The End of the Liberal Economic Order

Donald Trump has declared economic war on the world.

As for the specific tariffs, the key points have been made elsewhere: the selection is arbitrary, the calculations flawed, and the market response negative. In the medium term, these tariffs are likely to cause a spike in inflation or even trigger a recession.

The battle over the narrative is in full swing. Trump’s camp promises “short-term pain for long-term gain.” The goals: to reduce the trade deficit, force foreign companies to produce in the U.S., weaken the dollar, and lay the foundation for a reindustrialization of the American heartland with well-paid jobs. Critics, however, argue that tariffs are counterproductive, doubt that industrial production will return—or expect it only in the form of automated factories without jobs.

At the core lies the question: Is the U.S. trade deficit—caused by the dollar’s global reserve currency role—the reason for the hollowing out of the country’s middle class? Or do the U.S. and its economy, on the whole, actually benefit from the globalized economic order built around them?

The Trumpists want to “keep the cake and eat it too”: boost exports with a weaker dollar without losing the exorbitant privilege of having the world’s reserve currency. Critics, meanwhile, believe that this economic war will only accelerate the decline of American global power.

The responses within Trump’s own alliance are tellingly mixed. MAGA supporters are enthusiastic—for now. But that could change once price hikes and targeted retaliation from China, Europe, Canada, and others start hitting their wallets. After all, the last wave of inflation politically crushed the Biden administration.

Tech oligarchs are more cautious. Apple and other companies could face sales losses if their products become over 50% more expensive and inflation and recession eat into consumers’ purchasing power. Trump’s strongest opposition, however, comes from his Wall Street and real estate allies. The trade deficit acts like a giant vacuum for global capital, drawing it into American financial and property markets. The growing grumbling from free trade Republicans and their donors signals the end of the president’s honeymoon phase.

Beyond Trump’s personal obsession with tariffs, it remains unclear why the administration is pursuing what could be a disastrous political and economic own goal. To understand that, we need to examine the geopolitical and geo-economic motives behind the tariff war.

Across ideological lines, there’s growing consensus in the U.S. that the neoliberal phase of globalization has not turned out as intended—especially not for the liberal hegemon itself. China and Russia have neither been successfully integrated into the U.S.-led world system nor transformed into liberal market democracies. As Branko Milanović’s “elephant curve” shows, the main winners from globalization have been the middle classes in emerging economies—at the expense of American workers and the middle class.

Yes, U.S. finance and tech oligarchs were major beneficiaries. But the growing dependence of the U.S. arms industry on Chinese components is now undermining one of America’s key power assets. Meanwhile, China is catching up technologically and challenging the dollar’s dominance. If this American “credit card” were ever revoked, the U.S. would struggle to finance its global military and intelligence networks—the backbone of its hard power.

In short: Washington fears it could lose the hegemonic contest with China.

So the hegemon is doing what only a hegemon can do: tearing up the rulebook. Trump is repeating what Richard Nixon did in 1971: bringing about the end of a global economic order. Nixon ended the Bretton Woods system by removing the dollar’s gold backing, which paved the way for the “exorbitant privilege” of unlimited dollar creation at the world’s expense. The 1985 Plaza Accord forced Japan and West Germany into economic submission. The Soviet Union was outspent in an arms race, and the Cold War was won.

Trump’s economic war follows this tradition. Instead of continuing to play chess, he flips the board—convinced that in a ruleless world, the strong will prevail. And indeed, no competitor can afford to abandon the U.S. market, the dollar, or American financial markets. Some companies have already announced plans to relocate production to the U.S., some countries are opening their markets, and central banks are hesitant to shift their dollar reserves.

Those who don’t comply are being pushed into line with bilateral pressure. The tariff list is tellingly selective: countries like the UK, Australia, Turkey, and India were treated mildly because they are seen as geopolitically vital in the power struggle with China. Meanwhile, China, its “circuit economies” like Vietnam and Mexico, and the EU were hit hard. Now begins the bazaar-style bargaining, where Washington will try to extract political and economic concessions in exchange for better access to the U.S. market. If successful, parts of the empire’s costs could be shifted onto vassals and rivals. If not, the additional tariff revenues would at least help the deficit-ridden U.S. budget.

At least, that’s the Trumpist hope.

In reality, heavy resistance is forming. China and Europe are announcing tough countermeasures—even at the risk of triggering a global economic crisis. Tokyo and Seoul are already seeking closer ties with Beijing. German industry is also shifting focus toward China and India.

Here lies the Achilles’ heel of Trump’s strategy: the U.S.’s economic position in 2025 is much weaker than it was in 1971 or 1985. Today’s geo-economic rivals have alternatives—they no longer have to follow the hegemon’s lead unconditionally. In Beijing, Delhi, Brussels, and Tokyo, there is serious debate about whether a rules-based, open world economy could survive without the U.S.

One option might be linking the trade zones of the CPTPP and RCEP to European markets, along with a reformed WTO system. The idea of a gold-backed BRICS currency or a Chinese alternative to the SWIFT payment system may also gain traction.

“The main characteristic of a Mad King is not that he is mad, but that he is King.”

But much of this remains wishful thinking. None of these alternatives are viable in the short term. Deep mistrust of China and Russia makes a coordinated effort with India, Brazil, and the West difficult. U.S. hegemony isn’t just economic—it’s also military and political. Many allies will accept economic pain because they rely on American security guarantees. Rivals will always weigh their economic responses against the risk of military escalation.

So we’ll have to wait and see how the dice land once the dust settles.

Featured image: Photo by Sina Katirachi on Unsplash

The views and opinions expressed in the Solutions Spaces blog are those of the author and do not necessarily reflect the official position of the Global Solutions Initiative.