At this moment, a huge amount of attention is being justifiably paid to the announced tariffs and their very big impacts on markets and economies while very little attention is being paid to the circumstances that caused them and the biggest disruptions that are likely still ahead.
Don't get me wrong, while these tariff announcements are very important developments and we all know that President Trump caused them, most people are losing sight of the underlying circumstances that got him elected president and brought these tariffs about. They are also mostly overlooking the vastly more important forces that are driving just about everything, including the tariffs.
The 80 Year Big Debt Cycle.
The far bigger, far more important thing to keep in mind is that we are seeing a classic breakdown of the major monetary, political, and geopolitical orders. This sort of breakdown occurs only about once in a lifetime, but they have happened many times in history when similar unsustainable conditions were in place. More specifically:
1. The monetary/economic order is breaking down because there is too much existing debt, the rates of adding to it are too fast, and existing capital markets and economies are supported by this unsustainably large debt. The debt is unsustainable because the of the large imbalance between a) debtor-borrowers who owe too much debt and are taking on too much debt because they are hooked on debt to finance their excesses (e.g., the United States) and b) lender-creditors (like China) who already hold too much of the debt and are hooked on selling their goods to the borrower-debtors (like the United States) to sustain their economies.
» We are seeing a classic breakdown of the major monetary, political, and geopolitical orders. «
There are big pressures for these imbalances to be corrected one way or another and doing so will change the monetary order in major ways. For example, it is obviously incongruous to have both large trade imbalances and large capital imbalances in a deglobalizing world in which the major players can't trust that the other major players won't cut them off from the items they need (which is an American worry) or pay them the money they are owed (which is a Chinese worry). This is a result of these parties being in a type of war in which self-sufficiency is of paramount importance. Anyone who has studied history knows that such risks under such circumstances have repeatedly led to the same sorts of problems we're seeing now.
So, the old monetary/economic order in which countries like China manufacture inexpensively, sell to Americans, and acquire American debt assets, and Americans borrow money from countries like China to make those purchases and build up huge debt liabilities will have to change. These obviously unsustainable circumstances are made even more so by the fact that they have led to American manufacturing deteriorating, which both hollows out middle class jobs in the US and requires America to import needed items from a country that it is increasingly seeing as an enemy. In an era of deglobalization, these big trade and capital imbalances, which reflect trade and capital interconnectedness, will have to shrink one way or another.
From Trade War to Financial War.
Chinese Embassy in the US, April 11, 2025.
Also, it should be obvious that the US government debt level and the rate at which the government debt is being added to is unsustainable. (You can find my analysis of this in my new book How Countries Go Broke: The Big Cycle.) Clearly, the monetary order will have to change in big disruptive ways to reduce all these imbalances and excesses, and we are in the early part of the process of it changing. There are huge capital market implications to this that have huge economic implications, which I will delve into at another time.
2. The domestic political order is breaking down due to huge gaps in people's education levels, opportunity levels, productivity levels, income and wealth levels, and values—and because of the ineffectiveness of the existing political order to fix things. These conditions are manifest in win-at-all-cost fights between populists of the right and populists of the left over which side will have the power and control to run things. This is leading to democracies breaking down because democracies require compromise and adherence to the rule of law, and history has shown that both break down at times like those we are now in. History also shows that strong autocratic leaders emerge as classic democracy and classic rule of law are removed as barriers to autocratic leadership. Obviously, the current unstable political situation will be affected by the other four forces I’m referring to here—e.g., problems in the stock market and economy will likely create political and geopolitical problems.
» Tariffs on US goods will rise to 125% — and this will be our final adjustment.
Regardless of future US actions, China will no longer respond. «
China's Customs Tariff Commission, April 11, 2025.
3. The international geopolitical world order is breaking down because the era of one dominant power (the US) that dictates the order that other countries follow is over. The multilateral, cooperative world order the US led is being replaced by a unilateral, power-rules approach. In this new order, the US is still largest power in the world and is shifting to a unilateral, "America first" approach. We are now seeing that manifest in the US led trade-war, geopolitical war, technology war, and, in some cases, military wars.
4. Acts of nature (droughts, floods and pandemics) are increasingly disruptive, and
5. Amazing changes in technology such as AI will be highly impactful to all aspects of life, including the money/debt/ economic order, the political order, the international order (by affecting interactions between countries economically and militarily), and the costs of acts of nature.
Shadowboxing in a hall of mirrors:
On April 12, Trump excluded smartphones and electronics
from his April 9, 125% tariff on China.
Changes in these forces and how they are affecting each other is what we should be focusing on. For that reason, I urge you to not to let news-grabbing dramatic changes like the tariffs draw your attention away from these five big forces and their interrelationships, which are the real drivers of Overall Big Cycles changes.
Ray Dalio, founder of the world’s largest hedge fund, said mismanaged global tariffs and economic policies could push the US economy, already nearing recession, into a far worse crisis, April 13, 2025.
[...] I also urge you to think about the interrelationships that are critically important. For example, think about how Donald Trump's actions on tariffs will affect 1) the monetary/market, economy order (it will be disruptive to it), 2) the domestic political order (it will likely be disruptive to it as it will probably undermine his support), 3) the international geopolitical order (it will be disruptive to it in many obvious ways that are financial, economic, political, and geopolitical) 4) climate (it will somewhat undermine the world’s ability to deal with the climate change issue effectively), and 5) technology development (it will be disruptive in some positive ways to the US, like bringing more technology production into the US, and in some harmful ways, like being disruptive to the capital markets that are needed to support technology development and in too many other ways to innumerate here.)
Trump commenting on how much money his billionaire friends made when he paused tariffs on Wednesday, April 9: "He made $2.5 billion today, and he made $900 million".
Corruption, insider trading, or just good timing and coincidence?
April 10, 2025.
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