Economic Déjà Vu: The Fallout of a Tariff-Driven Trade War

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Why Do We Need A Reset?

What Was The Deal After WW2?

• Post-WWII U.S. Dominance: With unmatched economic strength, military power, and geographic advantage, the U.S. took the lead in shaping the postwar world order.
• Bretton Woods Conference (1944): The U.S. led 44 allied nations to create a new financial system anchored by institutions like the IMF, World Bank, and IBRD, placing the U.S. dollar at the center of global trade.
• Trade and Security Framework: The U.S. Navy secured global trade routes. Meanwhile, the U.S. rebuilt devastated economies like Germany and Japan—buying their exports to jumpstart growth and ensure prosperity.
• Cold War Bargain: In return for economic support, U.S. allies were expected to align with the West in countering Soviet communism.
• Gold Standard: The Bretton Woods system linked global currencies to the U.S. dollar, which was convertible to gold at $35/oz—a system that worked as long as the U.S. held most of the world’s gold.
• Built-In Trade Deficit: With the USD as the global reserve currency, countries sold goods to the U.S. and accumulated dollars, resulting in America's persistent structural trade deficit.
• Challenges to U.S. Dominance: As Europe and Japan recovered, U.S. dominance began to wane. Simultaneously, the cost of the Vietnam War and domestic spending like the Great Society strained U.S. finances.
• End of Gold Standard (1971): Mounting inflation and gold outflows prompted President Nixon to end gold convertibility, ushering in the era of floating exchange rates and fiat currencies.
• China’s Reentry: Initially excluded due to Taiwan’s role in Bretton Woods institutions, China began warming ties with the U.S. in the 1970s and formally joined in 1980.
• Rise of China: 2001 China joined the World Trade Organization (WTO). The West hoped it would liberalize and modernize.
• Instead:
  • China became the world’s manufacturing base,
  • Western corporations offshored production to boost profits,
  • China aggressively harvested intellectual property to fuel its industrial ascent.

Where We Have Ended Up

Decades later, the consequences of these shifts are painfully clear:

• U.S. manufacturing has been hollowed out
• Entitlement spending continues to balloon
• Defense budgets fund never-ending foreign entanglements
• The U.S. runs chronic trade deficits, deepening dependence on foreign suppliers—especially China—for:
  • Critical medical supplies (remember COVID-19?)
  • Components essential to U.S. military hardware

Meanwhile, through successive financial crises and a global pandemic, we’ve:

• Grown dependent on the Federal Reserve to bail out markets during every downturn,
• Lived through extended periods of zero or near-zero interest rates, allowing asset holders to borrow cheaply and build wealth,
• Racked up $36 trillion in national debt, with annual deficits now approaching $2 trillion and rising fast.

• We have $140 trillion in wealth

• But it’s not distributed evenly

• The bottom 50%—a large cohort of Trump’s base—does not care if the stock market gets turned upside down.

The Reset Is Intended to Benefit Main Street, Not Wall Street

What Has Trump Done?

• He has placed a $10 trillion bet on reshaping the economy.
• His tariff strategy is blunt yet transparent—a high-stakes attempt to reset global trade rules.
• The plan? Use access to the U.S. market as leverage, offering the carrot of trade opportunity in exchange for “fairer” terms.
• His endgame is to redraw the global trade map into three camps:
  • Nations aligned with the U.S.
  • Nations that are neutral
  • Nations that have elected into trade tension with the U.S.

What Does He Hope To Achieve?

• Fairer trade terms: Many countries have long imposed tariffs on U.S. goods. Trump’s position is that it’s payback time.
• A sense of justice: Like the NFL player who retaliates and gets the penalty, Trump argues that he’s not the instigator, just the one finally pushing back.
• A revival of domestic manufacturing: An ambitious goal with bi-partisan support.

Is The Method Worth The Madness?

• Markets recoiled largely because the tariff levels were shockingly high—and markets hate surprises.
• The negotiating style is classic Trump: aim high, create chaos, and force the other side to the table.
• But the tone is aggressive, bordering on hostile. Countries have two options: retaliate or fold—neither inspiring goodwill.
• It’s less of a negotiation and more of a geopolitical standoff—Trump is holding the world to ransom
• Either:
  • Trump’s a genius
  • Trump caved to the bond vigilantes

In The Markets

Let’s dig into some charts.

Mood: Bloodbath to Bubblebath?

April 9, 2025 was the most successful day in stock markets since 2008.

April 10 was less reassuring:

The Bond Vigilantes had their way and forced Trump to cave…or he’s a genius.

Finally, credit spreads pay attention

But now something else is happening:

The 10-year yield is heading in the opposite direction from the USD, suggesting that something may still be rotten in the markets.

What’s The Spin?

The Trump administration argues that the president is a genius. He fired the tariff canon and waited for a week.

Tariffs bit at midnight on April 8, 2025 - drum roll.

75 nations offered to negotiate. China raised the stakes, and Trump doubled down on China.

The stock market freaked. No problem.

Then, the U.S. Treasury market started to go on tilt, and someone told Trump that it would melt the planet.

So he told the Bond vigilantes he had their backs—just watch me. I bet he didn’t use the Watergate recorded line for that…

The 10-year auction went great, and vigilantes got some tasty yields.

Then Trump tweeted the rabbit from the hat: tariffs for those who played nicely were delayed for 90 days. Not China, though—bad China!

The stock market gapped up. Hostage or genius? You tell me.

What Should You Do?

If you are confused, you are in good company:

The turnaround took 75 minutes.

This is your playbook for the next 90 days:

1. Pay attention to Truth Social—it’s your best source.
2. Don’t place big bets on market direction.
3. Place your stop loss/stop limits/puts carefully to protect your downside.
4. Sell into rallies—buy the dip, sell the rip.
5. Simplify your portfolio so you understand what you have.
6. Remember that bear markets return stocks to their rightful owners—don’t give yours away.

What’s Next/What To Follow

If you want a 15-minute breakdown of what one experienced investor thinks might be going on with Trump and the markets, go no farther than this excellent piece from Mark Tilbury

This podcast by Adam Taggart has an intereview with Lawrence Lepard (@LawrenceLepard on X) where they discuss Lawrence’s latest book, The Big Print.

The first half of the book diagnoses how we got into the situation that needs resetting. The second half proposes some quite radical solutions.

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