Why Trump's tariff chaos actually makes sense (big picture)

I always say tariffs is the most beautiful word to me in the dictionary. Tariff. This is a direct attack. Donald Trump, who changes his mind between, you know, breakfast, elevens, his lunch and supper time. What the heck is going on? Why is Trump hitting his closest allies with tariffs? Why does he no longer care about crashing the stock market? Does this guy actually have a plan? Yes. Believe it or not, I'm here to tell you that, yes, as Trump's new treasury secretary Scott Besant recently put it. President Trump's tariff policies have begun the process of reorienting our international economic relations. That's right. He says tariffs have begun the process. In other words, his tariff chaos is just the start of a much bigger plan. A plan that aims to upend the entire world trading system that the US itself created. This has really only happened twice before. Once in 1944, marking the start of the Bretton Woods system, and then in the early 80s with Reagan and Thatcher marking the beginnings of the neoliberal world order. So here we are today, 2025. Is this the start of a completely new global order? A new US-centered order that will emerge right after the current chaos in which countries are divided in three groups, or as Scott Besant calls it. I think we should make it very clear that there is a green, a yellow and a red bucket. And we let everyone know where they are. In these buckets it will become very clear that some countries get low tariffs, military protection and maybe even some preferred US dollar access, while others are left to fend for themselves. At least, that's the picture I got from going through all of the speeches and papers by Trump's closest economic advisors that I could find. So, let's get into it. What is this MAGA master plan for a new global order? And is this plan actually feasible? Or is it just a pipe dream of a madman and his stooges? To answer these questions, let's start with getting into the MAGA mindset and ask ourselves what does the Trump team actually want? To answer that question, first a bit about Trump's new economic team. First we have Scott Besant, the new treasury secretary, an ultra-wealthy hedge fund manager that famously worked with George Soros himself to break the Bank of England in the early 90s. And he used to teach economic history classes at Yale. Then there's Stephen Moran, Trump's new top economic advisor, a Harvard PhD and hedge fund strategist who recently got all of Wall Street talking with his new paper, a user's guide to restructuring the global trading system. Both men have written and talked extensively about one single mortal threat to the United States, de-industrialization. So of course, they were drawn to Donald Trump's campaign with its goal of… Make the United States into a manufacturing powerhouse like it used to be many years ago. Many years ago, indeed. If we look at this chart, we can see that in the 1950s, the US used to be a manufacturing powerhouse. When manufacturing value added accounted for 28% of output, today that number is only 10%. Trump's first trade war did not significantly change that trajectory though. But why is this such a big problem? America's economy is bigger than ever, right? Why does the Trump team care so much about industry? Two reasons. First, de-industrialization has devastated America's industrial heartland, which overwhelmingly voted Trump in 2024. Second, US industrial power is now far behind that of other comparable powers, especially China, putting it at a massive disadvantage in case of a war, given that historically civilian factories and know-how have been essential for rapid militarization. So, the Trump team thinks a lot about China. What happens if they invade Taiwan? Yes, the US has a stronger fleet for now. But as Vice President JD Vance has noted, US de-industrialization has gotten so bad that One of Beijing's state-owned firms built more commercial ships just last year than all of America has produced since the end of World War II. So I think, in that light, that yeah, it does make sense that the Trump administration wants to re-industrialize the US. But does he really have to slap terrorists on everyone at the same time? And say stuff like this about his closest allies? After all, the US has been the most powerful country on earth for decades. It literally designed the current trading system. So why is it so unhappy about it? To answer that question, we need to go through the entire period of this graph. A brief history of the US-led global order. After all, the de-industrialization of the US is a long historical trend and it happened under two specific global orders, both made by the US itself. The first is the Bretton Woods system from 1944 to 1973. The second is the neoliberal world order that arguably lasted from Reagan's presidency in the early 80s to Trump's first term in 2016. The periods in between are, in my view, adjustment periods. So okay, let's start with the Bretton Woods system and why it is crucial to understand Trump's plan today. The Bretton Woods system was established in the 1940s. On the economic side, the rules were laid out in 1944 when the United Nations Monetary and Financial Conference was held in Bretton Woods in the United States. Meanwhile, on the security side, several conferences were signed that ultimately led to the creation of NATO and the US-Japan security treaty. Together, I'm going to refer to this all as the Bretton Woods economic and security order. Joining this order for any country other than the United States meant the following three things. 1. You would fix the value of your currency to the US dollar, which itself was tied to gold. 2. You would rely on the US for military protection, potentially even hosting US military bases. 3. The US would help your industries become competitive against their own by providing Marshall plan 8 and by opening up its own market while allowing its recovering allies to shield their markets to a certain extent from US companies. Notably, getting back to Basson's green, yellow and red buckets, only allies would receive these benefits. Neutral countries did not get them, but they could sign individual deals, while communist countries were essentially shut out of the Bretton Woods economic order. The history of the Bretton Woods system is really crucial because already here it seems like being a green country looks like a super good deal for these countries and not for the US. But I think that is misguided for at least three reasons. First, the US was really wary of creating another world war and while it gave Europe and Japan an advantage in market access, in return, it got really good allies that it really needed in its global fight against communism. Second, US industries also needed export markets themselves. By making its allies rich, the US allowed itself to get richer as well. Finally, this system really cemented the role of the US dollar as the global reserve currency. Issuing the world's reserve currency came with what French finance minister Valéry Descartes-Destin called an exorbitant privilege. This privilege meant that because the demand for US dollars as a reserve currency was so great, it allowed the US to spend much more internationally than it earned without facing a currency crisis. However, arguably, giving Japan and Europe key market access did already contribute a little bit to de-industrialization. However, as Stephen Moran writes in his paper, this system inevitably led to a dilemma for the US, the so-called Triffin dilemma. You see, as the global economy grew, the need for dollars increased, but the quantity of gold was relatively stable. So to keep the global economy growing, the US either needed to choose to keep creating more dollars, making the gold standard less and less credible, or to keep the gold standard and kill global economic growth by stopping the creation of new dollars that the world needed. This ultimately led to the following iconic announcement by president Nixon in 1971. I have directed secretary Connolly to suspend temporarily the convertibility of the dollar which was then followed by a period of global economic turmoil after which the neoliberal world order was ushered in by Ronald Reagan and Margaret Thatcher. This neoliberal world order was characterized by 1. Lower tariffs 2. Lower barriers on investment around the world 3. Flexible exchange rates 4. The US guaranteeing security for everyone that at least played somewhat nice with the United States. In line with its free market principles, the neoliberal order was far less structured than the Bretton Woods order. There was no formal agreement now in which countries promised to use US dollars. They just did so because it was the most convenient and most reliable currency out there. However, in this system, any non-US nation had a very strong incentive to hoard US dollars by making it easy to export to the US and making it harder to import from the US. Notably, despite praising the virtues of free trade, the World Trade Organization did actually allow developing nations to have higher tariffs against the US than the other way around, precisely because the US hoped that by making the world richer, it would become friendlier, just as has happened before with Germany and Japan.