With back-to-back trade deals now signed with Japan and Europe, Trump has officially reset global trade.
The question is, why would two of the largest economies in the world agree to what appears to be very lopsided deals?
Because the alternatives are worse.
Trump is selling access to safety (security guarantees), stability (the dollar and U.S. capital markets), and markets (consumers). The U.S. still has a monopoly on these three levers of stability and prosperity.
So, this is the "burden sharing" strategy laid out in a paper written by his top economic advisor, Stephen Miran, back in December (which got him the job).
In this case, the dollar's role in the world as the reserve currency provides benefits to the world, and benefits to the U.S. but also drives persistent unsustainable U.S. trade deficits (a burden).
These trade deals are bringing trade partners into a new system of sharing the burden along with the benefits.
Still, these deals aren’t as one-sided as they look. Miran's paper makes the case that tariffs don’t hit consumers if the exporting country’s currency absorbs the blow (i.e. a weaker currency).
China did this in Trump's first term. They devalued the yuan almost one-for-one with the tariffs. It keeps their businesses competitive, but the hit comes to their global purchasing power and real wealth.
The euro and yen are already weakening, post-trade deal, and both Europe and Japan have substantial dollar commitments now, which they will need to be hedging (a drag on both currencies).
This is realigning the world and rebalancing global trade.
What's the alternative for U.S. trading partners? Align with China and get consumerisum through debt enslavement, deindustrialization, gutting of industries, dependency — and vulnerability (no security).
This begs the question, now that Europe and Japan are off the table, what cards does China hold in negotiating with the Trump team today?
They've seemingly lost a lot of leverage.
Have they been boxed in? And how might they respond?
