MW Investors really want to believe Trump on tariffs - but the truth will hit them soon

By David Blond

The world's 'China century' begins and America's influence declines

It is ironic that the U.K. bent the knee to America, and America now has bent the knee to China. These three powers represent three centuries of the financial-industrial-economic history of the world from the 19th to the 21st centuries.

The U.K. deferred to U.S. President Donald Trump in order to maintain its "special relationship" with the U.S., but this marks the last gasp of the Old World - including America - and the rise of a new world order led by China.

Trump is already on his back foot. He's upset the world order for no good reason except vanity and a misunderstanding of international trade. Trump disregards the fact that U.S. deficits have provided the excess dollars that have fueled global commerce and finance - and propelled the U.S. stock market to stratospheric valuations. Despite the market's surge on May 12, this foundation is now at risk.

Read: World to America: You're not the trade titan you think you are

China holds the cards

Geneva is a beautiful city by an expansive lake, a neutral site for high-level negotiations. I spent four and a half years living there in the mid-1970s during trade negotiations called the Tokyo Round, which set the table for the current negotiations by lowering tariffs on manufacturers.

The tariff rates that Trump complains about now were agreed to at the Tokyo Round and a decade later as part of the most-favored-nation round. These agreements broadened the U.S. government's mandate to deal with services and nontariff barriers. An American rules-based order with headquarters in Washington (World Bank and International Monetary Fund), New York (United Nations) and Geneva (World Trade Organization, International Labor Organization and World Health Organization) became firmly established, with globalization the tool through which political-economic stability was maintained.

China, despite Trump's bluster, holds a better hand than America. Trump has squandered America's global influence and role as a trusted partner and ally. Moreover, China knows better than Trump when the pain of the disruption will impact the American economy. China can read the news and the polls as well as everyone else.

So while he watched the Russian Victory Day celebration with his old friend Russian President Vladimir Putin in Moscow last Friday, China's President Xi Jinping could be confident that he can drive a hard bargain with Trump and show who is really in charge of the U.S.-China trade relationship. Xi is a student of Chinese history and its 2,000-plus years of cultural and economic achievements. China can wait Trump out.

The Geneva agreement lets Trump claim a great victory even as he retreats. But even a lower 30% tariff is a major tax on imports - that is, once shipping resumes and container ships can be repositioned during this short window to jump-start trans-Pacific trade. Yet the damage to the U.S. economy has already been done. It takes a lot of mistakes to reduce an economy as large and complex as the United States from strong growth to near-recession in 100 days - but Trump has accomplished this.

Read: Empty shelves, for-lease signs and job layoffs point to recession by summer

The end of a new beginning

The Geneva trade negotiations mark the end of the American century and the beginning of China-Asia dominance. China has prepared for this transition since its official re-entry into the world trading system in 2001, when it joined the World Trade Organization. It has invested in mines and roads in developing countries, sold those countries low-cost goods, and provided low-cost loans to struggling governments in Latin America, Africa and Asia. Xi doesn't need to worry about midterm elections or legalistic doctrines and rules. He can weather any storm. Trump can't.

America, on the other hand, has not prepared for the consequences of the weakening of its status in the world or of the U.S. dollar's (DX00) pre-eminence. Investors are largely ignoring this now, but it will show up in U.S. stock and bond prices once Americans fully comprehend just how damaged the U.S. economy will be when shortages at stores and factories shrink demand for workers and U.S. unemployment rises.

Even if Trump gets the deal he wants from every country, few American companies will be able to take advantage of it.

Even if Trump gets the deal he wants from every country, few American companies will be able to take advantage of it. U.S. multinationals are organized around a different business model. Working with partners around the world, they have interests in regional manufacturing facilities and sell unique products specific to that part of the world. Many low-cost goods are not profitable to make in the U.S., so even if Trump gets zero tariffs worldwide without giving up anything, he will still fail in his mission to remake the world in his own image of America First (and alone).

Monday's announcement of a deal in the works after the Geneva talks is not surprising. But the damage to the American economy is already baked in. Any deal will likely set the new tariff rates lower than those in place, but any levy above 10% adds unnecessary expenses to what had been a useful, symbiotic trading relationship. Trump can shout it to the world that Xi bent the knee to U.S., but the world knows that America was the one that caved.

The Chinese century has begun.

David Blond is an economist specializing in global economic analysis. He was a senior economist at the Pentagon during the Carter and Reagan administrations. He is the author of "The Mobius Inversion," which explores the American century and the roots of exceptionalism.

Also read: How trade wars and tariffs could put stock dividends on the chopping block

More: Trump should aim for zero tariffs. It could usher in a golden age for Americans.

-David Blond

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May 13, 2025 15:52 ET (19:52 GMT)

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