A Nightmare Dressed in Daydream

The first 90 days of the Trump 2.0 administration can be described as a phase of ‘uncertainty’, ‘inconsistency’ and ‘turmoil’ for the global economy in general, and the USA in particular. During this period, President Trump signed 126 executive orders, more than any other president had signed in their first 100 days in office. The orders focus on reversing policies from the Biden administration and implementing his own agenda. Here are a few examples: (i) rescission of 78 Biden-era executive actions (this order reverses numerous policies related to immigration, climate change and racial equity established by the previous administration), (ii) ending birthright citizenship, (iii) National Emergency declaration at the southern border, (iv) restoration of the federal death penalty, (v) suspension of refugee admissions, (vi) easier removal of underperforming federal workers, (vii) delaying Tik-Tok ban enforcement, (viii) strict enforcement of immigration laws, (ix) cutting off foreign aid, (x) withdrawal from the WHO and Paris Climate agreement, (xi) recognising only two genders, and (xii) introducing reciprocal import tariff.

Method in Madness

Immediately after resuming office on January 20, President Trump initiated a trade war on a global scale to Make America Great Again (MAGA). On April 2, which he dubbed as the ‘Liberation Day’, the Trump administration announced the imposition of new tariffs on virtually all its trading partners (a 10 per cent tariff applied to imports from 180 countries plus a “reciprocal” tariff component proportional to each country’s bilateral trade imbalance with the US). This sweeping increase in tariffs constituted the most extensive US tariff hike since 1930.

On April 9, President Trump declared a 90-day pause on some of the ‘liberation day’ tariffs. But the new minimum 10 per cent tariff rate, which came into effect on April 5, is still in place for goods coming from all countries, including the UK. The pause means the rates above 10 per cent for 59 territories will be suspended until July. That includes 46 per cent in Vietnam, 44 per cent in Sri Lanka and 20 per cent in the European Union. And for China, the rate will not fall at all but will be hiked further to 125 per cent, plus another 20 per cent linked to the drug fentanyl, the order revealed. However, within two weeks, on April 22, the US President Trump stated that his administration was “actively” engaging with China on tariffs. During the press conference, the President also added that he would be ‘very nice’ to China in any trade talks and hinted that the tariffs on Chinese imports would be substantially lower and nowhere near 145 per cent. Reacting to the USA President’s proposal, a spokesman for China’s foreign ministry said Beijing was open to talks, but the US “should stop threatening and blackmailing China”, reports NBC.

Beijing has remained unmoved by the overtures. Instead, it has demanded that Trump removes all tariffs on China. “As the saying goes, ‘He who tied the bell must untie it,’” He Yadong, a spokesperson for China’s Commerce Ministry, told reporters on April 24. “The unilateral tariff hikes were initiated by the US. If the US truly wants to resolve the issue, it should heed the rational voices of the international community and its own domestic stakeholders, fully remove all unilateral tariff measures against China, and find a way to resolve differences through equal dialogue,” he added. Chinese officials also denied the two sides are speaking. Trump told reporters on Wednesday there were direct talks between US and Chinese officials “everyday” on trade, though he didn’t offer specifics, reports CNN.

Nonetheless, Trump’s abrupt tone change on China came a day after he met privately with chief executives of four major US retail companies — Walmart, Target, Home Depot and Lowe’s — who expressed concern about rising economic fallout from his tariff policy and the uncertainty it has created for financial markets. Moreover, many major investment banks have predicted that the massive tariffs, as well as China’s 125 per cent retaliatory tariffs on US goods, would plunge the US and global economies into a recession.

Commenting on Trump’s tariff madness, analysts observe that the tariffs have made clear how all of Trump’s policies are linked together: Every step he takes is aimed at concentrating the power of government in his own hands as he seeks to intimidate opponents and move aggressively to eliminate alternative sources of public influence in the legal system, the universities, and the media. The most conspicuous moment of truth has been for Trump’s supporters in big business and other advocates of a loosely regulated free market.

Apparent Consequences of Madness

On April 23, a dozen US States sued the Trump administration in the US Court of International Trade in New York to stop its tariff policy, saying it is unlawful and has brought chaos to the American economy, reports The Hindu.

Contrary to the standard trade theory on the possible impact of high import tariff on domestic currency, which predicts that an import tariff should put upward pressure on the tariff-imposing country’s currency, a steep rise in the US tariff on the Liberation Day made the dollar effective exchange rate sharply depreciate rather than appreciating the US dollar. Study reveals that all major currencies appreciated against the US dollar in the twenty-four hours following the announcement. For example, the euro (EUR), Japanese yen (JPY), British pound (GBP), and Swiss franc (CHF) jumped by roughly +1 per cent to +2 per cent, against the dollar. In contrast, the most floating emerging market currencies either appreciated less or depreciated against the dollar, meaning the dollar strengthened relative to them. For example, the Thai baht (THB) and the South African rand (ZAR) fell about –0.5 per cent to –1 per cent, respectively.

This year, the dollar has fallen 8 per cent against a basket of other major currencies. It has seen a decrease of over 4.5 per cent in April, marking its largest monthly drop since late 2022. This has led to speculation about a crisis of confidence in the world’s leading reserve currency. Goldman Sachs’ chief economist, Jan Hatzius, suggests that additional drops could worsen price pressures, especially as tariffs are already causing inflation. Drawing from historical data, he notes that two periods with similar dollar valuations to the present day—the mid-1980s and early 2000s—led to a 25-30 per cent depreciation. The IMF estimates that non-US investors hold around USD 22 trillion in US assets. The US’ current account deficit of USD 1.1 trillion must be balanced by a net capital inflow of the same amount. Each year, this is typically achieved through foreign purchases of US assets. A pause in such purchases could negatively impact the dollar. The IMF recently predicted that US economic growth will decrease by a full percentage point to 1.8 per cent in 2025, down from 2.8 per cent last year.

Tariff War 2025 is purely an American initiative to de-dollarize the global economy, observed the author in Millennium Post. The US President Donald Trump’s ‘tariff war’ in the name of ‘Making America Great Again (MAGA)’ has forced countries on a path towards reduced reliance on the United States, which is likely to imply a desire for reduced reliance on the US dollar. With China on the rise, Melvyn Leffler, a historian of US foreign policy at the University of Virginia, expects the US president’s actions to ‘portend a new trajectory’ in world affairs. “I do not believe the United States will return to the same type of liberal, global, hegemonic order that has existed more or less from 1945,” he said.

Fortune observes that the dollar is on decline and yields on US bonds are staying high because everyone wants to get the hell out of ‘Dodge City’ (the phrase originates from the 19th-century cow town of Dodge City, Kansas, which was known for its lawlessness and violence) right now. That includes stocks, bonds, and currency. With Trump changing his mind by the hour on trade policy and bullying his chief central banker on a daily basis, investors of all kinds are simply limiting their exposure to a nation they now regard as a risk asset rather than a safe haven.

Since January 2025, three dominant trends have been observed in the global trading system:

• On April 21, China released an action plan, jointly with the Shanghai municipal government, the People’s Bank of China and the country’s financial regulators. It aims to leverage Shanghai’s role as a global financial hub to promote the use of the Chinese currency, especially in trade involving countries in the Global South. China will enhance the functionality of the Cross-Border Interbank Payment System (CIPS) – China’s alternative to the Society for Worldwide Interbank Financial Telecommunication (Swift) payment system – and continue expanding the global coverage of the network.
• In March, Reuters reported that some European central banking and supervisory officials were questioning whether they could still rely on the US Federal Reserve to provide dollar funding in times of market stress. In times of market stress, the Fed has provided the European Central Bank and other major counterparts with access to dollar funding. On April 23, Bloomberg reported that Luis de Guindos, Vice President of the European Central Bank (ECB) said the euro could become an alternative to the dollar as a reserve currency if Europe moves towards greater integration. Earlier on the same day, Christine Lagarde, President of the ECB, told CNBC that the euro’s rise against the dollar was contrary to expectations. The latest data shows that the euro accounts for just 20 per cent of global reserves, while the dollar still holds almost 60 per cent, an advantage that has remained virtually unchanged for years. Euro, along with other C10 currencies, looks a major contender to US dollar’s hegemony. C10 currencies may revive the Classical Gold Standard—a monetary system from roughly 1870 to 1914 where countries’ currencies were tied to a specific weight of gold, and gold could be freely converted into currency and vice-versa.
• On March 3, President Donald Trump announced that his government would create a national strategic crypto reserve that would include five cryptocurrencies, adding he would make the US “the crypto capital of the world”. In a statement on his Truth Social network, Trump said a crypto working group, which was set up following his inauguration in January, is pressing forward with the reserve’s creation, fulfilling promises he first made to crypto lobbyists during his election campaign. US President Donald Trump has named five cryptocurrencies he wants to be part of a new strategic reserve. These are: XRP (Ripple), Solana (SOL),Cardano (ADA), Bitcoin (BTC) and Ether (ETH). By initiating the ‘tariff war’, US president Donald Trump appears to have unilaterally launched a parallel system to the World Trade Organization. Brushing aside WTO—a rules based organization— Trump is following power-based tactics in bilateral trade negotiations, transforming Washington into the de facto arbiter of global trade. Currently, India is negotiating such a BTA (bilateral trade agreement) with the USA.

The future of the global trading and payment system, which the President of the USA is trying to establish, will depend on which side the world’s oldest democracy decides to choose in the ensuing clash between democracy and oligarchy.

Rise of Oligarchy in USA

The ultra-rich segments in the US control a greater portion of wealth than they did during the Gilded Age. Just the top five billionaires today together own more than a trillion dollars in wealth. The oligarchs shape political decision-making in ways that increase their wealth. When power belongs to just a few, democracy suffers, as the extreme inequality gap widens.

John Dobson, a former British diplomat, who also worked in UK Prime Minister John Major’s office, quoted Karl Marx, the father of communism, while describing the group of oligarchs surrounding Donald Trump during his inauguration ceremony. Marx once said “History repeats itself, first as a tragedy, second as a farce.” In Trump 2.0 inaugural ceremony, there was certainly a sense of déjà vu, an echo of the past when Russia’s oligarchs rescued Boris Yeltsin, observed Dobson. The power of oligarchs in autocracies around the world, such as Putin’s Russia, has become normalised. But to see it happening in America is a matter of huge concern to many, he lamented.

Analysts observe that the US has been moving from a democracy to an oligarchy at lightning speed under Donald Trump and Elon Musk. The new clash is between democracies and a global oligarchy. The United States is emerging on the side of global oligarchy. Trump’s remarks on siding fully with Russia’s narrative of blaming Ukraine for the war signals more clearly than any other recent statement that the US is prepared to abandon its European allies and switch sides to embrace Vladimir Putin’s Russia. Within one week of occupying the Oval office, for the second term in January, US President Donald Trump said Russian oligarchs would “possibly” be able to apply for a USD 5 million “gold card” via a new scheme that grants a pathway to American citizenship to wealthy foreigners!

‘The PayPal Mafia is taking over America’s government’, wrote the Economist in December 2024 after Trump’s victory. PayPal Mafia—a group of America’s right wing tech billionaires—helped clinch Donald Trump’s election victory and was taking Washington by storm. These men are known as the “PayPal mafia” (first coined by Fortune magazine in 2007) due to their involvement in the founding of the financial tech company PayPal. Along with Elon Musk, Peter Thiel was the co-founder of PayPal. David Sacks was its Chief Operating Officer and Roelof Botha was the Chief Financial Officer.

Oligarchs dominate Trump’s team of advisors. At the top is Elon Musk, the world’s richest man with a net worth of USD 439 billion, who has been assigned the Department of Government Efficiency. In addition to him, over a dozen billionaires have been picked for other important departments.

Observations

Today, cryptocurrencies are hawked by the likes of billionaire Elon Musk. Bitcoin, the first and most popular, has gone from a fringe idea in the 2010s to trading for thousands of dollars. Currently, one Bitcoin is traded at around USD 93,000+. Crypto is an idea cooked up by anti-government, anti-regulation libertarians. They hold that all capitalism’s problems can be solved by the “free market.” They conveniently ignore the fact that the modern market is anything but “free;” it is dominated by monopolies and cartels and cryptocurrency is no exception. Cryptocurrencies are banned in China.

The founders of cryptocurrency wanted to replace fiat money, i.e. money backed by the government that issues it. It helps oligarchs to evade state regulations including taxes. Since the early days of demonetisation in 2016, Bitcoin prices in India hovered in an upper range of USD 866 to USD 896 a piece. In a mere 18 days after the demonetization speech of Prime Minister Narendra Modi, the price of bitcoins on Zeb pay, which claimed to have over 130,000 users, had surged from USD 757 to USD 1,020 (per bitcoin), whereas in the US (the benchmark market for most cryptocurrencies), bitcoins were trending at USD 770 apiece, marking a clear premium on the Indian bitcoin exchanges.

Analysts predict that America’s rising national debt could threaten the dollar’s status as the world’s reserve currency, potentially leading to decentralized assets like Bitcoin taking its place.

Views expressed are personal