As of yesterday, the Trump administration’s latest round of tariffs has come into effect. These measures appear to be part of a broader strategy aimed not only at addressing a domestic fiscal imbalance—where debt obligations have surpassed 110% of tax revenues and are still rising—but also at reshaping the global economic and trade order that has been in place since the end of World War II.
At the heart of this policy shift is a push to devalue the U.S. dollar. Such a move would likely be inflationary, placing a significant burden on holders of U.S. Treasury bonds. This devaluation of the debt market appears necessary to reconfigure global supply chains, disrupt/control energy imports (including sanctions on Venezuela), assert control over key maritime logistics corridors, implement widespread tariffs, and secure access to strategic resources from neighbouring nations via take over.
However, the domestic economic realities present serious challenges. For tariffs to effectively drive a resurgence in domestic manufacturing, fundamental structural reforms would be required—such as eliminating income and corporate taxes and doubling domestic industrial output within a very short timeframe. Presently, the US manufacturing base lacks the capacity to meet even basic production needs; with annual imports exceeding $3 trillion, the notion of replacing these goods with domestic alternatives in the near term is unrealistic. As a result, consumer prices are expected to rise significantly, prompting the Federal Reserve to expand the money supply and open market operations. This will no doubt lead to stagflation.
Some economists suggest that one potential mechanism for achieving dollar devaluation involves raising the carry cost of U.S. Treasuries, thereby weakening the dollar, and reducing the real cost of servicing debt. This strategy would also erode the real value of wages, despite nominal increases, and could lead to the implementation of capital controls. Such measures may be required to realign the U.S. economy towards export competitiveness.
A weaker dollar, without protectionist tariffs, would offer an advantage to creditor nations enabling continued trade surpluses with the U.S., and may instigate capital flows into US equities in addition to gold. Nonetheless, this strategy is not without risk. It could result in significant capital flight, particularly from Chinese investors, thereby devaluing U.S. financial assets further, a key development in the stock market. Moreover, it may discourage investment from European and other international sources in response to perceived political and economic instability. If we add in Japan, which is seeing rising rates and a stock market that is falling, the yen carry trade imploding once again could be the real pin to explode the global bubble quicker than any country has an appetite to handle.
From a procurement and supply chain perspective, this policy trajectory will have considerable implications. Export demand is likely to decline, and a strengthening Australian dollar (AUD) relative to the U.S. dollar could further disadvantage Australian exporters in certain markets. In the short term, import prices may fall as surplus goods are redirected to secondary markets, but this will likely prompt retaliatory tariffs from affected countries seeking to protect their domestic industries. The cumulative effect could lead to a far more profound disruption of global supply chains than witnessed during the COVID-19 pandemic.
Considering these developments, supply chain and procurement leaders are likely conducting comprehensive risk assessments. These should include scenario planning based on currency fluctuations, revenue volatility, cost structure impacts, and potential fulfilment disruptions.
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