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The ‘Nixon shock’ might help us make sense of the Trump one
Events of 1971 ushered in the era of modern finance.
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In today’s hyper-financialised world, bond markets can force the hands of politicians far more quickly.
PHOTO: AFP
Huw van Steenis
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What will the longer-term financial consequences of US President Donald Trump’s tariffs be? We may be in a 90-day pause, but the question remains urgent. A look back at former US president Richard Nixon’s experience in 1971 could help investors understand what might happen next.
Certainly recent events share some hallmarks with the “Nixon shock”, which occurred when the then US President took the dollar off the gold standard, implemented a 10 per cent import tariff and introduced temporary price controls. This de-anchoring of the regime resulted in a period of global economic instability and uncertainty. It not only caused a loss in business confidence, but led to stagflation. Nixon’s price and wage controls spectacularly backfired, triggering product shortages and helping to fuel a wage-price spiral. The whole episode was a pivotal contributor to the huge inflation of the 1970s.
