The Trump administration’s recent policies have been needlessly chaotic, few would argue otherwise. But judging by what has already been published by his chosen advisors, there is a method to the madness - an incredibly risky method, but a method for good or ill.

The key problem with the recent sweeping changes is that, unlike in previous administrations, the changes have not been signalled to key friendly communicators and media outlets well ahead of time, and so the response has been either gawping at the insanity of it all, or blind and brainless partisan signalling of loyalty to the new regime, instead of careful and well-thought-out defences and pre-emptive framing of the problems.

Neither of the typical existing responses are healthy - what is needed is some empirical marker of success or failure. This means being able to judge the policies on their own terms. By analysing the framework proposed by the chairman of the Council of Economic Advisors, Stephen Miran, we can get an objective benchmark, and then all we have to do is wait with a checklist to see how much gets implemented, and what goes wrong or right.

The lack of clarity in public statements, the apparent flipflopping, and the belligerent communications strategy are not just noise, but they are also not a pure signal. We need to focus on what the actual stated aims are here, and see to what extent they align with actual decisions and reactions. We also need to look at the logic of the outgoing system.

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Criticism

Critics on the right and left have argued that the MAGA base is confused and split on what the purpose of these new policies are, and this is clearly true to a significant extent.

Some champion it as economic nationalism to boost manufacturing, while others see it as a negotiation ploy to lower global tariffs and foster freer trade. This is clearly a contradiction. If re-industrialization is the aim, tariffs should be precise, not a sloppy blanket formula tied to trade deficits. Absurd examples, like a 90% tariff on Vietnam or duties on tiny African nations and a penguin-inhabited islandmake this all seem rather mad, even cartoonish.

Classic Liberal economics imply that the obsession with trade deficits is completely misguided. Deficits simply mean exchanging money for goods, not a loss, and fixating on them reflects a shallow dislike of the aesthetics of the word “deficit” rather than actual economic logic. Substantially, Americans have reaped cheap imports thanks to dollar dominance—a mark of imperial strength, not victimhood. Tariffs will take this all away, slashing purchasing power and living standards - particularly defined by the ability to purchase cheap consumer goods.

Self-sufficiency is also a pipe dream. The U.S. imports $3.38 trillion in goods yearly because it can’t match global efficiency. Replicating this supply chain at home is impossible due to scale, labor costs, and global specialization. Nike’s shift to Vietnam, where wages are $100-200 a week versus $600-$800 in the U.S., can’t be undone without a great deal of misery. Comparisons to 19th-century tariff wins don’t fit today’s context either. Back then, America was an emerging power feeding post-war markets; now, it’s the top economy leaning on purchasing might, not production for poorer nations.

The Trump team’s public communications strategy is also rubbish, boiling down complex macroeconomic goals into shallow populist slogans like “reciprocal trade,” or even the notorious “beautiful beef” remark.

The spin on the new policies is generally seen as dishonest, which is, I think, accurate - nobody appears to have read the policy frameworks, and are simply going by daily press statements as a guide, meaning defenders and detractors alike are hopping from one disjointed issue to another.

The administration’s blunt approach risks alienating allies like the EU and Canada, potentially driving them to China or BRICS for stability, especially if short-term pain sparks a financial crash.

Voters may also blame Trump for raising cost of cheap goods, giving Democrats an easy narrative to use to win the mid-terms. A cut in living standards risks tanking Trump’s project and killing the right wing in the West for a generation. Higher prices and lower wage could anger voters used to abundance - they were promised a golden age, they were fed up with stagnant aspirations and falling living standards.

If Trump doesn’t stick the landing, he risks undoing everything his supporters have hoped for, and the entire global American empire with it, handing the earth to China.

So, no pressure.

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Imperial tribute system

In his book Super Imperialism, Michael Hudson makes an elegant if counterintuitive argument that the United States’ global international order has functioned as an imperial tribute system.

Typically in classic empires, like China or Rome, provinces would pay tribute in direct taxation, whether in goods or currency. In the British Empire, provinces were organised under a centrally planned economy, with each (non-dominion) colony designated a certain class of (usually primary) goods to produce to trade with Britain’s finished manufacturing goods, securing their position higher in the value chain. This allowed them to frame a highly mercantilist policy as free trade, and siphoning up cheap raw materials into a rapidly industrialising society.

Hudson’s basic idea is that America has taken this a step further, and organised a system where America effectively pays monopoly money for consumer goods. They use the global reserve status and the foreign debt as a means to allow Americans to purchase cheap goods from abroad, while sending out debt in the form of bonds, which they then pay off by printing money.

This primarily emerged after 1971, when the US finally ditched the last peg to the gold price, and took the entire global economic system to fiat. This decision, following the London Gold Pool's disbandment in March 1968, forced central banks to hold US debt instead of gold. Hudson argues this created a "Treasury-bill standard," where foreign central banks recycled surplus dollars into US Treasury bonds, financing US deficits.

Easing this debt burden by printing dollars, unlike for other countries, results in little inflation, because most of these dollars are held abroad, meaning that even fairly profligate quantitative easing has relatively little impact on the domestic market, and corporations in the domestic market, being first receivers, take advantage of the Cantillon Effect, and are less impacted by inflation than consumers, but also the domestic market as a whole is less impacted than the foreign market.

US debt can balloon to enormous proportions and require comparatively little taxation to repay. While Americans were shocked by inflation in the years under Joe Biden, the effects of printing more money than one has in the prior 200 years would have Zimbabwefied any other country. In America, they simply saw prices cumulatively compound to roughly 20.5% over the four-year span from the start of 2020 to the end of 2024. Of course, a lot of consumer goods and essential food items increased at a much higher rate, and many consumers reported up to a fourfold increase in the cost of certain baskets of goods. But we will leave the fiddly quantification of this to people with more time.

What is much more salient, is that this system allows the US to fund military spending. In the Vietnam War, for example, cumulative deficits of $50 billion from 1968 to 1973 were offset by foreign governments effectively financing $42 billion of a $47 billion net public debt increase.

The dollar’s reserve status also enables the U.S. to impose sanctions (e.g., freezing assets, SWIFT restrictions) at minimal cost. But this doesn’t work on Russia or China, who need to be countered in harder and more material ways if America wishes to contain them.

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Downsides

In November last year, Hudson Bay Capital released a paper written by now-chairman of the Council of Economic Advisors to the Trump administration, Stephen Miran. The man has a PhD from Harvard, has worked with the treasury under Biden, and was a key strategist at HBC.

The document argues the US dollar's overvaluation, due to its reserve status, harms manufacturing and trade, proposing tariffs and currency policies to address this.

It also argues that the present conditions are fundamentally unstable.

The Triffin dilemma, named after economist Robert Triffin, describes a certain problem - the country issuing a global reserve currency needs to run current account deficits to provide liquidity to the global economy, but these deficits can erode confidence in its currency in the long term.

Countries hold dollar reserves to facilitate international trade and investment, creating demand for dollars. To meet this demand, the US must run a current account deficit, meaning it imports more than it exports. This can lead to a build-up of debt and, potentially, a loss of confidence in the currency as the deficit reaches tipping point - the reserve system can tolerate a lot of quantitative easing, but not an infinite amount.

This is the tension - too little printing, and the debt becomes unmanageable. Too little spending, and the international system becomes illiquid. Too little borrowing, and you can't spend.

Maintaining the status quo could intensify efforts by other nations to minimize dollar exposure, benefiting alternatives like gold or cryptocurrencies, despite challenges in internationalizing the renminbi.

There have already been efforts to pursue dedollarisation since 2014. Russia began reducing dollar dependency after U.S. sanctions over Crimea, cutting dollar-denominated assets to 16% of its reserves by 2021 and eliminating dollars from its National Wealth Fund. Russia’s exports to BRICS nations shifted from 95% dollar-based in 2013 to under 10% by 2020, favoring rubles and yuan, and in 2017, it launched the System for Transfer of Financial Messages (SPFS) as a SWIFT alternative.

The Cross-Border Interbank Payment System (CIPS), launched in 2015, processed 125.5 billion RMB ($17.33 billion) in bonds from January-October 2023, up 61% from 2022. China and Russia’s yuan-ruble oil trades intensified after 2022 sanctions froze Russia’s $300 billion in reserves. China signed agreements with 48 countries for cross-border use of the yuan, raising its global transaction share to an admittedly modest 7% by 2023.

BRICS nations, representing 35% of global GDP (PPP), explored a common currency in 2023, and efforts peaked post-2022 Ukraine invasion but showed no clear abatement by April 2025, with dollar reserves dropping 11% since 2016, per BNN Bloomberg, and CBDC initiatives involving 130 countries ongoing.

Saudi Arabia’s also joined, and have been closer to the East since 2014. Saudi Arabia’s 50-year petrodollar agreement with the U.S. expired on June 9, 2024, shifting oil sales to multiple currencies, including yuan, euros, and yen. Finance Minister Mohammed Al-Jadaan’s 2023 openness to non-dollar trade signaled a pivot, with 17% of global crude exports potentially affected.

The dollar’s reserve status requires persistent current account deficits, which have been ongoing since 1982, except for two quarters in 1991. Recent fiscal years show deficits near 7% of GDP, straining export sectors as global GDP grows. The Social Security Trust Fund is projected to run out by 2033, increasing borrowing needs. This is leading to unsustainable debt levels, and threatens triggering the tipping point where credit risk in reserve assets undermines the dollar’s status.

America is not at that point yet, but Miran wants to get ahead of the curve - continuing these policies is leading to unsustainable public and foreign debt, with the U.S.'s share of global GDP shrinking from 40% in the 1960s to 26% now.

The policies also impose a growing burden on U.S. taxpayers too, by subsidizing the global financial system. There’s also a risk of dollar devaluation and increased market volatility, particularly if other countries diversify away from the dollar, potentially spiking interest rates and affecting financial markets.

Reserve holders thus impose a burden on U.S. taxpayers, who are effectively subsidizing the export sector. Unilateral approaches like user fees on foreign official Treasury holdings (e.g., withholding 1-2% interest remittances) could mitigate this but risk dollar devaluation and market volatility, potentially spiking long yields and affecting stock markets.

Miran’s document estimates that reserve accumulation, if pursued via the Federal Reserve, could expose taxpayers to $1 trillion in foreign asset credit risk, likely resulting in losses due to negative carry, especially with interest on reserve balances. Inflationary pressures from creating new dollars to buy foreign currency are noted, requiring sterilization measures like selling bills, which supports the dollar but counteracts devaluation effects.

The present system also comes at the cost of local manufacturing, which in the long run makes America increasingly dependent on international supply chains at a time when China is increasingly asserting its influence, such as in the case of the Suez Canal. Eastern-aligned powers like the Houthis have effectively blockaded the Red Sea, diverting international shipping past the Cape of Good Hope, while allowing free passage for Russia, Iran and China.

A global confrontation is coming, and soft financial power can only hold out so long against real shifts in manufacturing - you cannot hope to make serious global decisions while essential goods that cannot be replaced are controlled by one’s adversary.

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So what’s the plan?

Well, then we get tariffs. The idea, according to the White House Fact Sheet, is a 10% basic global tariff, with stiffer tariffs for countries with greater trade surpluses, and an even stauncher approach to China. Some exemptions apply:

“Some goods will not be subject to the Reciprocal Tariff. These include: (1) articles subject to 50 USC 1702(b); (2) steel/aluminum articles and autos/auto parts already subject to Section 232 tariffs; (3) copper, pharmaceuticals, semiconductors, and lumber articles; (4) all articles that may become subject to future Section 232 tariffs; (5) bullion; and (6) energy and other certain minerals that are not available in the United States.”

But this is a crude document meant to simply convey the ideas in very broad strokes, and so doesn’t discuss the risks. Miran however, is acutely aware of them:

“There is a path by which these policies can be implemented without material adverse consequences, but it is narrow, and will require currency offset for tariffs and either gradualism or coordination with allies or the Federal Reserve on the dollar”

What he is effectively arguing, is that the new tariff regime will have to show preference for allies, and some significant currency devaluation. This will lead to a slightly more egalitarian relationship within America's sphere of influence, and greater autonomy for allies, but a much stricter global financial regime with tighter access to credit.

Miran’s framework itself proposes a 60% tariff on China and 10% globally.  Then it talks of a "Mar-a-Lago Accord" for replacing all current trade agreements with a massive multiple simultaneous negotiation of bipartisan trade agreements across the board, and multilateral currency agreements.

He references previous Trump tariffs from 2018-2019, arguing that China was easily capable of offsetting them by printing money - China has a two-currency system, with a foreign trading currency (RMB) and a domestic currency (Yuan), which allows them to ringfence their trade and domestic policies, and uses a federated local banking system whereby provincial-level monetary consequences can be defrayed.

Trump’s first-term tariffs increased by 17.9 percentage points but were blithely offset by a 13.7% RMB depreciation, resulting in a 4.1% after-tariff USD import price rise. Miran suggests graduated implementation and optimal rates to be at least 20% to balance protection and market impact.

The US dollar is considered overvalued, due to inelastic demand for reserve assets, with approximately $12 trillion in global foreign exchange reserves, 60% of which are allocated in dollars. The argument is that this overvaluation is what leads to trade deficits that disadvantage US manufacturing.

The document highlights significant job losses in manufacturing due to trade with China, estimating 600,000 to 1 million jobs lost from 2000-2011, with broader categories seeing 2 million jobs lost over the decade. It also notes disparities in effective tariff rates, with the US at about 3%, the EU at 5%, and China at 10%, and specific bilateral discrepancies like America’s 2.5% vs the EU 10% on autos.

Proposed currency policies risk including potential reductions in US Treasury (UST) value, impacting yields (10-year at 4.25%, 3-year at 4.1%), and CPI inflation boosts of 60-100 basis points for a 20% dollar depreciation - this has been factored in. Multilateral approaches involve forex reserves like the $280 billion held by the EU, $800 billion in Switzerland, $3 trillion in China, and $1.2 trillion in Japan. They aim to unilaterally impose user fees on foreign official Treasury holdings, targeting reserve accumulation.

The document emphasizes tariffs as a first step to gain leverage, and stresses gradualism, waiting for lower inflation/deficits, and Fed cooperation via tools like SOMA , with historical references to Operation Twist - lower long-term interest rates to further stimulate the U.S. economy.

The document advises mitigating volatility through small, differentiated steps through the Fed, while warning of stronger friend/foe demarcations, potential security umbrella withdrawal (handing over to allies), and increased currency volatility, with efforts to minimize USD exposure (investors moving into gold and crypto).

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Implementation

So, on April 2, 2025, President Trump declared a national emergency and whacked a minimum 10% tariff on all countries. After this opening gambit, he has opened the door to free bilateral trade with everyone except China, with a 90-day pause for everyone else, while negotiations commence.

Those who have approached America to negotiate preferential trade deals reportedly include over 70 countries, but not all are listed in one place. Israel, Japan, UK, Vietnam, Cambodia, Thailand, India, South Korea, Australia, Argentina, Canada, Mexico, Switzerland, Malaysia, EU, and Indonesia, are easy to find, and these are a decent list. Some, like Israel, have even offered to lift tariffs on American goods entirely, as a sign of loyalty and good faith.

China, clearly has not been liking this new arrangement and has been pushing back. They also have the clout to do so, with a growing and far-reaching trade network with most of the world.

But Canada and the European Union have been very fidgety. Just prior to the major “Liberation Day” announcement, Canada imposed 25% tariffs on $29.8 billion worth of US goods, effective March 13, 2025, targeting steel and aluminum. But these are a narrower response to specific steel and aluminium tariffs imposed by the Trump administration earlier this year, and may be renegotiated in the current round.

These steel and aluminium tariffs also generated a retaliatory response from the EU (though in typical fashion, they took longer to respond), and Brussels approved retaliatory tariffs on €21 billion of US goods, with rates up to 25%, effective from April 15, 2025, targeting items from almonds and soybeans to yachts.

But the character of these retaliations is limited. While Mark Carney and Ursula von der Leyen have adopted a strong rhetorical stance, they have been somewhat circumspect in what they are willing to charge tariffs on. Canadian officials have announced that they will not target most food and other essentials to avoid job loss and rises in the cost of living, and similar noises have come from the EU.

The trouble with this is that Trump has a firm reputation for being insane and impervious to criticism, meaning that he has an enormous intimidation factor, aside from America’s sheer mass as a country.

Economic advisors close to Trump, including former trade chief Robert Lighthizer, have been debating ways to devalue the US dollar to boost exports, which fits the document’s argument for using currency policies to address dollar overvaluation, but these remain in planning stages.

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Roadblocks

Coordination with the Fed remains uncertain. The document warns of potential volatility, both financially and geopolitically, and we are already seeing that. Chatham House suggests that Trump’s tariffs could strengthen the dollar, and the devaluation and the “Mar-a-Lago Accord” has not yet come about. The Federal Reserve is headed by Jerome Powell, a longtime critic of Trump whom he cannot constitutionally remove, with a term of office ending in 2028.

Plus, financial punishment of rebellious conservative regimes is not new, as seen by Liz Truss, the hopelessly naive woman who briefly headed the United Kingdom and attempted to cut taxes and government spending against the wishes of the Bank of England, headed by now-PM of Canada, Mark Carney. The Bank's interventions, such as buying bonds after initially announcing sales, were not stabilizing measures, but fairly naked market manipulation timed to maximise instability and discredit Truss’s rather moderate fiscal position.

But they may have to cave to currency devaluation plans, as refusing to do so would severely hurt Western markets across the board.

It’s clear however, that not everything has gone according to plan. While several countries have approached the US to renegotiate, the core problem remains - this will be a disruptive change, and will make life harder for consumers in the US in the short- to mid-term.

Plus, allies are not happy about the change, and even those approaching the negotiating table are doing so with gritted teeth.

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Metrics of success

Much like the previous system change, it is being promoted by a conservative populist. Richard Nixon was the man who took America off the gold standard and reordered international trade toward the imperial system that (after the 80s financial reforms, of course) generated those glorious free-trade returns America lived off until 2008, with some not insubstantial gains remaining even after the crash.

But the global and domestic shocks crippled living standards in the 1970s, and he was thoroughly blamed for it. Not only that, but as the Nixon Foundation insists to this day, the CIA framed him for a transgression which is commonplace between political transitions today - Obama’s administration wiretapped Trump Tower and had several fraudulent national security hoaxes released to try to eliminate Trump as competition. They contend that the men who broke into Watergate, and the men who reported on them, were working with the FBI and CIA, and have some not-insignificant evidence to back it up.

While efforts to block or unseat Trump have abated, his success or failure now rests on threading an impossible rope through an impossible needle. Should he fail to secure short-term gains and long-term dominance, despite their structural contradictions, he will certainly see defeat and discreditation.

The risk here is that Trump is being allowed to re-order the global trade system in preparation for a confrontation with China that he will not get to see, and in the meantime, his support base will be sacrificed and a progressive-liberal coalition will get to ride the wave of recovery into the final clash with the new Sparta to America’s Athens.