative elections, which provided a temporary respite.

Temporary is the operative word: public opinion could turn again. To paraphrase my Berkeley colleague Maurice Obstfeld, Argentina is a graveyard of unsuccessful exchange-rate-based stabilizations. More than once, variants of this policy have collapsed in a heap of political dysfunction.

Given this, Milei’s strategy also creates doubts about whether Argentina can repay the US Treasury.