The Trump Elephant in a China Shop

Opinion - April 9, 2025

By Oleksandr Sharov

Trump’s ‘Liberation Day,’ with its tariff ‘gifts’ for almost all countries of the world (with a very characteristic exception for aggressive Russia) produced the effect of an exploding grenade both in US and world markets: a decrease in the US dollar and Bitcoin exchange rate, a fall in equities, mounting inflation expectations, etc.

One can agree with the opinion that such an effect is the result of Trump’s persistent attempts to make a ‘deal’ instead of reaching agreements in international economic relations. But, by and large, this is just a manifestation of the approach of governing the state as one would manage a large corporation. Despite the apparent absurdity of such an understanding of the role of the state (which is a much more complex social institution), such an approach is naturally characteristic of businessmen who come to power.

Such a phenomenon is not restricted to the United States. In the case of Ukraine, it culminated in the Maidan of 2013-14, when the entire society rebelled against shadow businessmen who viewed themselves as key shareholders of the ‘Corporation Ukraine.’ As for the U.S., the “Contract with America” ​​was reflected in Republican policy long before Trump. But he and his team of billionaires have taken this idea completely seriously. So, it is quite logical that, transferring his experience of forceful pressure on partners in real estate transactions to interstate relations, Trump is focused on commercial indicators of immediate benefit, and not on building long-term ties. Especially mutually beneficial ones. Since he sees interstate relations as a zero-sum game and, accordingly, perceives negotiations only in the “win-lose” mode, and not “win-win.” The clumsy actions of the Trump administration, at first glance, resemble the actions of an elephant in a china shop, since they produced a quarrel with almost all trading partners, generating countermeasures from neighboring Canada, allied partner European Union, and geopolitical rival China alike.

It is noteworthy that, in light of the broad scope of Trump’s “tariff plan,” the main addressee is said to be China – the main geoeconomic rival of the United States at this stage. China, in turn, is ready to continue the struggle in the typical trade war spiral.

“The US threat to escalate tariffs on China is a mistake on top of a mistake, which once again exposes the United States’ blackmail nature,” China’s commerce ministry stated. “If the U.S. insists on its own way, China will fight to the end.”

Thus, in the card game with China, exorbitant tariffs may not be a trump card at all. Although the Treasury, apparently, hoped for a certain benefit for the budget, at least as a result of a reduction in the yield on US Treasury Bonds: after all, its reduction by just one percentage point gives a one-time saving on servicing Washington’s 36 trillion debt of approximately $300 billion. From a commercial perspective, this would already be a good result in the fight to reduce budget expenditures. However, the decline in the yield of 5- and 10-year US Treasuries (which, incidentally, began even before the announcement of the new tariffs) was not so significant and quickly returned to its previous values.

Yet this does not mean that interest in manipulating US Treasuries has been exhausted. In this regard, I would like to draw attention to the so-called Mar-a-Lago Accord. From its essence, it follows that Trump’s barrage of new trade barriers is not aimed at achieving a specific strategic concession or short-term economic benefit. The goal is to force other countries to the table for a big deal. In particular, we may be talking about the forced exchange of some existing US Treasury bonds for 100-year or perpetual securities with low or zero interest. Alternatively, bond investors may be forced to pay a fee for the privilege of storing them. In other words, we are talking about a radical solution to the issue of the US national debt and the huge foreign exchange (dollar) reserves of other countries.

Thus, in reality, the United States is dependent on the main holders of dollar reserves (primarily China), which can theoretically present them for payment (since, mainly, they are held in the form of government bonds) and, triggering a complete collapse of the dollar. It is on this assumption that Rickards’ scenario of a ‘Great Currency War’ between the United States and China is based.

Levels of Protection of US Dollar

Of course, theoretically, any actions can be assumed. But in reality, debt obligations can only be presented within the established deadlines, and debt servicing by the United States is still carried out flawlessly. Here it is necessary to point out the existence of several unique “levels of dollar protection” that guarantee the safety of the US currency:

• The probable bankruptcy of the debtor country (in this case, the United States) does not give any advantages to the creditor countries (China, Gulf oil exporters, Russia, etc.), since in this case the bankrupt will simply refuse to pay its debts, and the right of sovereign immunity will not allow any coercive measures to be taken against it.
• The “default” itself will mean non-fulfillment of obligations on government debts; it does not concern the direction of private investments and contracts, while the “special positions” of the dollar are largely based on the economic power of the United States, which is actually entirely determined by private corporations.
• As for the status of the dollar as a monetary sign, it should be taken into account that it is not even “Treasury notes” (formal obligations of the Department of Treasury) that are in circulation, but banknotes – obligations borne by the Federal Reserve System (formally a private structure).
• Yet the Federal Reserve System, when issuing dollars (as well as other central banks when issuing their own banknotes), does not undertake obligations to convert them into gold or any other real assets, since modern money is of a credit nature, that is, it can only be considered as obligations of the national economy as a whole (without specific identification of the debtor).
• The US economy remains and, most likely, will remain in the coming decades, the leader of the global economy, and will not have a real competitor (including the rapidly growing economies of China, India, and some other emerging markets).
• Finally, in the conditions of the modern economy, there is no real alternative to credit money, which means that the “fallen” dollar will still be replaced by an international currency created on a similar principle – which makes the fight against the US currency meaningless.

Of course, these “levels of protection” do not provide a 100% guarantee. Moreover, the struggle for the status of “first among equals” (which the dollar currently holds) may provide certain tactical advantages, and therefore attempts to carry out such a “castling” cannot be ruled out. In this regard, for the purposes of economic security of the state, it is necessary to constantly rationalize the structure of official foreign exchange reserves, as well as the structure of international currency payments (in terms of individual currencies), bearing in mind the minimization of currency risks given changes in the international significance of leading currencies.

It is quite possible that the current US administration will try to solve the “Triffin dilemma” in a more radical way. For example, by the above-mentioned exchange for “century bonds.” In this case, it would already be a Trump elephant in China shop. However, why only in China? As we can see, the tariff attack affected dozens and dozens of countries around the world, whose leaders are now ready to do anything for the sake of a new deal on tariffs. That is, one can expect a certain rollback of Washington to more realistic positions with significant concessions from partners. But partner countries will have to urgently develop a new trade strategy after this, so as not to fall in the same trap again. Moreover, this issue will have to be addressed urgently if Washington does not loosen its grip.

A deeper look brings to mind Adam Smith’s “invisible hand,” since regardless of Trump’s motives and intentions, his innovations may lead to geopolitical consequences that may no longer be assessed in an unambiguously negative way. We are talking about a forced change in the entire paradigm of the global market, when China (or more broadly, the Global South) produces cheap goods and sells them to the United States (broadly, the Global North), accumulating its financial (dollar) liabilities. Under the new conditions, the Global South will have to develop its own markets, increasing the purchasing power of its own consumers. In other words, follow the path of Japan and South Korea, gradually turning into the Global North.

In that case, the Trump elephant, having broken all the china, will force Beijing (and other countries) to produce high-quality products, becoming in fact a competitor to the United States, including a real threat to US high-tech and dollar hegemony. It is unlikely that this is what Trump has in mind. However, Gorbachev did not want the collapse of Communism either.

Oleksandr Sharov, Ukrainian Foreign Policy Association

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