The first quarter of the year was… intense—both in my personal life and in the markets. The markets took a hit, and I went through so many wild experiences that it feels like I aged thirty years in just three months. But honestly, it was well worth it.
Typically, in my portfolio updates, I dive into individual countries, economics, central banks, and market outlooks. But this time, I believe the current situation calls for a different approach. We’re standing at a historical crossroads, and there’s a real possibility that 2025 will be a year future generations study in history books.
So… what makes me say that? Tariffs.
And no, I’m not just talking about their impact on inflation and rate cuts—I’ve got my Twitter account for that. What I’m referring to here is something much bigger: the global order and the shifting dynamics of geopolitics.
Textbook economics tells us that tariffs only really work in two very specific scenarios: when you’re dealing with a closed economy, where external dependencies are minimal and internal demand is strong, or when you hold global hegemony, where your position is so dominant that other countries have little choice but to bend to your will. From the US perspective, it is clear that this situation fits into the second scenario: the United States is in a strong position, assuming other countries will fall in line rather than risk an adversarial relationship. And let’s be honest: this approach worked quite well in 2016, because the world had not fully adapted to the changing power dynamics, and the messaging, while aggressive, had an air of consistency. But now, the communication is erratic and inconsistent, making it clear that tariffs are being used more as a negotiating tactic than a well-thought-out economic tool. And some countries have started to push back: China has already announced retaliatory tariffs, and while the European Union hasn’t taken that step yet (as of this writing), it’s becoming increasingly likely that they might follow suit.
Here is the real problem: if other countries don’t back down, the United States will be left with no choice but to actually implement the tariffs they have been threatening. And if they do, it won’t just be a simple policy shift: it will trigger major disruptions to trade, supply chains, corporate margins, and consumer prices. We could witness a cascade of retaliatory actions across various sectors, further entrenching the volatility in global markets and potentially spiraling into trade wars that would erode the delicate balances that have sustained international trade for decades. All of this could easily escalate into a financial crisis, which is why the market reacted so badly.
Let’s start at the beginning. The first issue with the tariffs lies in their formulation: the formula simply doesn’t make economic sense. Indeed, the trade deficit with a given country is influenced by many factors beyond just tariffs and non-tariff barriers, including international capital flows, supply chains, comparative advantage, geography, and so on. But for the sake of argument, let’s set those aside and take the formula at face value: even then, there are still problems. In practice, the formula for the tariff can be expressed as the trade deficit divided by imports; however, the formula published by the Office of the US Trade Representative includes two additional terms in the denominator that just happen to cancel each other out: the elasticity of import demand with respect to import prices, and the elasticity of import prices with respect to tariffs.
Now we are about to enter the realm of theoretical economics, so I will try not to bore you, but bear with me.
The concept here is that as tariffs increase, the change in the trade deficit will depend on how responsive import demand is to tariffs. This, in turn, depends on how import demand reacts to import prices and how import prices are influenced by tariffs. The Trump administration assumes an elasticity of import demand with respect to import prices of four, and an elasticity of import prices with respect to tariffs of one fourth, which, when multiplied together, equals one—and that’s the reason these terms cancel out. However, the elasticity of import prices with respect to tariffs should actually be about one, not 0.25 as they have assumed. Indeed, the error here is that they base the elasticity on the response of retail prices to tariffs, rather than on import prices, which is what should have been done: it is inconsistent to multiply the elasticity of import demand with respect to import prices by the elasticity of retail prices with respect to tariffs.
If this mistake were corrected, it would significantly reduce the tariffs assumed to be imposed on the United States by each country to roughly a quarter of their stated level. As a result, the tariffs announced by Trump on Wednesday would also be reduced by the same proportion, though they would still be subject to a 10% tariff floor. However, this would result in almost all countries ending up with a tariff rate of exactly 10%, which is the minimum threshold. Not a good look. But the important aspect here is that the tariffs need to be overstated for political reasons: the expected tax revenue, based on these inflated tariffs, will also be overstated, making it easier to justify tax cuts.
From a political standpoint, this makes perfect sense: the end result is that the President is seen as delivering on his promises, which is something that is rare these days. The numbers look impressive, tax cuts become more justifiable, and the United States can project an image of strength. Economically, however, it doesn’t add up.
Let’s talk about the implications now.
The shift we’re witnessing in global trade, particularly the increasing reliance on tariffs as a policy tool, could ultimately lead to one of two outcomes, both of which will have lasting effects on the United States and the rest of the world. In one scenario, the United States emerges stronger, but at the cost of significant resentment from other countries and broken international alliances. In the other, the United States becomes weaker as other nations begin to find alternatives and reduce their reliance on American markets. Either way, we are looking at a world were globalization as we have known it is in retreat.
Multipolarity, if you wish.
The first outcome, the stronger United States, hinges on the belief that tariffs can successfully protect American industries and generate long-term economic benefits. The basic premise is quite straightforward: by reducing imports and investing in domestic production, the country would be able to reassert its economic dominance, securing jobs, raising wages, and creating a more self-sufficient future. What we would expect in this scenario is a decline in GDP in the short term, driven by lower production capacity, higher input prices, and higher output prices, which would in turn reduce demand. For instance, if Apple were to move iPhone production back to the US, the cost of the device would likely rise by several hundred dollars, simply due to the significant differences in labor costs. However, after this initial transition period, the country would theoretically be in a position to recover, as domestic industries pick up the slack, and the tax revenue generated by tariffs would contribute to making Americans comparatively wealthier than the rest of the world.
But here’s the catch: this strategy will almost certainly breed deep anger on the other side of the equation. Countries that have long relied on exporting to the US market will likely retaliate, imposing their own tariffs or seeking out new trade partners. This retaliation could ultimately isolate the United States, pushing it into significant trade wars that damage both its industries and consumers. Meanwhile, the rhetoric of “economic nationalism” will continue to fuel the domestic agenda, presenting a picture of strength and resolve, but one that could prove costly in the long run.
This first scenario is short-term bearish risk due to the economic contraction, while simultaneously being very bullish for the USD, both in the short-term and over the longer-term. Additionally, if this scenario plays out, I would expect a recession to materialize by the end of the year: the combination of rising production costs, higher consumer prices, and declining demand would likely push the economy into negative growth. However, this also means the Fed would cut faster.
In the second scenario, we see the United States weakening, not necessarily because it is “losing” the trade wars, but because it is effectively pushing other countries to reduce their dependency on the American economy. As other nations diversify their trade partners and invest in new supply chains, the global power dynamics will inevitably shift, and for the United States, this would mean a reduced influence over global affairs and a diminishing role in shaping international policies. The short-term impact on the United States would be similar to the first scenario, with the difference being that there would be no recovery to the previous trend due to the rise of a more multipolar world order.
Of course, the higher tariffs could hurt American companies that rely on overseas production, leading to disruptions in domestic markets and potentially fueling inflation. But even more fundamentally, this shift represents a deeper breakdown in the economic and political systems that have underpinned the global order for decades. We’re talking about a realignment of the entire global structure—and that’s where the uncertainty lies. This is precisely why, in the event that the second scenario plays out, nobody can reliably forecast the long-term consequences. The shift would not be entirely dissimilar to what happened in 1971 when the world saw the collapse of the Bretton Woods system and the end of the gold standard, but we’ll get back to that point later. In any case, if this is indeed the path we are headed down, my advice would be simple: buy physical gold and wait.
Regardless of which outcome takes shape, one thing is undeniably clear: globalization, as we’ve known it, is coming to an end.
It’s crucial to recognize that we’re not merely talking about a slowdown in trade or the disruption of a few industries here and there; the retreat from hyper-globalization will have far-reaching consequences that will fundamentally reshape the global economic landscape. The very fabric of international trade—the seamless movement of goods, capital, and labor across borders—will be significantly restructured, both for better and for worse. In its place, we’re likely to see the rise of a new global order, one where political power takes center stage in a way it hasn’t for decades. To truly grasp the scale of this shift, we need to consider its geopolitical ramifications: moving away from the hyper-globalized system that has defined the last few decades doesn’t just mean reducing the flow of goods and services; it also signals the weakening of the interconnectedness that has allowed countries to cooperate on key global issues, from climate change to terrorism, from human rights to public health. This retreat into a more fragmented world will likely trigger a dramatic shift in the global balance of power. For instance, we could witness emerging markets—countries like China, India, and Brazil—gaining greater influence, as they position themselves as alternative economic hubs, offering other nations opportunities to trade and collaborate without relying on US dominance.
But here’s the big question: what happens when the United States is no longer the central player in the global economy?
Nobody really knows.
While many policymakers in Washington may believe that the United States can simply pivot away from global interdependence and return to a more isolationist, self-sufficient model, the reality is much more complicated. Global trade isn’t just about moving goods from one place to another; it’s about engaging in a mutual exchange of resources, ideas, and technological advancements. The erosion of these relationships will make it increasingly difficult for the United States to maintain its economic and political influence, both at home and abroad. In other words, the shift away from globalization will undermine not only the country’s standing in the global economy but also its ability to shape international policy in the future.
Regardless, the shift from globalism under US hegemony to a more multipolar world order is not dissimilar to the fall fo the Bretton Woods system in 1971, when the United States unilaterally abandoned the gold standard and ended the dollar’s convertibility into gold. At the time, this marked a dramatic departure from the post-WW2 economic order, built on the idea of a fixed exchange rate system and the US dominance. The consequences of that shift were far-reaching, reshaping the global financial system and introducing a new era of currency fluctuations, capital mobility, and greater volatility. Just as in 1971, we are now facing the possibility of another reordering of the global system, one that cannot be easily predicted. As with any major systemic shift, the true consequences will only become apparent over time, as countries and markets adjust to a new global reality, navigating uncertainties and unforeseen disruptions along the way.
You might be wondering, then, what the trade is in all of this. The truth is, I honestly wouldn’t have a solid answer for you, because it’s impossible to forecast with any certainty which of the two scenarios we’ll end up with. The inherent unpredictability of these geopolitical and economic shifts is precisely why markets are so volatile right now—because the risks are so high and the outcomes so uncertain. It is exactly for this reason that we have seen indiscriminate selling across the board since the announcement was made: nobody knows what to expect. But given that systemic risk is the one risk you can’t diversify away, I wouldn’t spend too much time overanalyzing it either.
Instead, focus on managing your exposure to the most vulnerable sectors and positioning yourself for both outcomes, whether that involves hedging or staying nimble. However, if you’re looking to optimize for volatility, it’s probably a smart move not to be too heavily invested in China-dependent American companies: in today’s climate, you’re only ever a tweet away from seeing your investment drop by double digits. In times like these, resilience is key—both in your portfolio and your broader strategy.
At the end of the day, especially if you’re young, moments of chaos like the current one present the best opportunities to set yourself up for the future.
Seize the chance.