Analysis of Changes in Global Trade Patterns and Their Impacts

Recently, the U.S. government has caused a significant impact on the global trade landscape by implementing a large-scale tariff policy. This move has sparked numerous uncertainties and controversies in both geopolitical and economic terms, with various parties holding sharply differing views on the matter.

Before discussing this issue, we need to clarify one point: free markets and global trade are beneficial. Trade is essentially a voluntary act that only occurs when both parties believe they can benefit from it. Therefore, trade is not a zero-sum game. The long-standing trade imbalances between countries also have their rationale. We believe that all forms of tariffs are harmful, including so-called "reciprocal tariffs." These tariff measures will undoubtedly harm global economic growth and productivity. However, there is still significant disagreement regarding the causes of international trade imbalances, the mechanisms of operation, and the impact of tariffs on capital flows. This is precisely what this article aims to focus on.

The View of the U.S. Government

In the eyes of the U.S. government, the United States has long been a victim of its trading partners, with the massive trade deficit serving as clear evidence. These trade deficits primarily stem from the protectionist policies of certain major trading partners, such as China, the European Union, and Japan. The method the U.S. government uses to calculate "reciprocal tariffs" indicates that they believe the persistent trade deficit has no valid justification and is entirely caused by protectionism.

The U.S. government believes that these protectionist policies mainly include:

1. Tariff barriers
2. Regulatory measures that favor domestic producers
3. Some major exporting countries manipulate their currency exchange rates to depress the exchange rate against the US dollar.

The U.S. government believes that these policies have led to a shrinking of the U.S. manufacturing base, placing American workers in a severe economic predicament. The American worker community is a crucial support force for the government's "Revitalize America" policy. By ultimately achieving fair competition, American consumers will purchase more domestic products, thereby promoting the revival of U.S. manufacturing and economic prosperity.

Reserve Currency Perspective

Some argue that the U.S. government's perspective on trade reflects a misunderstanding of economics. In fact, the U.S. benefits significantly from its trade deficits. American consumers enjoy cheap goods produced by low-wage labor in Asia, as well as price advantages from Middle Eastern oil. In contrast, Asian workers toil for long hours under harsh conditions for meager pay. This is actually a strategy that the U.S. has successfully implemented for many years. The U.S. somehow persuades countries with trade surpluses to invest their funds in the U.S., maintaining a strong dollar and perpetuating this situation that favors the U.S. It is noteworthy that under a non-gold standard system, trade deficits do not lead to a loss of precious gold reserves for the U.S. The U.S. can maintain deficits for a long time with little impact. This viewpoint is in stark contrast to that of the U.S. government.

However, this situation is not sustainable, as the trade deficit will accumulate over time. The reason it has been maintained for so long is mainly due to the dollar's status as the global reserve currency. When countries export goods to the United States, they invest their earnings in dollar-denominated assets, keeping this system running. But over time, the accumulated imbalance may lead to a collapse of the entire system, and Americans' real incomes could decline significantly. To avoid this, some suggest that U.S. investors should increase their holdings in assets such as gold and Bitcoin.

The United States has been taking various measures to try to maintain the dollar's status as the global reserve currency, some of which are not well known. Some of the more extreme policies include:

• It is speculated that one of the reasons Libyan leader Gaddafi was overthrown was because he held a large amount of gold and planned to sell oil in exchange for gold, which could threaten the dollar's status as the reserve currency.
• In October 2000, Iraq decided to stop settling oil transactions in US dollars and switch to euros. Some believe this was a significant motive for the US invasion of Iraq.
• Due to the above and other foreign policies, some oil-exporting countries realize that they must continue to sell oil in US dollars and invest most of their oil revenues in US dollar assets, otherwise they may face sanctions from the United States.

This viewpoint is in stark contrast to the U.S. government's public stance on global trade. The U.S. government accuses certain countries of manipulating their currencies to devalue them, while itself maintaining the appreciation of the dollar and sometimes even resorting to extreme measures.

To highlight this contradiction, we can see that the U.S. government has recently attempted to prevent the BRICS countries from creating a currency that competes with the dollar. If the BRICS countries succeed, it could undermine the dollar and prompt other currencies to appreciate. This seems to contradict the U.S. government's goal of promoting a revival of manufacturing through dollar depreciation. The recent tariff measures by the U.S. government and accusations against the BRICS countries for manipulating their currencies appear to be a series of contradictory policies. This contradiction exists not only within the current administration but is also prevalent in U.S. politics.

According to the perspective of reserve currencies, the U.S. policy goal is to support the dollar, while some countries plan to end the dollar's status as the global reserve currency. This view on global trade is quite popular among Bitcoin enthusiasts. Some well-known analysts also support this viewpoint. According to this perspective, the dollar is facing a highly uncertain period. In particular, the rise of BRICS countries poses an increasing threat to dollar hegemony, as these countries may gradually reduce their use of the dollar as the primary trade and settlement currency. Therefore, the dollar's status as the global reserve currency may be weakened at some point, and the prices of oil, gold, and even Bitcoin could rise significantly.

If this viewpoint holds, the new tariff policy in the United States could be particularly destructive and dangerous for the U.S. Exporting countries will see a decline in their trade surpluses, and the funds they invest annually in U.S. government bonds and other American assets will decrease. Subsequently, they may begin to sell existing U.S. assets to promote domestic consumption and compensate for the losses in exports to the U.S. This could become the catalyst for triggering a U.S. debt crisis and undermine the status of the dollar.

Perspective of Capital Flow

There is another less frequently mentioned but noteworthy perspective on trade imbalances. According to the balance of payments principle, if a country has a trade deficit, there must be a corresponding surplus in its capital account, and vice versa. But which factor is driving the other? It could be that workers in certain countries are producing high-quality products that American consumers really need, leading to the U.S. trade deficit and, in turn, the U.S. capital surplus. On the other hand, it could also be that foreign investors want to enter the U.S. market, which leads to the U.S. capital surplus and consequently the trade deficit.

This perspective is more positive for the United States. The U.S. has some of the best companies in the world that focus more on profit and return on equity. The corporate culture in the U.S. also places greater emphasis on elite management rather than overly relying on interpersonal relationships or personal backgrounds. This helps the U.S. attract top talent from around the globe. The U.S. is home to the most innovative tech giants in the world, and global investors are eager to invest in these high-quality, high-growth companies.

Many overseas investors also hope to transfer capital to the United States to avoid potential asset seizure risks in their home countries. In contrast, the United States has a stronger rule of law and investor protection mechanisms. Therefore, the U.S. government believes that the view that certain countries have been manipulating their currency depreciation may be incorrect; in fact, these countries may have been trying to prevent capital outflow. According to this perspective, these advantages of the U.S. have led to huge capital account surpluses, which in turn have resulted in large trade deficits. Therefore, a persistent trade deficit may not be a problem, but rather a sign of success. It depends on the driving factors behind it.

We believe that these economic factors are more important than geopolitical factors in driving the dollar to become the global reserve currency. Relying solely on diplomatic policies to maintain the dollar's status may have limited effectiveness. This is not to say that we should defend certain inappropriate diplomatic policies. Some security agencies may still adhere to the reserve currency theory, even if it may now be outdated. Even though other fiat currencies struggle to compete with the dollar, gold remains a potential competitor. Certain institutions may still need to adopt some unconventional measures to suppress gold. Perhaps some authorities want global trade to be conducted in dollars, not to maintain the dollar's value, but to gain more control over global affairs and enhance their ability to block payments and freeze global assets.

If one agrees with this viewpoint, even believing that "tariffs are always harmful," the new policies of the U.S. government may not immediately destroy the dollar's status as a reserve currency. Of course, this is still a tax that will harm American businesses and weaken the economy, but the dominance of the dollar may persist for some time.

Conclusion

The global economic system is extremely complex. The viewpoint of reserve currencies has its rationality, as trade deficits do indeed promote capital account surpluses to a certain extent. However, the same situation can also be interpreted from other perspectives. The assertion that capital account surpluses drive trade deficits is equally valid. In fact, these factors interact with each other, and understanding this is crucial for a comprehensive grasp of the global trade landscape. For the United States, both factors are very important, and neither aspect should be overlooked in analysis. The U.S. government's certain views on trade also have some validity, which partially explains why some politicians seem contradictory when discussing currency manipulation issues.

Nevertheless, we believe that the overall view of trade by the U.S. government is largely problematic. Tariffs are essentially a tax on the American people, which will weaken the U.S. economy. The American middle class may be the relative losers of globalization, while the elite have benefitted, but that does not mean that reversing globalization will make the middle class relative winners. If the U.S. government were to completely change its tax policy, replacing income tax with tariffs and reverting to economic policies prior to the 1930s, that would be another matter, but this possibility is unlikely.

Of course, there are also some conspiracy theories worth mentioning. Some believe that the U.S. government announced these tariffs to intentionally trigger economic turmoil, forcing investors to buy U.S. Treasury bonds to lower yields, thereby allowing the U.S. to refinance its debt at lower interest rates and delay the crisis of being unable to pay debt interest. We believe this possibility exists, but the probability is low. According to Occam's Razor, the simplest explanation is usually the most reasonable: the U.S. government simply thinks that tariffs are an effective policy tool.