From Trade Wars to Tech Revolutions: The Forces Shaping the Future

In a world increasingly shaped by geopolitical tension, economic uncertainty, and technological disruption, understanding the forces driving global markets has never been more critical.  

As Donald Trump re-emerges with a bold and controversial economic agenda, investors and analysts alike are grappling with the implications of his policies—from tariffs and tax cuts to debt dynamics and dollar diplomacy. But beneath the surface of political theatrics lies a deeper, more calculated strategy.  

In this article, Chief Investment Officer, David Long, unpacks the Trump administration’s economic playbook, explores the structural challenges facing the U.S., and highlights the transformative potential of artificial intelligence as a defining force for the future of global investing.

The Economic Method Behind the Trump Madness

In 2017, a widely circulated image of Donald Trump in a bumper car captured the global sense of chaos and unpredictability surrounding his first term as U.S. President. Fast forward eight years, and while the bumper car might now be upgraded to a cyber-truck, the sentiment remains strikingly similar. What’s more surprising, however, is that people are still surprised.

Unpredictability is Donald Trump’s trademark. But to navigate the economic turbulence that often accompanies his leadership, especially for investors, it’s crucial to understand the method behind the madness.

A Consistent Worldview Since the 80s

Despite his erratic style, Trump’s core economic beliefs have remained remarkably consistent since the 1980s. Back then, Japan’s economic rise posed a challenge to U.S. dominance. Trump, with direct business dealings in Japan, perceived the trade relationship as unfair—Japanese companies had free rein in the U.S., while American firms faced barriers in Japan.

His purchase of the iconic Plaza Hotel from a Japanese corporation was more than a business deal—it was symbolic. Today, Trump sees China as the new threat, but his view remains largely unchanged: the U.S. is being exploited, and tariffs are the tool to restore balance.

The MAGA Economic Architects

Trump’s economic strategy is no longer just rhetoric. He now has a serious team shaping his policies. Two key figures are:

• Scott Bessent, Treasury Secretary: A billionaire hedge fund manager who once helped George Soros “break the Bank of England” and taught economic history at Yale.
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• Stephen Miran, Chair of the Council of Economic Advisers: A Harvard-trained economist and senior strategist at Hudson Bay Capital.

These are serious people—they are seasoned professionals who have written and spoken about a radical economic agenda underpinning the MAGA rhetoric.  

The Decline of U.S. Manufacturing

At the heart of Trump’s economic mission is the decades-long decline in U.S. manufacturing. Every administration over the past 30 years has tried to reverse this trend, but none have succeeded. For Trump, this is crucial—his political base is built on blue-collar workers who feel left behind.

There’s also a strategic concern: U.S. military supremacy depends on industrial strength. Falling behind China and Europe in manufacturing is not just an economic issue—it’s a national security risk.

The Real Culprit: The U.S. Dollar

While Trump champions tariffs, the deeper issue lies with the U.S. dollar’s role as the global reserve currency. This is the essence of the Triffin Dilemma, first identified by Belgian economist Robert Triffin in the 1960s.

Being the world’s reserve currency is a double-edged sword. It grants immense power—cheap borrowing, global influence—but also imposes burdens: reduced competitiveness, fiscal indiscipline, and domestic policy constraints.

Global demand for dollars inflates its value far beyond economic equilibrium. On a purchasing power parity basis, the dollar is nearly 90% overvalued, especially against emerging markets. This makes U.S. goods more expensive and foreign goods cheaper, fueling a structural trade deficit.

That deficit is mirrored by a capital account surplus—foreign producers accumulate dollars and invest in U.S. assets. This has ballooned to a net $26 trillion, making the U.S. economy vulnerable to shifts in foreign sentiment.

The Triffin Dilemma has another twist: to stabilize the global dollar system, the U.S. must act as the world’s monetary regulator as well as the default global policeman. This has led to decades of high military spending—averaging 4% of GDP, more than double the NATO average. But this is becoming increasingly unsustainable.

Fiscal Recklessness

The ability to borrow and print money with ease has encouraged fiscal indiscipline. Except for a brief surplus during the dot-com boom, the U.S. has run persistent deficits for 50 years. Today, the budget deficit stands at 6% of GDP and is projected to grow. Alarmingly, half of this deficit is now interest payments on the national debt, expected to exceed 4% of GDP within a decade.

The U.S. national debt now stands at a staggering $36 trillion, equivalent to 125% of GDP, and is projected to reach 200% of GDP within 15 years. This trajectory is unsustainable and, if left unchecked, could trigger a financial crisis of unprecedented scale.

A major concern is the structure of this debt: much of it is short-term and was issued at historically low interest rates. In the current fiscal year alone, $9 trillion must be refinanced, with nearly half of all U.S. debt due for refinancing during the current presidential term. Every 1% increase in refinancing costs adds $360 billion to the annual interest bill—an enormous burden.

The MAGA Master Plan

To address this, the Trump economic team appears to be pursuing a four-pronged strategy:

1. Rebuild U.S. Manufacturing – Revitalising the industrial base is central to Trump’s political and economic vision.
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2. Cut the Deficit – The goal is to reduce the deficit to below 3% of GDP to stabilize the debt-to-GDP ratio.
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3. Stimulate Productivity and Growth – Targeting 3% GDP growth to offset the drag from deficit reduction.
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4. Preserve Dollar Reserve Status – Retain the benefits of the dollar’s global role while sharing the burdens.

These goals are inherently contradictory, especially under the constraints of the Triffin Dilemma. Yet Trump’s advisors—Bessent and Miran—believe they can be reconciled through bold, high-risk policies. Several initiatives are already underway:

• Geopolitical Retrenchment – Exiting costly conflicts or securing economic returns (e.g., Ukraine minerals deal).
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• DOGE Mandate – A new agency tasked with cutting government spending and boosting public sector efficiency.
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• Tariffs – Aimed at protecting domestic industry and generating revenue.
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• Tax Cuts – Expected around July 4th to stimulate demand and support market sentiment.
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• Regulatory Reform – Planned for later in the year to drive productivity and growth.

These domestic policies are complemented by the Mar-a-Lago Accord, a proposed framework for U.S. allies. In exchange for access to U.S. markets, allies would be expected to:

• Reduce regulatory barriers and boost growth.
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• Share defense burdens (2–3% of GDP on military).
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• Keep energy prices low and dilute net-zero policies.
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• Support the dollar by holding U.S. treasuries and avoiding currency devaluation.

Tariffs: The Double-Edged Sword

Despite recent easing, tariffs are likely to return. Their impact depends on two key factors:

• Currency Response – A weaker dollar means U.S. consumers bear the cost via inflation; a stronger dollar shifts the burden to foreign exporters.
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• Supplier Pricing Power – If foreign producers cut prices to maintain market share, the U.S. benefits from both tariff revenue and improved competitiveness.

The Trump team is betting on this “Goldilocks” scenario—foreign producers absorb the tariffs, the dollar weakens moderately, and U.S. manufacturing gains traction.

The RAG Channels

Treasury Secretary Scott Bessent has outlined a three-tier tariff system:

• Green Channel – Close allies with minimal tariffs, contingent on Mar-a-Lago compliance.
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• Amber Channel – Neutral countries (e.g., EU) with bespoke deals and moderate tariffs.
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• Red Channel – Strategic rivals facing high tariffs and transactional diplomacy.

Trump’s approach to negotiation is famously erratic but follows a pattern. According to insiders, we’re currently at step 4: “Pause, be nice, and make friends again.” But step 5—“Call it all off in a fit of rage”—may be just around the corner.

Tariffs are already weighing on growth forecasts, with projections falling from nearly 3% to 1.5% or lower. Inflation is also ticking up, keeping interest rates elevated—much to Trump’s frustration.

Yield Sensitivity

Perhaps Trump’s greatest vulnerability is U.S. Treasury yields. With so much debt to refinance, rising yields are a major threat. Every time yields spike, the Trump team softens its stance—highlighting their acute sensitivity to borrowing costs.

As yields approach 4.5%, we may see more conciliatory moves from the administration. The pressure is now on the Federal Reserve to cut rates, which could boost markets in the short term—though inflation may keep the Fed cautious.

Navigating the Road Ahead: Volatility, Valuations, and Vision

As we look to the future, the implications of Trump’s economic strategy—and the broader global shifts—are becoming clearer. Here’s a summary of what investors should keep in mind:

• Volatility is Coming Back: Don’t be lulled by the current calm. Markets are likely to experience renewed turbulence. Stay diversified and nimble.

• Tariffs Are Not Over: A major trade reset remains a core objective. Expect tariffs to return, but their impact can be managed.

• Policy Tailwinds: Tax cuts, regulatory easing, and potential interest rate reductions could provide meaningful support to markets.

• Dollar Weakness Likely: Trump is unlikely to resist a weaker dollar, but Treasury yields are a critical pressure point. Watch them closely—they’re a key bellwether.

• U.S. Equity Valuations Under Pressure: The era of U.S. equity super-valuations may be fading. European and Japanese markets could become more attractive on a relative basis. Still, don’t count out U.S. equities—buy on weakness.

The Bigger Picture: The Age of AI

Beyond Trump, tariffs, and treasury yields lies a far more transformative force: Artificial Intelligence.

This is not a future fantasy—it’s happening now, and fast. AI is a multi-decade mega-theme that will reshape every industry, every company, and every job. The implications for investors are profound.

• Autonomous Transport: Waymo has already completed over 10 million RoboTaxi rides at a fraction of the cost of traditional ride-hailing services.
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• Accelerated Discovery: AI is solving scientific problems in hours that once took decades.
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• AI Agents in Business: From customer service to logistics, AI agents are slashing costs and boosting productivity.
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• Intelligent Robotics: Humanoid robots are no longer science fiction—they’re entering the workforce.

Final Thoughts

Despite the looming risks and policy uncertainty, the medium-term outlook for global equities remains strong, especially for those positioned to benefit from the AI revolution. If volatility returns in the coming months—as seems likely—it may present a rare opportunity to invest in the future at a discount.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of Capital International Group Limited (Group) and/or any of its subsidiary companies and as such are neither given nor endorsed by the Group or any company within the Group. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Group to buy or sell any product or security or to make a bank deposit. Any reference to past performance is not necessarily a guide to the future. The value of investments may go down as well as up and may be adversely affected by currency fluctuations. The Group, its subsidiary companies, clients, and officers may have a position in, or engage in transactions in any of the investments mentioned. Opinions constitute views as at the date of issue thereof and are subject to change.