Donald Trump has resorted to tariffs, imposed against friend and foe alike. There are no compromises or special deals because it’s not about favours for friends, or compliance, or punishment. Tariffs are part of a desperate bid to stave off insolvency.

Presidential adviser Elon Musk has provided an important insight into the slew of seemingly chaotic tariff decisions coming from the White House. “We’ve got a US$2 trillion deficit and if we don’t do something about this deficit, the country’s going bankrupt,” he noted.

His comments suggest that the tariff wars are not primarily designed to make America great again in the sense of bringing manufacturing back. The scale and speed of this type of industrial rebuild is too slow to achieve a solution to the insolvency problem Musk identified.

If we accept Musk’s conclusions, then Trump’s obsession with tariffs — the most beautiful word in the dictionary — may be more closely related to a solvency agenda. It becomes useful to consider White House tariffs through this behavioural lens rather than the lens of conventional statesmanship.

This would mean the debate is not really about the fairness or unfairness of tariffs. It’s about how to generate desperately needed income because US debt is out of control.

The DOGE is part of the solution for controlling expenditure, but the administration desperately needs other sources of income. Tariffs are part of the answer.

If the real focus is on solvency, then what else does it imply?

First, it means there is no escape from tariffs. There is no compromise or special deal because it’s not about favours for friends, or compliance, or punishment. It’s a desperate throw of the dice by a bankrupt nation which cannot repay its debts.

Understand this and it changes the appropriate policy responses in targeted countries.

Like many other nations, Australia does not appreciate insolvency as a driver of policy so it seeks to respond in conventional ways, and even then, Canberra’s options are very limited.

Australia has limited ability to respond with reciprocal tariffs or by imposing additional costs on American defence or investment activity in Australia.

Canberra has largely surrendered the development of its rare earth resources and processing capacity to American interests which has left these companies vulnerable to predation by US companies. Even if there was a desire to do so, this resource cannot be used as leverage against the imposition of tariffs.

Australia’s major import from the US is investment capital essential to development. This also offers no leverage point to counter US tariffs.

With only minor leverage points, Australia’s responses include the delivery of cash to assist in the development of the US industrial base. Defence Minister Marles delivered AUD$780 million as part of the AUKUS agreement conditions to expand US submarine production.

Proposed action against American social media companies may be quietly dropped so as to avoid antagonising the White House.

Australia’s primary response is to keep its head down, make no adverse comments and hope that it is spared the White House punishment meted out to others.

Second, the White House focus on insolvency also opens up new areas of US policy initiatives that were previously unthinkable.

A whiff of these policy responses is already in the air, with Trump’s threats against any country that uses alternatives to the US dollar for trade settlement.

Previously as president, Trump successfully weaponised the US dollar and the international dollar trade settlement system through the use of unilateral sanctions. These sanctions halted dollar-based business in selected countries as companies were locked out of the SWIFT settlement system.

The development of alternative trade settlement systems and currencies is a response to this earlier White House attack using sanctions in his first presidency.

If tariffs are mainly about raising income, then the affected countries must be kept within the dollar trade system. This weaponisation of the dollar opens the way to weaponise debt by defaulting on selected US treasury bond obligations.

Taking it a step further, it is appropriate to consider responses that have previously been unthinkable.

Another way to stave off insolvency is to default on debt obligations.

While a general default is illegal under the terms of the US Constitution, it is not necessarily a barrier. The 1977 International Emergency Economic Powers Act grants the president the power to block “transfers of credit and payment” to any country representing an “unusual and extraordinary threat”. Congressional approval is not required.

Such unthinkable action is just a sharpie pen signature away on an executive order which is currently the president’s preferred tool of governance.

A general default would not be tolerated because of the impact on global confidence in the safety of US debt. A targeted default with a temporary redemption and payment suspension — a synthetic default — aimed just at China is a different proposition. The US has a more than $800 billion debt repayment obligation to China.

Never afraid in the past to weaponise the international trade settlement system, Trump could also direct US banks to halt any payments of interest or principal to any account held by a Chinese Government counterparty.

Any move to weaponise this debt obligation, even in a synthetic default, undermines the global monetary system. Trump’s recent disruption of the longstanding NATO alliance suggests that the previously unthinkable is now a reality, so responses to tariff threats need to move beyond the conventional.

China has led the way in opposing broad unilateral tariffs with carefully targeted strategic responses and export restrictions.

A broader response may be that, rather than funding US debt with the purchase of treasuries and also accepting the burden of tariffs, the solution may be to accede to one, but not to both.

These options are not always available to all countries. Countries like Australia, where the WTO structure is fundamental to their prosperity, need to work with other countries like China to reaffirm their ongoing full commitment to WTO global trade rules.

If tariffs are really about resolving insolvency, then policy responses need to be adjusted accordingly.