The New World Order

‘For the times they are a-changin’’ – Bob Dylan

Part One – mainly about tariffs

Introduction

In the last few months, my mind has been reflecting the turmoil in the world around us. I have found myself questioning what I thought were fundamental truths of history, morality and ethics. I’m writing this article in an attempt to clarify what I think is happening in the world – what has changed, what may not have changed, what we know and what we don’t know. The situation is extremely dynamic and changes by the day, but some things – such as the respective world views of Messrs Trump and Putin – change very little from one year to the next. But these men are 78 and 72 years old, respectively. Neither will live forever, and neither has an obvious successor. What happens afterwards? Will the trade war escalate?  Are we close to World War Three? Do global institutions like the UN and NATO really have any moral superiority over any other power on Earth? Did they ever? Do institutions, however well-meaning, always become ineffectual and inward-looking? Is authoritarian government actually better suited than democracy to the demands of this twenty-first-century world? Should Ukraine and its allies accept peace at any price?

This piece won’t offer any cut-and-dried answers to these questions. Towards the end of Part Two, I will share a few of my thoughts as a private investor – for the investment markets are in turmoil too – but these won’t be exactly smug. I didn’t put everything into cash or gold three months ago, and am losing money alongside everyone else who didn’t.

As ever, it’s the long term that counts – but what might the long term look like?

As this is all ‘big-picture’ stuff I will try to quote statistics as little as possible but I have found them helpful in framing answers to questions like ‘How much longer can Russia prolong its assault on Ukraine?’ and ‘Is Russia really a suitable ally for the US as Mr Trump seems to think?’ so the stats. have crept in at such points, for which I apologise. I’ve become aware that you’re generally on a loser quoting statistics – some readers know them already, and often the ones who don’t know, don’t know because they aren’t interested. I have tried to restrain myself and sprinkle the stats like pepper, rather than anything more liberal.

Though it isn’t in my view the most fundamental issue, I’ll start at the current epicentre of turmoil – world trade and the new US tariff regime.

 

World trade and tariffs

The post-war generation of which I am a member grew up in a world where it was taken for granted that free trade was a Good Thing. I remember at school learning a saying that ‘when goods don’t cross borders, armies will’. But Mr Trump has just imposed tariffs on all America’s trading partners in order to ‘Make America Wealthy Again’. Is he right? Will protectionism revive US economic fortunes?

Of all the questions that confront us today, I found this one the easiest to answer. It’s important to understand why Trump thinks as he does, but there is no possibility that imposing these tariffs, and particularly in the way he has, will be anything other than a disaster for the US.

In our own lives, it’s easy to understand the value of trade. In the last few days, I have had my car repaired, my hair cut, and our lawn mown, and have paid for these services without expecting my barber, garage or friendly gardener to buy an equivalent value of goods or services from me. The trade works for both parties because I’m happy to pay for the service,e and the providers of the services are happy with the money they receive. A long career in business taught me the value of long-term relationships based on trust and mutual respect. Sometimes we were paying others for services, sometimes others were paying us. Rarely was the trade reciprocal, and there was never any need for it to be so, as each transaction was mutually beneficial. As everyone in business knows, today’s trusted relationships lead to tomorrow’s profitable trading.

In international trade, the same principle applies. Trust – the ability to rely on the partner you’re trading with – is the glue that holds the whole system together, and when trust breaks down, anarchy is the result. There are cases in which tariffs are justified, for example, where the government of one country is subsidising an industry in order to enable it to export goods to another country at prices below what it costs local companies to produce the same product. Without intervention, the local companies would be priced out of business, whereupon the importers could put their prices up.

The question is, is that the situation in today’s world? The Trump administration believes that it is.

Trump’s protectionism appears to be based on two ideas, one personal and the other historical. The fact that trade works best when it is mutually beneficial means nothing to him. Trump thinks that when two parties have dealings with one another, one must win and the other must lose. In most cases, he believes, the seller (in this case, the exporter) benefits to the detriment of the purchaser (the importer). This is a crude version of mercantilism, the idea that exports are good and imports are bad, a system in which each country strives to be a net exporter of goods, in other words, a net importer of money. Mr Trump is unhappy because America imports more goods than it exports. The exporters who have created this imbalance must be ‘ripping us off’.

 

This notion is fundamentally wrong. Society works best when each of us specialises in what we’re best at, and we all benefit from each other’s expertise. Trade between any two parties will never exactly balance, and there is no reason why it should. The USA has been running a trade deficit for around fifty years. Still, its economy has grown steadily during that time, and consistently faster than the economies of most other rich nations.

You could argue that the ability to buy products cheaper than you can make them yourself is a benefit, and the growth of the US economy would appear to support the argument. But MAGA supporters don’t see it like that. They believe that the world trading system is structurally biased against the US. Peter Navarro, President Trump’s senior adviser for trade and manufacturing, writing in the Financial Times (April 8^th) blames the trade deficit for the lack of growth in US median wages over the last twenty years. It isn’t just unequal tariffs, he says, but also ‘the barrage of non-tariff weapons foreign nations use to strangle American exports, unfairly boost their shipments to the US, and wall off their own markets. These tools include currency manipulation, value-added tax distortions, dumping, export subsidies, state-owned enterprises, IP (intellectual property) theft, discriminatory product standards, quotas, bans, opaque licensing regimes, burdensome customs procedures, data localisation mandates and increasingly the use of ‘lawfare’ in places like the EU to target America’s largest tech firms’.

The enraged tone of this article is as noteworthy as its content. We will no doubt hear a great deal more about these alleged unfair practices in the months ahead.

The whole ‘unfair practices’ narrative looks only at trade in goods. If services are included, the EU’s trade surplus with the US more or less disappears.

 

China Shock

In the early years of its recovery from the disaster of Maoism, China was undoubtedly mercantilist, flooding the world with products so cheap that no one could compete with them, and putting whole industries (for example, clothing and shoe manufacture) out of business in the rich world. In the early years, the quality of these cheap imports was often poor, but China quickly improved both the standard and range of its products. US consumers had the benefit of much cheaper goods, China grew richer and could pay its workers better, and much of the money flowing into China was recycled back to the US through investment in its government debt, which kept the interest rate down and made US borrowing easier to finance. The disadvantage of this arrangement was what came to be known as ‘China Shock’ – the loss of around one million jobs in US manufacturing, mainly in the rust belt and the south, with perhaps another one and a half million lost in peripheral industries that supported the manufacturers. Many of these jobs have still not been replaced, the areas where jobs have been lost remain depressed, and the voters in those areas overwhelmingly support Donald Trump.

Here’s a thought – America’s real problem isn’t so much its trade deficit in goods as the inexorable growth in wealth inequality, and the refusal of successive governments to consider taxing wealth – a policy which Mr Trump shows every sign of continuing.

 

Will this tariff package succeed?

Donald Trump believes he has done something very clever. As he would put it, he ‘holds all the cards’. Companies that export to America can avoid the tariffs by moving production to the US, creating ‘millions of jobs’. Or they can continue as before, in which case the importer of their goods will pay the tax (tariff) to the US government, reducing its budget deficit. Or the exporter’s government can offer concessions to the US (weaker regulations on imported US products, for example), which would boost US exports, helping to narrow the trade deficit. The alternatives, then, result in more US jobs, increased US government revenue, or higher US exports – every way you look, the US is a winner.

But this analysis overlooks one important fact. In less than three months, the Trump administration’s clearest message to the world has been to declare itself as an entity that no one in their right mind would want to do business with – capricious, self-interested (‘America First’), unreasonable and above all, untrustworthy. The decision to impose the new regime at such short notice is pure Trump, creating chaos and putting himself at the centre of things. This isn’t how business works. When major changes are needed, things are discussed, agreed upon, and put into place over a feasible timescale.

If the tariff proposals are as reasonable as the officials are saying, why couldn’t they be discussed in a reasonable and timely manner? But that doesn’t appear to be the administration’s style. It prefers a more vindictive, adversarial approach. Despite being one of the richest individuals in the world’s richest country, Mr Trump seems remarkably well endowed with seething resentment towards almost everyone.

If I were the Chief Executive of a major exporter to the US, I would be in no hurry to move production to the US. To do so would take perhaps a couple of years and cost a lot of money. Would I be able to recruit a workforce with the right skills at wages I could afford? And anyway, by the time a new factory could be made operational, the tariff regime could have changed. If the Trump administration can deny the constitutional rights of the children of immigrants born in the US to be US citizens, then it can impose any tax it wants on foreign companies, whatever guarantees it had offered to lure them into the US.

All over the world, companies and their governments are scrambling to work out a response, which will differ according to individual circumstances. A company must consider how much of its exports go to the US, and whether its profit margin is big enough to allow it to absorb the tariff, so the consumer isn’t confronted with a much higher price. For example, if the tariff was 10%, the exporter, the importer and the retailer could each reduce their prices by 2.5%, leaving the retail customer with a relatively minor 2.5% extra to pay. Most cases are much worse than this. As we have seen, China has retaliated with tit-for-tat tariffs; the EU is due to announce something similar, the UK hopes to agree a comprehensive trade deal which would avoid the tariffs altogether, while Jaguar Land Rover has suspended shipments to the US. World stock markets are collapsing in response to the mayhem that has only just begun. Significantly, the US stock market, which, according to Mr Trump, should be a major beneficiary of the new regime, is collapsing as fast as the others.

In view of the panic that followed Wednesday’s announcement, the logical response would be to postpone the regime for six months to allow time for proper negotiations. Since writing this, I have seen that a postponement has been suggested and firmly rebuffed by the White House as ‘fake nooze’.

In fairness to Mr Trump, it is high time the US government balanced its books.

US federal debt is an astonishing $36 trillion ($36 thousand billion). It hasn’t always been like this. In the late ‘90s, the debt was around $5 trillion, and on holiday in the US in 1999, I recall articles in USA Today speculating about what the country would do with all the cash that would accumulate when the debt had been wiped out in a few years’ time. That was before the technology crash, the Global Financial Crisis, COVID, the Ukraine war, the Cost of Living Crisis, tax cuts in Trump’s first term and heroic spending under Mr Biden’s Inflation Reduction Act. Federal debt rose from $4 trillion in 1990 to $10 trillion in 2008, $23 trillion in 2019, $ 33 trillion in 2023 and $ 36 trillion today. The curve is steepening. In the current fiscal year, which began in October 2024, the federal government has received $1. 9 trillion in revenue and has spent $3.0 trillion, adding a further trillion to the debt. It is spending $3 for every $2 it receives. Every few months, the government hits its debt ceiling, which is eventually raised after acrimonious debate between the political parties, and sometimes not before government services have had to be temporarily shut down. Clearly, this situation can’t continue. Whether applying punitive tariffs on imports while extending tax cuts for wealthy Americans will resolve it, remains to be seen.

Whether companies will rush to relocate to the US is another unanswered question. Mr Trump, for whom the truth is always what he says it is, will certainly claim that they have.

Mr Trump is quite right to be worried about China. Earlier this year, we learned that Chinese manufacturer BYD became the world’s largest supplier of electric vehicles in  2024 with worldwide sales of 4.1m, more than double Tesla’s 1.8m. BYD offers a model called the Seagull, which retails for less than $10,000. In January, the shares of Nvidia, a US manufacturer of chips for AI (Artificial Intelligence) applications, slumped on the news that a Chinese chatbot called DeepSeek had similar capabilities to OpenAI’s GPT-4, at around 5% of the cost.

China’s situation is vastly different to America’s. Its population has peaked and has started to decline, and its workforce has been shrinking for ten years (by thirty million people since 2015). China has no trade unions. China’s welfare system is rudimentary compared to that of the West, so the savings rate is very high (44% of China’s national output), creating plenty of spare cash looking for a home (this was the reason for the property bubble, which has burst so painfully in the last few years). And in an autocracy, a business has to do what the government tells it. The result of all these factors is that China is now hugely ahead of the US in manufacturing. Many facilities, known as ‘dark factories’ because there is no need to turn the lights on, are completely mechanised and can run for twenty-four hours a day, seven days a week. China could build these factories in the US, as they can be operated remotely from China, but they wouldn’t create employment in the US.

Mr Trump envisages the world’s governments queuing around the block to offer him concessions so they can continue trading with the US. In the short term, some will. But water doesn’t stop flowing when you dam a stream – it simply changes direction. No one wants to do business with a country as oppressive and as untrustworthy as the US has become, and the longer the tariff policy continues, the more its trading partners will find other markets and other workarounds. In the short term, the policy will raise some revenue and no doubt squeeze concessions from some trading partners. In the longer term, the water will flow into different channels, and the US will be marginalised and in every way poorer.

 

Looking back fondly on a golden past

In contrast to its brutalist modus operandi, the current US administration harks back sentimentally to a rose-tinted past, aspiring to Make America Great Again.

Trump’s favoured means of dealing with inconvenient truths is to ignore or deny them. So, climate change, by now universally accepted by the scientific community, is to him and his followers ‘a hoax’. The US risks being left behind in the race to decarbonise. Over half of Chinese new car sales are of electric vehicles. Huge improvements are being made in battery technology. Trump’s government has cut incentives to buy electric cars and is determined to ‘drill, baby drill’. He is determined to cut the price of oil. The price of oil may fall sharply soon enough, for what to him would be all the wrong reasons.

Trump’s government is overwhelmingly made up of white males. He is intensely hostile to any hint of ‘diversity’ or ‘wokeness’. There is an easy win here, but excluding talented people from positions of authority is never a good idea. It will tend to sap the power of America rather than strengthening it.

Many US states are weakening protections for underage workers.

Trump’s dream of rebuilding the US into an industrial powerhouse is a chimera. In contrast to China, the US is (or was, until recently) a democracy with a growing population, strong unions and no glut of savings looking for a home. Building dark factories to rival China’s would be unthinkable as, apart from anything else, it would defeat the object of creating employment.

 

How are they doing?

A weakness of the current US government is the narrowness of its talent pool, which, where important decisions are concerned, appears to consist solely of Mr Trump. The government is trying to negotiate a ceasefire between Israel and Hamas, which hasn’t worked, and another one between Russia and Ukraine, which can’t be agreed on, while engineering regime change in Venezuela and renegotiating trade terms with around 180 of its trading partners, at the same time as abolishing swathes of the civil service (also known in MAGA language as the ‘deep state’) and laying plans to annex Canada, Greenland, Gaza and buy the Panama Canal.

Already cracks are appearing. The world’s stock markets are telling Mr Trump exactly what they think of his tariffs. Protestors have taken to the streets. European customers have stopped buying Tesla cars. Countries are drawing up responses to the tariffs, which, for the most part, haven’t followed the expected line of meek capitulation. It is strongly rumoured that Mr Musk will soon be leaving his post at the head of the Department of Government Efficiency (DOGE). The right-wing Trumpite candidate was heavily defeated in the Wisconsin Supreme Court election last week despite Musk throwing an unprecedented $25m at the campaign. Legal challenges to Trump’s illegalities are springing up, including one against the tariffs, which could be lodged as early as this week.

Part Two of this article, which will appear in a few days’ time, will look in detail at the geopolitical situation and in particular the relations between the US, Russia, China, the EU and Britain. Tariffs are a hugely expensive blunder. International relations risk turning into something altogether darker.

 

PS…

After angrily denying on Tuesday that a three-month delay to the ‘reciprocal’ tariff was being considered, the White House announced on Wednesday, 9th that, all such tariffs would be suspended for 90 days. The basic 10% tariff on all imports is to stay in place. The tariff on Chinese imports into the US has been increased to a draconian 125%, while China has raised its tariff on US goods to 84% with immediate effect – levels which tell us that trade between the two countries is at an end for now.

Events have further clarified that the White House’s chief tariff target is China. Officials are especially incensed that China has evaded previous tariffs by building factories in neighbouring countries, such as Thailand, Vietnam, and Laos, and exporting to the US from there.

This latest move is pure genius. Having sent shock waves through the world’s financial markets, and, as he tells it, having already secured $7 trillion of pledges to invest in factories in the US, Trump now has the time to re-make individual deals to his country’s advantage. The school bully, as you might say, has forced the other children to promise him sweets, and he can now agree at leisure how many each will provide, and what flavour.

A more prosaic and perhaps more plausible explanation for Trump’s U-turn is what was happening in the US bond market. Investors had been panic-selling Treasury bonds, amid fears that these assets were no longer a safe haven. As prices slumped, yields rose, causing a sharp rise in the cost of new borrowing – and as we’ve seen, the US government needs to borrow another $1 trillion every six months.

The reaction from the world’s financial markets to this announcement suggests that they don’t expect to see much more of these ‘reciprocal’ tariffs.

The volte-face of April 9th doesn’t make America any more reliable as an ally or trading partner. Away from the noisy headlines, I expect the quiet realignment away from the US to gather pace.

 

I have used numerous sources to research this article. A full list will appear at the end of Part Two.

Thank you for reading this article. I would be interested in hearing your thoughts and am happy to reply to emails.

Tony Yarrow

April 8^th 2025

Please note this article contains the personal opinions of Tony Yarrow, who is a private investor and has no authorisation to give financial or investment advice. This article is not intended to contain any such advice.