It’s Not A Trade War, Stupid!

President Trump’s global tariff policy announced in early April has had a much broader and deeper impact than originally estimated by many. Despite this shock causing a widespread decline in global stock markets, including Wall Street, it has not deterred Trump’s steadfast determination to implement his policies. The practices and ultimate goals of these policies, including those articulated by Trump himself, remain uncertain.

In swift response to the U.S. actions, China imposed an equal 34% tariff on American imports. Trump retaliated quickly by increasing tariffs on Chinese goods by an additional 50%, reaching 104%. Subsequently, these tariffs were raised to 125%， 145%，245%. This escalation indicates that bilateral trade activities between China and the U.S. have likely come to a near standstill, marking the beginning of an intense trade war.

Surveying the global reactions to the U.S. tariff war, countries are all assessing their positions in this trade conflict, calculating the damage and potential ways out, determining response measures. While this is understandable, the situation sparked by the United States is not merely a “trade war” nor just a “tariff war.” Understanding the fundamental nature of this global conflict is essential to correctly and effectively face and respond to this situation, ultimately achieving victory.

For Trump, tariffs are just a means, a tool, and more significantly, a big stick used to force opponents to yield to his demands. Criticisms of his retaliatory tariff rates as being calculated incorrectly, unreasonable, or lacking theoretical basis miss the point entirely. Whether these standards make sense is not crucial; as long as they roughly reflect the trade imbalance between the U.S. and the respective country, it suffices for Trump.

U.S. Facing a “Twin Deficit” Crisis

Trump’s introduction of tariffs and the escalation thereof might not solely pertain to economic or trade affairs. His attitude towards tariffs is evident from his use of increased tariffs to pressure some countries in South America to accept illegal immigrants sent by the U.S. Balancing trade is not necessarily the true objective behind the U.S. instigating this conflict. Otherwise, the counterproposal of mutual zero tariffs put forth by the EU and some countries should have been immediately accepted by Trump. Not to mention that even Hong Kong, a free trade port with zero tariffs, has been included in the list of objects subject to a 10% U.S. tariff.

In this conflict, trade is just one battlefield, the first platform, the initial level of engagement—it is merely one front in the entire conflict, albeit the current one. Trade and economic issues are likely not the ultimate goal, at least certainly not the sole one. President Trump and his key officials have clearly stated that the measures being rolled out are a key policy to “Make America Great Again” (MAGA). Making America “great again” involves far more than just eliminating the U.S. trade deficit or achieving a simple trade balance; ultimately, it might be unrelated to these factors.

American investor and founder of Bridgewater Associates, Ray Dalio, recently pointed out the essence of the current global crisis in an article. He stated that it is far beyond tariffs or trade balances, but rather the systemic breakdown of three major global—primarily U.S.-related—orders: monetary, political, and geopolitical orders. What Trump has done is just one of the many outcomes stemming from this larger picture. He believes that most people overlook the underlying logic that led to Trump’s presidency and the enactment of these tariff policies, neglecting the five fundamental forces that are driving everything (including tariffs). These forces include:

1. The collapse of the monetary/economic order:
The global debt stock is too high and growing too fast, leading to debt imbalances. The existing capital markets and economies overly rely on this unsustainable debt scale. This unsustainability stems from the U.S.’s excessive reliance on borrowing, deeply entrenched in debt-driven consumption.

2. The collapse of the domestic political order in the U.S:
Serious domestic issues in the U.S., such as widening gaps in education, opportunities, productivity, income, wealth, and values, have led to the current political system and ecosystem becoming inadequate. Under a winner-takes-all electoral system, the intense struggle between right-wing populism and left-wing populism in the U.S. has made compromise and the rule of law, upon which the system relies, impossible and impractical, thereby shaking the system.

3. The collapse of the international geopolitical order:
The end of the U.S.-led unipolar hegemony era, with its established multilateral cooperation system being replaced by unilateralism where might makes right. Although the U.S. remains the largest superpower, it has shifted towards an “America First” strategy, attempting to reshape the international landscape through trade wars, tech wars, localized military conflicts, etc.

4. The last two factors among the five are intensified impacts from natural disasters (droughts, floods, pandemics) and technological revolutions like artificial intelligence, which are not discussed here.

Dalio suggests that in current situation, one should seek explanations from the root causes of events, which is crucial. Focusing excessively on attention-grabbing events like tariffs may lead to overlooking the deep-seated forces driving surface events, resulting in a misjudgment of the impact of events on fundamental trends and an inability to grasp future development paths. These points are very accurate and important.

However, we should not forget that Dalio is a top investor in the financial industry and an American, so his views are naturally biased. For instance, he attributes the collapse of the U.S. monetary/economic order to China (over-reliance on exports), raising specific issues:

1. The debt problem is mainly an internal issue of the U.S. What does it have to do with the collapse of geopolitical order?

2. Similarly, the internal divisions and various issues in the U.S. have no direct link to the changes in the geopolitical order.

Dalio clearly understands the relationship between domestic and foreign affairs. He proposes that historical experiences should be considered, suggesting that in dire situations, the U.S. might resort to extreme measures, such as suspending debt repayments to “enemy countries,” capital controls to prevent outflows, introducing special taxes, etc., all of which were once considered unimaginable measures but could now be possible.

These strategies or similar actions have been suggested by Trump’s aides in various forms. For example, officials have recently proposed the possibility of Chinese companies delisting in the U.S. and pressuring U.S. bond holders to convert bonds into low-interest hundred-year bonds. There have even been suggestions of using the outstanding debts from the Qing Dynasty’s “Unequal Treaties” as a pretext to seize U.S. Treasury bonds held by China. Dalio points out that Trump’s actions could ultimately lead to “Great Depression, civil war, world war, and then the birth of a new order.” While this may sound alarmist, such speculations drawn from historical experience should not be underestimated.

What Trump is currently doing is nothing short of a revolution, although he has not characterized his actions in this way. Different from the Democratic Party and many Americans, Trump reflects the thoughts of a portion of the American elite. They believe that the U.S. is facing a major national crisis, manifested in the “twin deficits,” namely the huge and almost uncontrollable external trade deficit and the government’s fiscal deficit. This situation is unsustainable, and if not addressed, the U.S. will collapse, requiring those in power to take decisive and significant actions. Even many individuals who disagree with Trump’s current policies agree with this basic analysis.

The “America First” slogan touted by Trump does not imply prioritizing American interests over others. Any policy by a U.S. leader naturally places American interests first. The essence of this statement is that he believes the U.S.’s external commitments have become overly burdensome and must be scaled back to address internal issues before moving forward. Similarly, the slogan “Make America Great Again” carries an underlying premise that the U.S. is currently not as great or powerful, facing numerous structural challenges. This reality is something many within the American ruling class are reluctant to confront, in stark contrast to the Democratic Party’s narrative of a thriving U.S. economy. Trump’s re-election reflects a widespread disagreement among a significant portion of Americans with the Democratic Party’s tone, although their understanding of the core issues facing the U.S. and Trump’s solutions may not be complete.

The narrative put forth by Trump and his cohorts revolves around the overvaluation of the U.S. dollar, which hampers exports and has hollowed out American manufacturing over the decades. This has led to soaring government deficits and massive debts, where annual interest payments now surpass defense spending, although this indicator lacks a solid theoretical basis, its historical significance is potent enough to awaken many within the American ruling class.

A movement to save the nation urges the public to join the fight

The three-year conflict between Russia and Ukraine, initially a regional proxy war, has exposed critical shortcomings in U.S. defense production. In the face of potential conflicts like those in the Taiwan Strait, deemed among the most perilous globally, the U.S. finds itself inadequately prepared. This reality is unacceptable for the U.S. as the global hegemon. The Trump administration’s overt goal is to restore the U.S. as an industrial powerhouse, utilizing any means to facilitate the reshoring of industries. Making America powerful again, dominating and leading the world, is the ultimate objective of Trump and his cadre.

However, this perspective is not universally shared within the American ruling class. Many believe that a resurgence of manufacturing in the U.S., at least in the short term, is implausible. Deeper divisions exist, with some asserting that maintaining America’s dominant global position solely requires leadership in finance, technology, military, and politics (including ideology and values). Yet, those advocating this viewpoint suffered defeat in the recent U.S. elections.

The decades-long trend of globalization, particularly since China’s entry into the WTO in this century, has increasingly disadvantaged the U.S. A famous quote from the former Chief Executive of Hong Kong, Tung Chee-hwa, stated that the biggest beneficiaries of globalization were China and the United States. This scenario, where one side received affordable and high-quality products while the other side obtained the significant employment it required, is no longer the case. The development of free trade, coupled with structural issues within the U.S., has hollowed out its manufacturing sector, led to a decline in the middle class’s standard of living, exacerbated wealth inequality, intensified societal divisions, and diminished U.S. influence globally, amplifying the adverse effects of globalization on the U.S.

Trump’s initiative is essentially a movement to save America. His aides have repeatedly emphasized that the U.S. is in dire straits, and rallying cries of “Make America Great Again” and “America First” call on the public to join the fight and support the government. In this charged atmosphere, the real danger lies in the potential escalation of conflicts to the political and even military realms. Establishing and maintaining a hegemonic position relies not solely on economic and trade measures but also on political and military factors behind global trade relations. As a conclusion, I refer to a recent development shared by a friend, seemingly unrelated to the current controversies but, in reality, a part of the entire issue.

The People’s Bank of China recently announced that the cross-border settlement system for the digital renminbi will be fully connected to ten ASEAN countries and six Middle Eastern countries. This signifies that 38% of global trade will bypass the primarily dollar-based SWIFT system, entering the era of the “digital renminbi.” Termed by The Economist as the outpost to Bretton Woods 2.0, this financial game is utilizing blockchain technology to rewrite the foundational code of the global economy. While the SWIFT system struggles with cross-border payments taking 3 to 5 days, China’s developed digital currency bridge has compressed settlement speeds to 7 seconds. In a first test in Hong Kong and Abu Dhabi, a company made payments to a Middle Eastern supplier using the digital renminbi, bypassing six intermediary banks and settling in real-time through a distributed ledger, reducing transaction fees by 98%. This lightning-fast payment capability makes the dominant dollar-led traditional clearing system seem cumbersome in an instant. What further alarms the West is the technological moat surrounding China’s digital currency. The blockchain technology employed by the digital renminbi not only enables traceable transactions but also automatically enforces anti-money laundering regulations.

Quiet De-dollarization of the Digital Renminbi

In the China/Indonesia “Two Countries, Twin Parks” project, the Industrial Bank utilized the digital renminbi to complete the first cross-border payment, taking only 8 seconds from order confirmation to fund arrival, a 100-fold increase in efficiency compared to traditional methods. This technological advantage has prompted 23 central banks worldwide to actively participate in digital currency bridge testing, with settlement costs for Middle Eastern energy traders reduced by 75%. The profound impact of this technological revolution lies in the reconstruction of financial sovereignty. While the U.S. attempted to sanction Iran using SWIFT, China had already established a closed-loop renminbi payment system in Southeast Asia.

Data shows that in 2024, cross-border renminbi settlements among ASEAN countries surpassed 5.8 trillion yuan, a 120% increase from 2021. Malaysia, Singapore, and six other countries have included the renminbi in their foreign exchange reserves, with Thailand completing its first oil settlement using the digital renminbi. This wave of “de-dollarization” has prompted international clearing banks to exclaim, “China is defining the rules of the digital currency era.” What truly astonishes the world is China’s strategic layout. The digital renminbi is not just a payment tool but a technical vehicle for the Belt and Road Initiative. In projects like the China-Laos Railway and the Jakarta-Bandung High-Speed Railway, the digital renminbi integrates deeply with BeiDou navigation and quantum communication, jointly constructing the Digital Silk Road. While European car manufacturers settle Arctic shipping routes using the digital renminbi, China is leveraging blockchain technology to enhance trade efficiency by 400%. This strategy of combining virtual and real elements has made the U.S. dollar hegemony feel a systemic threat for the first time.

Today, 87% of countries globally have successfully adapted to the digital renminbi system, with cross-border payment volumes exceeding $1.2 trillion. While the U.S. debates whether digital currencies threaten the dollar’s status, China has quietly constructed a digital payment network covering 200 countries. This silent financial revolution not only concerns monetary sovereignty but also determines who can control the lifeline of the future global economy! This is significant news, indicating a large-scale de-dollarization that could fundamentally reset the world.

Welcome to the “Brave New World of the Future”!

Editor: Leo Cai