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 new Treasury secretary Scott Bessent recently put it
“”Bessent: 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, THIS 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 beginning 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 Bessent calls it
“”Bessent: 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 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 of the speeches and papers by Trump’s clostest economic advisors that I could find.
So, let’s get into it. What’s this MAGA masterplan for a new global order? And is this plan actually feasible, or is it just a pipedream of a madman and his stooges?
To answer these questions, let’s start with getting into the MAGA mindset, and ask ourselves
1 What does the Trump team ACTUALLY want?
To answer that question, first a bit about Trump’s new economic team. First, we have Scott Bessent, the new Treasury secretary. An ultra wealthy hedge fund owner that famously worked with George Soros to “break the bank of England” in the early 90s and used to teach economic history classes at Yale. Then, there’s Stephen Miran, Trump’s new top economic advisor. A Harvard PhD, and hedge fund strategist who recently got all of Wall Street talking with his paper: A User’s Guide to Restructuring the Global Trading System.
Both men have written and talked extensively about 1 single mortal threat to the United States, de-industrialization. So, of course, they were drawn to Donald Trump’s campaign with its goal to
“Trump: 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 this trajectory.
But, why is this such a big problem. America’s economy is bigger than ever? Why does the Trump team care so much? 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 knowhow 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. But, as vice president JD Vance has noted, US de-industrialization has gotten so bad that
“Vance: 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, yes, it does make sense that the Trump administration wants to reindustrialize the United States.
But, does he really have to slap tariffs on EVERYONE AT THE SAME TIME? And say stuff like this about his closest Allies?
“Trump: taking our jobs taking our wealth taking a lot of things that they’ve been taking over the years they’ve taken so much out of our country, friend and Foe”
After all, the US has been the most powerful country on earth for decades. It literally designed the current global 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
2 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. 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 1980s 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 US Japan security treaty. Together, I’m going to refer to this as the Bretton Woods economic and security order.
Joining this order for any country other than the US 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 for protection, potentially even hosting US military bases and 3. the US would help your industries become competitive against their own by providing Marshall plan aid and by opening up its own markets, while allowing its recovering Allies to shield their markets to an extend from the US.
Notably, getting back to Bessent’s green yellow and red countries, only Allies would receive these benefits. Neutral countries did not get them but could sign individual deals, while communist countries where essentially shut out of the Bretton Woods economic order.
The history of the Bretton Woods system is crucial because already here it seems like a being a green country looks like a super good deal for them, and NOT for the US. But, I think that is misguided for at least three reasons! First, the US was really weary 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 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 global reserve currency. Issuing the world’s reserve currency came what French finance minister Valéry Giscard d’Estaing 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 slightly to deindustrialization.
However, as Stephen Miran 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 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.
This ultimately led to the following iconic announcement by president Nixon in 1971:
“Nixon: I have directed secretary Connley to suspend temporarily the convertibility of the dollar into gold or other Reserve assets”
which then was followed by a period of global economic turmoil, after which the neoliberal world order was ushered in by Ronald Raegan and Margaret Thatcher. This neoliberal world order was characterized by
- lower tariffs,
- lower barriers on investments around the world,
- flexible exchange rates
- and, especially after the fall of the Soviet Union, the US guaranteeing security for everyone that at least played somewhat nice with the US.
In line with its free market principles, the neoliberal order was far less structured than what came before it. There was no formal agreement in which countries promised to use the Dollar. They just did so because it was the most convenient and 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 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 it had happened before.
Compared to Bretton Woods, the number of “green countries” got much bigger in the neoliberal order. As long as you were willing to play by the rules of the World Trade Organization, you got good access to the massive US consumer market, the US Dollar banking system, and, as a bonus US navy protection of global shipping.
That sure sounds like a pretty good deal. But, of course, the US again got something very big in return for it.
With the fixed exchange rates of Bretton Woods gone, Stephen Miran writes that
“reserve demand for American assets pushed up the Dollar, leading it to levels far in excess of what would balance international trade over the long run.
So, thanks to flexible exchange rates, the US’s exorbitant privilege arguably became even stronger. A strong Dollar meant that the US could keep its massive military all over the world despite becoming a far smaller economy relative to its dominance in the 1950s. On top of that, the strong Dollar made Americans in general much richer than they would otherwise have been.
However, on the flipside, it did make manufacturing in the US more expensive than ever, causing stable manufacturing jobs to leave the country, especially when China joined the world trade organization in 2001.
Meanwhile, a strong Dollar mostly helped those Americans that already had a lot of Dollars, thereby making inequality worse.
Then, in 2016, increased inequality and a devastated industrial heartland helped to elect Donald Trump, who started his first trade war in 2016. In hindsight, I believe this already marked the end of the neoliberal world order because it ended the very neoliberal idea that free trade is always good. This trade war was mostly about raising tariffs against China. However, China always retaliated, meaning that at the end of it, China still had a higher average tariff rate on the US than the other way around.
Notably, this did NOT stop the deindustrialization of the US. It ALSO DID NOT STOP the rise of China’s MIGHTY manufacturing industries, which is now threatening to upend the entire car industry.
So, Biden tried something new. He tried subsidizing US industries on a massive scale, just as China has done. This did lead to a lot of new factories being built in the US. However, according to Bessent and Miran, this was not sustainable, leading to a very high US government deficit.
So, here we are today, transitioning further and further away from the neoliberal order, an order that the US itself created, under Reagan. An order which kept the US the richest and most powerful nation on earth by inflating the value of the Dollar. But, according to the Trump team, it led to such rapid deindustrialization that it has now become a national security threat.
Which brings us to
3 The MAGA masterplan for a new global order
A plan that is supposed to help reindustrialize the US, while at the same time keep the US Dollar as the global reserve currency because, as Trump himself has said:
“Trump: if you want to go to third world status, lose your reserve currency. We have to have it. We cannot lose it.”
So, how do you do keep your reserve currency status and re-industrialize at the same time? Most economists think that this is simply not possible. But, Stephen Miran, he published a paper that says, yeah this IS ACTUALLY possible. We can have our cake and eat it too.
But, to be clear, the paper that Miran has written is not a plan in itself, it is a cookbook with options. At the time of recording, Bessent also has not presented a full plan that includes his green, yellow and red country structure.
So, for the 3 step MAGA master plan that I am about to present you, I had to dive deep into what both Miran and Bessent have revealed so far. And, no, sadly, I was not added a US government signal group by accident. So, for each step, I’ll tell you exactly where I got my information from.
Okay. Here we go.
Step 1: Tariff chaos. In this step the administration shows that it means business. It no longer cares about the stock market crashing. It no longer cares about the economy temporarily doing poorly. It just applies a lot of high Tariffs to foes and friends alike to create negotiating leverage.
I’m basing this on the fact that Bessent has said that, while he didn’t initially view Tariffs as a negotiating tool, Trump
“he uses it for negotiating”
My second piece of evidence to suggest the current chaos is temporary is that before being part of the administration, Miran said that the Dollar policies that he proposed would likely be.
“Miran: pursued later in an Administration after tariffs had produced the sufficient negotiating leverage”
So both Miran and Bessent are essentially telling us that the current Tariff chaos is just about creating leverage that can be used when implementing the rest of the plan.
Which brings us to, step 2: reciprocal tariffs.
Remember this graph, where China reacted to Trump’s tariffs by every increasing its own tariffs. If you really have reciprocal tariffs, that dynamic is theoretically gone. It will just be. Look you can keep going up. But, we’ll always match you. So, there’s always a level playing field.
This is the long term goal of the tariffs. Or in Bessent’s words:
“tariffs are designed to address – leveling the playing field such that the international trading system begins to reward ingenuity, security, rule of law, and stability, not wage suppression, currency manipulation, intellectual property theft, non-tariff barriers and draconian regulations.”
But, here economists have often criticized the administration for wishful thinking because historically trade wars, such as those in the 1930s, just made everyone worse off and led to war. But, here Miran has said that
“They’ve only got the United States to sell to. There’s no alternative. So they’re the ones who bear the burden of this of these tariffs,”
This is a really tricky point to understand. But, what he essentially means is that due to everyone wanting to export to the US to obtain Dollars, the US has a truly unique negotiating position in a trade war. Trump’s first trade war failed because China just increased exporting to countries like Mexico and Vietman, which then exported to the US. So, by extending tariffs to all countries Miran writes that
“President Trump views tariffs as generating negotiating leverage for making deals. It is easier to imagine that after a series of punitive tariffs, trading partners like Europe and China become more receptive to some manner of currency accord in exchange for a reduction of tariffs.”
A currency accord. That’s right. This brings us to the final step in the MAGA masterplan:
Step 3: a Mar-a-Lago accord
Yes, a Mar-a-Lago accord that will go into the history books to rival the 1944 Bretton Woods agreement, or 1985 Plaza accord in which Japan, the US and European countries came together to collectively raise the values of the Yen, and European currencies versus the Dollar.
But, how does that relate to Bessent’s green, yellow and red buckets? After joining the Trump administration, Miran has gotten much more quiet about the Mar-a-Lago accord. Which makes sense because he doesn’t want to give away too much. But, still, he did tell us that
“Miran: If the dollar were able to weaken to equilibrate trade, then we wouldn’t have a lot of the two balanced trade deficits now. We wouldn’t have a lot of the problems that tariffs and other policy issues are designed to address because US export U.S. exports would be more competitive on the global stage and we wouldn’t be as cheated by other countries.”
So, I suspect that to avoid ruining the negotiations, they cannot talk about this as freely anymore as before, but that the ultimate goal is still to weaken the Dollar while keeping it as a reserve currency.
In his paper, Miran talked about some wacky options that the US could use to do this on its own, such as charging reserve currency users a ‘user fee.’ But, I think that they will not go for these options because it will be far to risky.
Instead, I think the Mar-a-Lago accord that the Trump team ultimately will push will look a lot like the Bretton Woods system, just minus the link to gold. I could even imagine that in this new world order, green countries peg their currencies to the Dollar, with a deal that whenever the Dollar gets too strong they appreciate their currencies against it. In return, they get access to the largest consumer market in the world, as well as security benefits and good access to the US dollar system. But, unlike in Bretton woods I expect the US wants countries to pay tribute for that security, making them essentially vassal states.
Yes, this is speculative from my side. But, listen to this recent speech by Bessent and please tell me if you hear the elements that I just talked about
“Bessent: the international trading system consists of a web of relationships military economic political one cannot take a single aspect in isolation this is how president Trump sees the world not as a zero sum game but as interlinkages that can be reordered to advance the interest of the American people”
And this is why I think Trump’s current economic chaos makes sense. The Trump team believes that the current international order is no longer in the best interest of the American people. They have already told us that the current tariff chaos is a meant to create negotiating leverage. They have already told us that they aim to use reciprocal tariffs to even the playing field for red, and yellow countries. And, they have hinted that if a currency deal can be made, tariffs can be much lower.
And, yeah, I do believe that, if enough countries join the new MAGA world order as green countries , that peg their currency to the US Dollar, this does mean that Trump CAN have his weaker Dollar, while maintaining its status as reserve currency. This could help re-industrialize the US, at least to a certain extend.
But, of course, all of this depends on the US making it attractive enough for countries to become a green country in the new MAGA international order. This I believe is the REAL problem with the plans of people like Bessent and Miran. They are clearly smart people. They have studied history extensively. But, to voluntarily commit to raising your currency’s value compared to the Dollar. To continue to rely on US military protection, but now to pay for it. That essentially makes you a vassal state, subordinate to a great power.
To submit yourself to the US in such a way, that requires an enormous amount of trust. Trust that the US had plenty of when countries signed the Bretton Woods agreement OR when they went along with Reagan’s Plaza Accord in 1985. But, if you tear up a trade agreement that you yourself signed, like the one with Canada and Mexico. Or if you threaten to annex your closest ally or the territory controlled by one of your most loyal European allies, then how can you expect countries to ever want to join your new MAGA economic and security order?
And if no one actually joins your new economic order then you DO have to choose: either you give up your reserve currency status AND the wealth and power that comes with it OR you keep the Dollar and its power and accept that you need to rely on Mexican, European and Japanese manufacturing capabilities.
But, yeah that is my take. Obviously, there’s much more to talk about and the last part was a bit speculative for sure. But, I do hope that it gave you some good insights into how Trump’s economic advisors see the world and what they will likely advise Trump to do next.
Now, if you want to know more about Scott Bessent’s vision for the international trading system, I highly recommend you check out his essay in the Economist, the sponsor if this video. And if you are hungry for an alternative big picture idea, that recognizes that the current global order is not sustainable, but argues that you don’t need tariffs to change it, check out this essay by two ex Biden advisors.
Indeed, if you want to get the best insights into the rapidly changing economic order, then I highly recommend you use the link below to get yourself an annual subscription to the Economist for a 20% discount. Whether you prefer to enjoy the print edition over a cup of coffee or their app’s digital weekly edition, you’ll always stay on top the latest global developments no matter where you are. So, don’t miss out – click the link in the description or top comment, or head over to economist.com/moneymacro to claim your exclusive 20% discount today.