Temporary Protectionism and Fiscal Stimulus in the U.S.: Bridge Toward Reindustrialization or Risk of Chronicity?
Aug 19
Date: August 2025
Source: BBIU Analysis (economic policy hypothesis and prospective scenarios).
1. Context
Inflation and currency
Inflation is the sustained increase in prices within an economy when the amount of money in circulation grows faster than the production of goods and services, or when structural costs (energy, wages, transportation) are passed on to final prices. In other words, it reflects the tension between available money and real productive capacity.
Currency fulfills three essential functions: medium of exchange, unit of account, and store of value. Its stability depends on confidence in the issuing authority and on discipline in liquidity management. An excessive expansion of the monetary base or of the M2 aggregate (cash, demand deposits, and term deposits) can boost consumption in the short term, but without support in productivity it translates into inflation.
Monetary substitutes
Monetary substitutes—such as quasi-currencies issued by local governments or instruments like corporate gift cards—act as parallel expansions of liquidity. Although they can temporarily alleviate restrictions, they fragment the monetary system and complicate inflation control by introducing means of payment not fully regulated by central monetary policy.
Velocity of money circulation
A critical component for understanding inflationary dynamics is the velocity of money circulation (V), defined as the frequency with which a monetary unit is used in transactions of goods and services during a given period.
In simple terms:
If liquidity increases but velocity remains low, the inflationary impact may be limited, since money accumulates in savings or reserves.
If velocity accelerates—because households spend more quickly in anticipation of price increases, or because credit expands—the inflationary effect multiplies even without further growth of the monetary base.
At this point, expectations become a decisive driver: if economic agents believe that prices will continue to rise, they tend to spend more quickly, which in turn accelerates money circulation and fuels inflation. Thus, perceptions of the future can become a self-fulfilling prophecy.
Application to the U.S. scenario
In the economic policy hypothesis under the Trump administration, tax cuts could stimulate an increase in velocity of circulation, as households would have more net income and spend it rapidly on consumption. At the same time, tariffs tend to make imports more expensive, which can reinforce the perception of future inflation and further accelerate spending velocity.
Tariffs, however, have a double edge:
On the one hand, they make imported goods more expensive and raise the cost of living in the short term.
On the other, if domestic producers interpret that the tariff scheme is temporary but stable (for example, five years), they may decide to invest and expand their capacity, which in the medium term helps absorb demand and reduce inflationary pressures.
Central hypothesis
Consequently, equilibrium depends not only on the amount of money (M2), but on how it circulates in the economy and how households and industries respond in their expectations. A simultaneous increase in liquidity and velocity without sufficient productive expansion represents a risk of persistent inflation.
In the current context of geoeconomic tensions and realignment of supply chains, the Trump administration may be exploring a policy framework based on transitory protectionism combined with internal tax reductions.
The central hypothesis is the construction of a five-year bridge in which:
Tariffs on imports would provide additional fiscal revenue and protect national industry.
Domestic tax cuts (e.g., income tax or fuel tax) would sustain domestic consumption and limit social discontent.
BBIU analyzes this possible model to evaluate its viability, associated risks, and scenarios that could arise within a five-year horizon.
2. Proposed mechanism
a) Initial phase (years 0–2)
Increase in tariffs raises prices of imported goods.
Tax cuts raise disposable income, sustaining consumption.
Importers maintain supply flows because demand remains strong, albeit at higher prices.
The state could balance revenue: fewer direct taxes, more tariffs.
b) Transition phase (years 2–4)
Demand begins to shift toward domestic production.
Foreign direct investment (FDI) flows into strategic sectors attracted by a protected market.
Expansion of employment and domestic productive infrastructure.
c) Consolidation phase (years 4–5)
Dependence on imports is reduced.
Domestic supply becomes the basis of internal consumption.
Gradual reduction of tariffs is evaluated without risk of industrial collapse.
3. Critical success factors
Temporal discipline
Protectionism must be strictly transitory, with sunset clauses.
Risk: that the temporary becomes chronic and leads to structural inefficiency.Industrial execution
Essential condition: resolving bottlenecks in infrastructure, permits, logistics, energy, and human capital.
Example: relocating semiconductors requires advanced lithographic equipment and training specialized engineers; biopharma requires autonomy in APIs.
Without this capacity, import substitution would not materialize.Inflation and social welfare
Tax cuts increase purchasing power.
But tariffs generate imported inflation.
The key would be that real disposable income (wages + tax cuts – inflation) remain positive.Geopolitics
The U.S. is the largest-margin market; it is difficult for external actors to abandon it.
The country most affected would be China, the explicit target of the strategy.
Possible targeted reprisals in critical inputs (rare earths, APIs, industrial components).
4. Expanded dimensions of vulnerability and strategic reach
a) Political capture and institutional chronicity
The risk that temporary protectionism becomes permanent is not an abstraction but a traceable mechanism of political capture.
Protected industrial lobbies (steel, biopharma, semiconductors, shipbuilding) have direct incentives to finance campaigns and pressure Congress to extend tariffs under the narrative of “national security.”
Governors and congressmen from manufacturing states, by obtaining immediate economic benefits (employment, investment), reinforce the political cycle of maintaining measures.
Electoral rhetoric transforms tariffs into political banners difficult to dismantle: what was born as a transitory measure becomes a symbol of economic sovereignty.
This process turns “temporality” into institutionalized fiction, a self-reinforcing protectionism with high political cost of dismantling.
b) Technological-military vector of reindustrialization
The return of strategic industries such as semiconductors or biopharma should not be analyzed solely as economic policy: it constitutes a national security imperative.
Cutting-edge semiconductors are the basis of artificial intelligence, autonomous weapons, quantum cryptography, and cyberwarfare. Dependence on Asia (particularly Taiwan) implies strategic vulnerability.
In biopharma, domestic production of APIs, vaccines, and advanced therapies is fundamental not only for pandemics but also to protect critical supply chains in the face of geopolitical tensions.
Industrial policy, therefore, does not only seek jobs or growth but consolidates technological-military supremacy vis-à-vis China, avoiding a tipping point where the center of innovation power shifts.
In this sense, reindustrialization is more than economics: it is a vector of geopolitical hegemony.
c) Implications for the global financial system
The projected model would directly impact the international financial system:
Dollar as global reserve: a protectionist and fiscally expansive U.S. could incentivize trade partners to diversify reserves into gold, yuan, or regional assets, weakening the centrality of the dollar.
U.S. debt: reduced confidence among key buyers (China, Japan, Gulf sovereign funds) could translate into weaker demand for Treasuries, pressuring interest rates and complicating deficit financing.
Emerging markets: the attraction of capital to the U.S. via fiscal and tariff incentives could provoke massive capital outflows in emerging markets, sparking debt crises and exchange rate volatility.
In this scenario, “America First” policy is not merely an industrial redesign, but a potential destabilizer of the global financial order.
d) Raw resonance: a high-risk experiment
More than a technical instrument, this strategy should be understood as a large-scale experiment in economic and social engineering.
If it works, it could inaugurate a cycle of industrial hegemony and reinforce U.S. centrality in the world economy.
If it fails, the effects could be systemic: chronic inflation, irreversible political capture, fragmentation of the international financial system, and erosion of the normative order of global trade.
In BBIU terms, the model is a high-risk bet: its results are inherently unpredictable and, in the worst scenario, could generate a permanent fracture in the international economic architecture.
5. Five-year prospective scenarios
Base scenario
Tariffs gradually decrease.
Partial reindustrialization in biopharma, semiconductors, and critical energy.
Moderate and stable inflation; real income slightly rising.
Optimistic scenario
Industrial productivity grows rapidly, local supplier ecosystems consolidated.
Tariffs eliminated without inflationary impact.
The U.S. achieves significant independence from China and strengthens its industrial base.
Pessimistic scenario
Delays in permits, lack of critical inputs, severe geopolitical tensions.
Structural inflation, stagnation of real income.
Protectionism becomes permanent, weakening global competitiveness and damaging confidence in the dollar.
6. BBIU Conclusion
The scheme of temporary protectionism combined with fiscal stimulus should be interpreted as a hypothetical economic policy scenario, not as a consolidated fact.
Its effectiveness would depend on:
disciplined temporality of tariffs,
effective execution of strategic industrial projects,
and the ability to manage inflationary pressures and geopolitical reactions.
The novelty of this model lies in its dual character:
economically, it seeks to buy time for reindustrialization,
politically, it faces the risk of institutional chronicity,
strategically, it connects directly to technological-military competition with China,
and financially, it threatens to alter the balance of the dollar and global capital flows.
In summary, this is not a mere technical instrument, but a high-risk bet that could redefine the global economic balance. An experiment in economic and social engineering whose outcomes are uncertain, with potential for either transformative success or irreversible systemic fracture.
