What did Nixon want to achieve by ending the gold standard? The value of the US dollar was pegged to the gold at $35 in 1944, right after World War II. By the time Nixon became president in 1969, the amount of dollars in circulation in the world was four times the amount of US gold reserves. It meant that the dollar was overvalued, imports were cheap, and exports had become expensive. Nixon also wanted China to increase the value of Yuan while he devalued the dollar. His grouse was similar to what Trump has today.
Trump also wants to devalue the dollar without the greenback losing its status as the world’s reserve currency, which has given America undue influence over international affairs.The current domestic context is also similar to what it was in 1971. Inflation and trade deficits were the President’s biggest concerns. The Israel-Palestine conflict was simmering, as was the Cold War with Soviet Russia, and there was the outright war in Vietnam.
Nixon put a 90-day freeze on wages and prices — just like Trump did for tariffs — to contain the inflation that would result from his decision to devalue the dollar. In the following two months, the then US Treasury Secretary John Connally and his junior Paul Volcker — who would go on to be one of the most consequential central bank chiefs in the future — negotiated an agreement with other countries to set a fixed exchange rate for the dollar. No one was prepared for what came next.
In 1973, OPEC, the lobby of oil-producing nations led by Saudi Arabia, decided not to sell oil to countries that backed Israel, against Palestine, in the Yom Kippur war leading to an oil shock that would destabilise the entire global economy. The world was in flux and past agreements didn’t hold. The International Monetary Fund shifted to floating exchange rates in 1976 after nearly five years of economic turmoil on a global scale.
But the global context may not be the only metric to measure the impact of Trump’s attempt at a paradigm shift. His stated goal is to make America great again. He wants to build resilience in key areas like the production of semiconductors and all the enabling technology behind artificial intelligence, energy (both conventional and renewable), rare earth minerals, and pharmaceuticals, among others.
Trump may be able to secure bipartisan support for the four causes above if he articulates his point well enough. However, how does this affect the average American citizen and what do they want? Better financial health, lower inflation, improved visibility of future prospects and higher purchasing power.
The impact of the Nixon shock tells us that the rise in inflation and slump in growth is inevitable and, hence, the first and last demand is unlikely to be met in the near future. It wasn’t until 1980, 11 years after the end of the gold standard, that inflation peaked (at 14%). Rising inflation reduces purchasing power.
Trump wants to bring jobs back to the US when the unemployment rate is near record-low levels, 4.2% in March 2025. The average unemployment rate in the US in 1968 and 1969 was around 3.5%.
But Trump also wants to send immigrants back to the countries they came from. So, if he manages to shift some of the global supply chains and production facilities to the US, it isn’t clear who is going to run them. Without an adequate workforce, the wage cost will only rise further and the productivity measure will show a decline.
After the end of the gold standard under Nixon, US productivity declined for over two decades.
Rising inflation and falling productivity is the exact dose needed for wealth destruction in the stock markets. The S&P 500 gained a total 17% over a decade ending 1979, and if you adjust for inflation, it lost half of its value in the same time.
However, unlike in the Nixon era, Trump and his industrialist friends have the advantage of robots, which may be able to fill the void left by the lack of American workers. The bots won’t need healthcare insurance or overtime, and that would result in higher productivity and windfall profits for the corporations. Is that good enough for the average American?
