Understanding the Impact of Trade Reordering

“You put the lime in the coconut, you drank ‘em both up.” — Coconut, Harry Nilsson

Breakdown and Reordering of Trade

The shifts in global trade due to President Trump’s tariff policies are poised to have significant repercussions. Long-standing trade relationships foster mutual dependency, and any sudden disruption to these ties can destabilize the livelihoods of people worldwide.

The United States relies heavily on imports from countries like China and other nations in Asia, consuming a vast array of goods and products. Trump’s tariffs place the export-driven economic models of these countries in jeopardy.

With America making up over 30 percent of global consumer spending, if tariffs curtail exporting capabilities, affected nations could face an excess of unsold goods. These countries will then have to choose: either boost domestic consumption or reduce production levels.

While increasing domestic consumption might seem desirable, it is far from straightforward. In various cultures, there exists a reluctance to spend on anything beyond basic necessities. In some societies, showcasing modesty is deemed more important than indulging in luxury items.

For instance, China boasts a personal savings rate of 45.9 percent, in stark contrast to the United States’ rate of just 3.6 percent—indicating that Chinese citizens save over twelve times more than their American counterparts. Despite China’s vast consumer potential, this capacity remains hindered by deep-rooted cultural attitudes.

Thus, if China cannot export to the U.S. and fails to achieve greater domestic consumption, it may ultimately resort to cutting production.

This Is Different

Exports account for approximately 20 percent of China’s GDP, while the proportion is about 11 percent for the U.S. However, China’s dependency isn’t as severe compared to other nations. For example, in Vietnam, exports represent over 87 percent of its GDP. Therefore, the ramifications of losing the American consumer will hit both China and Vietnam hardest, but the outcome will be particularly severe for Vietnam.

The reordering of trade influenced by tariffs will also reverberate through the American economy. Trump believes this restructuring will benefit working Americans, although even if that holds true, such changes would take a decade or more to materialize. Meanwhile, the U.S. could face one or two recessions during this adjustment period.

During JPMorgan Chase’s recent quarterly earnings call, CEO Jamie Dimon estimated the odds of a U.S. recession at a coin-flip 50-50. Key issues, such as trade wars, persistent inflation, and fiscal deficits, play into this outlook. When he compared the current situation to past events, Dimon stated, “This is different.”

He emphasized the importance of cohesion among Western economies and military alliances to preserve democracy and security worldwide, asserting that this global interconnectedness distinguishes this era.

Trumpism

The reasoning behind Trumpism was articulated by Secretary of State Marco Rubio during his Senate confirmation hearing on January 15, 2025. He stated:

“Out of the triumphalism of the end of the long Cold War emerged a bipartisan consensus that posited we had reached the ‘end of history,’ where all nations would find their place in a Western-led democratic community. This led to a belief that foreign policy could focus solely on a liberal world order rather than serving national interests, abandoning national sovereignty in favor of unity as a global family. However, this was a dangerous delusion.”

“In the U.S. and many developed economies, an almost dogmatic commitment to free trade has undermined our national economy, diminishing the middle class, putting the working class in crisis, eroding our industrial capacity, and placing essential supply chains in the hands of rivals.”

Rubio’s remarks encapsulate the core principles shaping policies under Trumpism and provide context for Trump’s tariff measures. However, while Trumpism effectively identifies America’s challenges, the proposed solutions may miss the mark. Tariff policies do not address the underlying issues of government deficits, fueled by limitless credit creation, nor do they tackle China’s currency manipulation.

Trumpism and the Fading Dollar

The trade deficit itself is not inherently problematic; the issue lies in its unchecked expansion due to infinite credit creation, made possible by fiat currencies. Trumpism aims to correct the symptoms of trade imbalances through tariffs rather than addressing the root causes with sound financial practices and a balanced budget. Without these fundamental changes, efforts to fix trade distortions might ultimately exacerbate the situation.

Initially, Trump’s collaboration with Elon Musk on DOGE suggested a potential path forward in reducing government spending to tackle the trade deficit. Yet, his latest moves contradict this; just a week ago, he proposed the first-ever $1 trillion defense budget, ensuring that the fiscal deficit for 2025 would exceed $2 trillion.

As history shows, all fiat currencies eventually face a reckoning. The U.S. dollar is nearing its tipping point, with foreign central banks and governments recognizing the impending challenge. The dollar index has slipped below 100, and gold prices have surged past $3,300 per ounce—warning signs of a looming crisis.

What will unfold in the coming months? Will the U.S. dollar suffer a drastic collapse akin to other historical fiat failures? Will the Federal Reserve and major banks intervene to prolong the system’s lifespan through aggressive market tactics? Or will leadership choose to abandon the ongoing experiment with fiat currency and revert to a more stable monetary foundation, like gold or silver as endorsed by the Constitution?

Only time will tell. However, it seems that considerable chaos and upheaval lie ahead.

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Sincerely,

MN Gordon for Economic Prism

Return from Trumpism and the Fading Dollar to Economic Prism

Conclusion

In summary, the reordering of global trade instigated by Trump’s tariffs is set to reshuffle economic dynamics not only within the U.S. but also among its trading partners. As nations grapple with changing trade relationships, the broader implications of these policies will warrant close observation. Understanding these shifts is crucial for anticipating their potential impact on economies worldwide.