Henry James, who’s considered the American equivalent of Shakespeare and Proust, came to his home country after spending three decades in the cafe society of Paris and encounters with literary luminaries of the late 19th century such as Zola, Turgenev, and Diderot.
Upon returning, James was able to view a dynamic and fast-changing America with both a fresh expatriate’s perspective and the roving critical gaze of someone who’s been away for too long. His pithy statement ‘Shopping is therapeutic in America‘ is one of those insights that still resonates in the world of fast-fashion, influencer marketing, PR charm offensives, and off late Trump tariffs.
The United States of America acquires a unique place in the global system by the virtue of being the biggest economy, the hegemonic superpower, the ‘invisible empire’, the largest importer of goods, and, this is where things get interesting – the biggest debtor of the world.
With easy-money, cheap credit, and all levels of debt refinancing options, American consumption is peerless in the world. This is the fundamental strength as well as the weakness of the system that gives it an edge over all others as well as compels it to keep borrowing.
Geopolitics & Trade
Trump’s tariff gambit, which is about the re-balancing of Pax Americana in a turbulent world of shifting alignments, rests on this premise – the power of American markets and the unrivaled premium exporters will be willing to shell in order to access it.
It is a geopolitical hedge to both preclude the ‘Thucydides Trap’ with China, the world’s factory floor and biggest exporter, as well to pull the plug on America’s mounting liabilities for perpetuity. But like everything else in economics and life, it is laden with the downsides of unintended second-order effects and negative externalities.
In a 60 page annual letter to shareholders, Jamie Dimon, the CEO of JP Morgan Chase, has both reiterated his belief in the American-led system as well as called geopolitics, not disasters or climate change, the biggest risk factor. Hedge fund billionaire Ray Dalio and others have been ringing the alarm bells on the mounting debts, running into trillions of dollars, and the geopolitical implications of it.
In the heydays of globalism, markets were said to have extinguished borders, flattening the world. But now, with the rise of national sovereignty imperatives, and trade no longer seen as politically agnostic, it is safe to say geopolitics is back in the driving seat. We are inhabiting the uncertain and volatile world of power politics that shape outcomes, not the world that promised endless consumer splurges for everyone.
Nothing lasts for ever. Neither in life nor in markets. Not even Neo-liberal delusions of a flat-world and unbounded prosperity. Trump and his team have an instinctive grasp of the groundswell of rage and discontent.
MAGA vs Mag-7
In a recent podcast with Tucker Carlson, Scott Bessent, the US Treasury Secretary and a former Hedge Fund guy, said the entire American stock market is owned by just 10% of Americans.
He further added that what we are seeing is a Mag 7 problem ( the Magnificent Seven technology stocks on the NASDAQ composite index) and not a MAGA problem. The undertone is clear that the consensus on the wisdom of the market that dominated the discourse of both the parties has been yanked out of the window.
Those who propelled Trump into the White House for the second term are a strange alliance of the net losers of globalisation, and those who would want to save Pax Americana from its worst excesses and spiralling cultural wars. Politics always makes strange bedfellows, but in this case, it underscores the changing tide and the dawn of a new zeitgeist
It’s a tenuous position to enjoy what the French President Valery D’ Estaing termed ‘Exorbitant Privilege’ of the Dollar as global reserve currency, and facing de-industrialization and mounting trade and budget deficits at home, along with political fragmentation and social disarray.
Trump, who has scripted what’s arguably the biggest political comeback in recent political history, instinctively understands the verities of ‘free trade’ are in place due to the ‘unfree fist’ of the American order.
Trump’s vantage point is of a deal-maker and merchant, divorced from the latest fads or ‘fashionable nonsense’ in textbook theories. He has been consistent about tariffs since 1987, and 40 years is almost unbelievable for a politician to steadfastly cling to when the world has unrecognisably changed.
A New Order?
The ‘weaponization of the global financial systems’, in the words of economist Michael Hudson, and the unilateral power of sanctions, as well as the ability to export endless amount of dollars, which again find their way back in the form of treasury bonds, is the source code behind this matrix of American power. But the system needs a reboot and a new version to face multipolarism and other shocks.
Whether or not he will be able to reconfigure the system remains to be seen, but the old trifecta of World Bank, IMF, and the WTO no longer call the shots the way they did. Trump’s carrot-and-stick policy on reciprocal tarrifs and the wild casino swings in the stock market, witnessing astonishing rise and falls, within weeks, has demonstrated both the leverage of the US presidency and the irrational exuberance of the marketplace
During the days of the Roman Empire, senators rued the rising deficit due to the import of diaphanous fabric from India, a rage among ladies of the nobility, that cost silver and gold coins. On a lighter note, thanks to fiat currency, modern monetary theory, and the near-monopoly on high-tech services export, the US won’t have to face this predicament.
‘Good fences make good neighbours’, wrote Robert Frost in a poem. Certainly they can make for good trading partners as well based on mutual win-win outcomes and comparative advantages without adhering to the tenets of globalism
The de-hyphenation of uncontrolled immigration, DEI, climate doomsday peril, and other critical theory toolkits, from the stark reality of economy and global trade will go down as the biggest Trumpist jolt.
