Tariffs & changes to the global trading order
What the new tariff regime means for the world
Earlier this month, on April 2nd, 2025, a seismic event happened. The last time something of this significance impacted global trade & economics was in 1971, when President Richard Nixon suspended the convertibility of the US dollar to gold.
No matter how things turn out after this, one thing is certain: The global system of trade as we’ve known it from 1945 to the present is no more. We are now entering a new world where tariffs, retaliation, industrial policy, protectionism, and balkanized trading networks are going to be the order of the day.
There are 3 books I’d recommend to help shape your understanding of this moment:
The End of the World Is Just the Beginning: Mapping the Collapse of Globalization
The Storm Before the Calm: America's Discord, the Coming Crisis of the 2020s, and the Triumph Beyond
Principles for Dealing with the Changing World Order: Why Nations Succeed or Fail
The first two books are fairly optimistic on the US’ future path. The third one is not. My only serious quibble with the third book is the irrational optimism on China (which has aged like spoiled milk left in the sun since it was written).
All three books should be taken with a grain (or barrel of salt). So why am I recommending them here? Here’s why:
Books like these can help with creating a mental framework to enable one to begin to make sense of reality as it changes quickly. Not every piece of every book needs to literally be true, but taken as a whole, can help structure your thinking in a direction that is aligned with the changes you see in the world. Think of these reads combined as an old outdated faded road map. It’s better than having nothing basically.
One finance person on LinkedIn summed up what the first two books essentially get at (and which are true points”: “Globalisation wasn't just an economic philosophy but a deliberate ColdWar strategy. America sacrificed industrial capacity to create interdependence that would contain Soviet influence.
When the USSR collapsed, the strategic imperative disappeared - yet the system continued through institutional inertia and vested interests.
The post-WWII economic architecture has calcified into a framework that no longer serves its original purpose. Sometimes systems require disruption before meaningful reform becomes possible.”
I could quibble on how much “disruption” was actually ideal or necessary, but that doesn’t matter. What matters is that it is happening, and the change is more or less permanent, no matter how tariffs are adjusted or rescinded going forward.
The US has always been (due to its geography, demographics, resources, and culture) isolationist. Those impulses have only been temporarily interrupted by external conflict. As soon as the conflict(s) are over, the US resumes isolation. This continues to be the case today.
U.S. exports represent roughly 10% of its Gross Domestic Product (GDP)
contrast this with Germany:
German exports accounted for 50.3% of its GDP as of 2023 according to the World Bank
The US built the old system we are leaving not because of trade, but because of security concerns. Now that those security concerns have changed, the system of global trade, secured by the US Navy, is going to change as well.
It may be hard to believe, but in the coming years, I believe Russia and the US will draw closer on trade and in other areas. The US has always tried to play Russia and China against each other.
During the Cold War, the US became closer with China, the weaker of the two powers, once a schism emerged between the USSR and China. Today, Russia is the weaker of the the two powers.
Although Russia and China appear close on the surface, they are not. It is a temporary rapprochement of convenience. In reality, the Russian government is very concerned long term about Chinese influence in Siberia and Central Asia. These are areas the US has no interest in whatsoever.
It will not happen overnight, but over time, the US and Russia will increasingly align over policy on China (very hard to believe I know, but trust me it will happen).
There is… a lot more I could write on this section, but suffice it to say, you should read the three books I recommended earlier in this post.
What it means for you
As of the day I write this, it’s very very early for me to try to parse what the long term impacts of this will be, and that is compounded by the mercurial and unpredictable nature of policy making coming out of Washington these days. But I will put down a few principles that are timeless that I use to guide customers, and then orient the conversation around those:
Create a system that enables you to easily do the following:
Save a min of 15% of every paycheck
Parking lot (6 months to 12 months of monthly expenses in savings) for emergencies so we don't have to go into bad debt
Max protection in all areas. (life insurance, disability, legacy planning, liability)
Debt - if we have debt, how do we go to no debt or good debt
How do we reach our maximum financial potential using velocity of money approach:
Quality of life (spiritual, mental, physical health) trainers, doctors, mentors
Invest in ourselves to grow value
Invest in ourselves to be a better cash flow investor
Invest in cash flowing assets
In addition to these principles, there are a few things I am reasonably certain are likely to happen going forward:
This is a permanent shift in mindset on trade policy regardless of what future US administrations take power
Inflation will very likely increase
Economic projections will be very challenging to create with confidence (business uncertainty will go up)
The US remains an ideal place to put capital to work, but is starting to have some of the characteristics of emerging markets (issues around rule of law, industrial policy, policy predictability, high debt levels, etc.)
Market declines that are current (and ongoing as everything adjusts) will present buying opportunities over time for certain assets.
Economic inefficiencies are likely to increase
More nations will look to themselves or a stronger regional power that plays the role of “big brother” for help with procuring weapons and industrial resources for their economies
Nations that maintain strong navies are likely to do well, since they will have to secure their own trade routes without the assistance of the US navy (which previously did this for free for everyone until recently)
Below, I’ll go into more detail on each of the above points:
Inflation, Economic Projections, US Domestic Investment Considerations
If these assumptions are correct, it means that if you borrow at a fixed rate to acquire cash flow producing assets, you can ‘inflate away’ your debt over time. This is particularly true if the cash flow that is being produced is able to go up with inflation. Just be very careful when using debt this way. “It can go against you” as Walter Schloss aptly put it. Leverage is a magnifier. It magnifies gains, but it just as quickly can magnify losses, and put you in a straitjacket right when you need cash and agile movement the most.
Capital intensive businesses typically do poorly during inflationary and stagflationary periods. This is because if you regularly have to expend money on large capital investment, that becomes more and more costly as inflation takes off. On the other hand, businesses that are linked to industrial production could do well even if they are less economically efficient relative to their global peers, if tariffs are put in place to support those industries (industrial policy).
If my assumptions are correct, it also means there will be more opportunities to make money in US markets, especially for US citizens. But it does mean you will have to navigate a trickier environment than in the past. Being flexible, adaptive, in the government’s good graces, and not rocking the boat on political issues like DEI etc. will be imperative. The stance you should take towards relations with the government is the same as an investor would take in Russia or China in that regard. So “domestic political risk” will be a new risk to include in your due diligence process.
Further, although this is very true during any economic or technological disruption it bears repeating today: Businesses that have high debt loads should nearly always be avoided. Simply put, this is because if a business has a high debt ratio, they cannot be nimble and adapt quickly. This hamstrings that business from being able to adapt in such a massively changing environment. As is true with all things in finance, there are exceptions to this rule: If you are trying to acquire a company cheaply that is going through bankruptcy and balkanize and sell off its assets, etc. But generally this rule applies.
On that last point, as I said earlier there is a trade off. If you keep lots of cash on hand, inflation will eat away at that cash. But it enables the ability to be agile (important). On the other hand, if you have lots of debt, you will be less agile (which could be fatal) but in an inflationary environment you can inflate away the debt over time. So a hybrid approach is something to consider with care.
Market and Efficiencies (or the lack thereof)
Market declines can lead to certain assets being on sale. But ‘catching a falling knife’ can be an issue here. On the other hand, you can’t time the market either. So what do you do? You have a due diligence and valuation process that enables you to make informed decisions about what to acquire and at what price to acquire it. A good read on this is Margin of Safety by Seth Klarman.
Don’t worry about rushing out and ‘buying the dip’. We are looking at a seismic change in global trade here. There will be plenty of time to snap up bargains. What’s more important, in fact critical, is that you have an iron clad due diligence and valuation process that you can stick to over time.
Internally, US businesses are likely to become less efficient over time. Insulated from global pressures, they will be more likely orient themselves to only remain competitive within their domestic markets. This in turn will (over time) create a political constituency of business owners who are in favor of keeping high tariffs in place. This is going to have all kinds of effects.
International markets…
In the post war era after 1945, the US Navy secured all the trade routes for the world. We put in place a currency and trading system that put everyone on the same side against the USSR. We secured and protected industrial resources for our allies (we didn’t need to do this for ourselves since we internally produce all that we need in this sense).
In this way, the US was able to persuade the European powers to give up their colonies over time, and those countries were able to reduce spending on military expenditures and did not have to have or spend money on naval forces either.
It was “Pax Americana” if you will. The biggest threat was the USSR. But even the USSR indirectly benefited from the new order. The US made trading more peaceful, the world more predictable, and reduced and managed tensions over time.
In 1991, the USSR collapsed. The US became a hegemonic power. A few things happened quickly afterwards:
Highly trained scientists, doctors, and technicians all fled the post Soviet space and emigrated to the US and Europe, bringing their talents with them. This made highly skilled labor cheap.
At the same time, European workers were hitting their prime earning years and could spend money on consumer goods. This was accentuated by them not having any children. This was a “one shot gun” so to speak in terms of economic growth, but it happened and was good (temporarily).
Simultaneously, China came on line with its giant labor market, which was vast, poor, and low skilled. They also were not burdened with children either.
The US, being capital rich and looking for places to deploy capital, did so in China and elsewhere around the world.
Russia, the successor state to the USSR, dumped an empire’s worth of natural and industrial resources onto global markets, making development cheap. Further, Russia had a temporary thawing of relations with Europe and provided cheap energy to Germany.
Modern fertilizers and agricultural components became cheap to produce and ship to Africa, enabling Africa’s population to grow. Despite this, many places still had food insecurity because population growth outstripped massive gains in agricultural production.
Nations that previously had been unable to get capital investment, industrial resources, secure trading links, or military security, got all of those things without having to pay much in return. Some nations took advantage of this (such as Germany, various African nations, or China). Others didn’t, and retained a largely isolationist stance (such as India).
Immigration flourished and was encouraged, to allow for more efficient labor markets.
This world enabled US investors and US financial markets to massively boom. At the same time, it was catastrophically bad for some communities that relied on internal production for their livelihoods. People like Pat Buchanan were emblematic of resistance to this change, but it would take a long time to coalesce into a political movement capable of capturing a political party. In addition, cultural changes from globalization and immigration started to create internal political friction within various nations.
Today, everything has changed:
China is in terminal demographic decline (I would even argue collapse), is struggling with deflation, and has increasing internal problems that are destabilizing it. (here and here are just two examples).
Russia has essentially shut off access to its resources to Europe and elsewhere (at least for the moment) and is similarly in a terminal demographic decline, albeit one that is not as severe as China’s. Nevertheless, it is terminal and irreversible in nature. Russia has also rearmed and is going to continue to project power around itself over time to secure its borders while it still can.
Germany’s workers are dying and retiring. Immigration is no longer acceptable to Germans politically to fill the gap. Birth rates are failing to replace that population. At the same time, German energy prices are unstable due to their dependence on external markets to acquire energy. As if all this wasn’t enough, Germany is overly reliant on a system of globalization and trade that is disappearing, AND is now having to spend large sums on rearmament in a world that is rapidly becoming more dangerous and unpredictable.
African countries increasingly are struggling to secure resources for fertilizer, agricultural, and industrial production. A few countries like South Africa and Nigeria will be okay, but many others will fall into further turmoil.
The US remains capital rich, with relatively stable demographics relative to other major industrial powers, but doesn’t see the point in being engaged around the world for little or no benefit to itself. Subsequently, the US is locking up capital at home and massively changing its political and economic systems simultaneously.
Now… that is a lot to take in, I realize. One blog post here is doing some HEAVY lifting (and probably not well I might add).
The bottom line for international markets is this. Nations that were less exposed to the old global system are primed to do well, especially if they have good geography and reasonably good demographics. Nations that either were overly exposed to the global system, or have bad geography and/or demographics will suffer.
Nations positioned to do well in my view, include (in no particular order):
Argentina (if they can put their financial house in order)
United Kingdom
France
United States
Sweden
Australia
Nigeria
India
Mexico (if they continue to integrate with US markets)
Nations that may do okay but have some kind of problem demographically or geographically include:
Poland
Japan
South Korea
Taiwan
Canada (if they continue to integrate with US markets)
United Arab Emirates
Singapore
New Zealand
Everyone else either has problems that are too large to overcome demographically, geographically, or in terms of security/securing resources etc.
SO. Now that you know where the fish are, you can “go fishing” so to speak.
On a more personal note: I am going to try to post around once a month (generally around the 15th of every month). We’ll see if I can stick to that going forward. In addition, I also now have a business helping folks build their wealth here:
https://prideandprosperity.com/
. Always feel free to reach out!
- Skipper Davies