Summary
Trump’s tariff strategy is primarily aimed at the EU, reflecting a shift in U.S. economic focus and highlighting vulnerabilities in European markets amidst rising global trade tensions.
Global Economic Strategy
Trump’s tariffs primarily target the EU, not China, revealing a strategy to uncover trade weaknesses and identify US allies and enemies in the global economic landscape.
China manages its currency relative to a basket of Asian currencies, not the US dollar, with a high correlation for 15 years, indicating a shift away from dollar dependence.
EU central banks controlled nearly $3.3T in US treasuries as of January 2023, up from $1.1T in 2019, demonstrating their significant role in the Eurodollar system.
European Dynamics
The war in Ukraine serves as an excuse for the EU to devalue their currency, default on debt, and disrupt tariffs, while France and Germany consolidate power in Europe.
Southern European countries like Italy are breaking away from the EU, with Italy’s Giorgia Meloni negotiating a bilateral trade agreement with the US outside of EU structures.
The digital euro could be either a tool of tyranny by EU elites or a last-ditch effort to maintain control, highlighting the complex power dynamics within the EU.
Trump’s Geopolitical Moves
Trump’s geopolitical strategy includes relocating US assets from Germany and Poland to Greece, supporting Erdogan’s Syria policy, and initiating indirect talks with Iran.
Trump’s approach targets tariffs, currency manipulation, capital controls, and regulations to address comprehensive trade issues, not just tariff-related problems.
Financial Market Dynamics
Basis trades by hedge funds like Citadel and Millennium faced challenges, reminiscent of the 2019 SOFR crisis and 2020 repo crisis, raising questions about their funding sources.
Europeans dumped US treasuries while buying euros and German bunds, maintaining a 2.62% yield on bunds, indicating a coordinated effort to shift away from dollar dominance.
Future Implications
The potential election of Mark Carney as Canadian Prime Minister could lead to a trade war with the US over access to Canadian mineral and oil wealth, potentially making Carney a major pipeline builder.