How Tariffs Work & How to Trade Them

Tariffs are government-imposed taxes on imported goods that serve as both a revenue source and a strategic policy tool to influence trade balances, protect domestic industries, and respond to geopolitical tensions.

In our current times, tariffs, debt cycles, monetary imbalances, geopolitical distrust, domestic political polarization, and deglobalization are converging to reshape capital flows, inflation dynamics, and global power structures.

These aren’t temporary disruptions but symptomatic of a deeper shift in the global order.

In this article, we will interpret those signals and translate them into actionable strategies so that traders and investors have a disciplined way to adapt, allocate, and act under these new conditions.

Key Takeaways – How Tariffs Work & How to Trade Them

• Tariffs function as both revenue-driven policies and strategic levers, redistributing economic burdens, reducing global production efficiency, causing stagflationary pressures, shielding domestic industries, and reducing reliance on foreign goods and capital.
  • We know from historical evidence that they’re especially common during geopolitical conflicts.
• Tariffs’ true impact extends beyond first-order effects. Retaliatory tariffs, currency adjustments, and shifts in monetary and fiscal policy create complex, second-order influences that shape broader economic and market dynamics.
• The global economic and political order is changing, driven by unsustainable debt levels and trade imbalances.
  • This is likely to produce abrupt, nontraditional adjustments.
• The USD’s reserve currency status sustains global demand for US debt, but has also encouraged chronic over-borrowing and fueled economic imbalances.
  • Any currency realignments – such as RMB appreciation – could trigger ripple effects across global monetary systems.
• The 2025 tariffs and market disruption reflect deeper systemic breakdowns, which led to past moments in history where economic, political, and geopolitical tensions led to structural change and global realignment (notably the 1930-45 period).
• We are witnessing a historic convergence of structural pressures – debt saturation, political polarization, geopolitical decoupling, environmental volatility, and technological disruption – breaking down the post-WWII global order and replacing it with fragmentation and instability.
• Lasting change is shaped by several interacting macro forces: monetary policy, fiscal/domestic politics, international power dynamics, environmental conditions, and technological transformation – far more than any isolated headline event.
• Understanding today’s shifts requires historical context.
  • Past crises consistently involved economic change, political disorder, and external conflict followed by radical policy shifts and new institutional structures.
• Strategic investment must start with diversified, resilient allocation, spanning geographies, assets, asset classes, and time horizons.
  • Tactical overlays can be focused on inflation, currency risks, geopolitical fragmentation, and disruptive innovation.
    • Be careful with overly tactical approaches.
• Investors must think cyclically, not reactively, studying historical precedents and context, preparing for policy extremes, and designing portfolios capable of performing across inflationary, deflationary, and unstable regimes.

Tariffs: Purpose, Impact, and Strategic Importance

1. Revenue Generation Through Shared Tax Burden

Tariffs generate revenue for the country that imposes them.

The cost is shared between foreign producers and domestic consumers, depending on how sensitive each is to price changes (their relative elasticities).

This cost-sharing structure makes tariffs a particularly attractive form of taxation in some circumstances.

2. Reduction in Global Production Efficiency

Tariffs distort global production by interfering with comparative advantages, which leads to lower overall efficiency in the allocation of resources and production capabilities across countries.

3. Stagflationary Effects on the Global Economy

Tariffs tend to have stagflationary consequences worldwide.

They create deflationary pressures for foreign producers by reducing their competitiveness, while simultaneously causing inflation for the importing country by raising prices for consumers and businesses.

The immediate economic effects will likely be stagflationary for the US and recessionary for sanctioned nations, followed by policy responses – especially monetary ones – intended to offset those impacts, with the final outcome depending on how these opposing forces are balanced.

We have more on this in the Appendix located at the bottom of this article.

4. Domestic Industry Protection at the Cost of Efficiency

Tariffs shield domestic companies from foreign competition in the local market.

While this protection often results in reduced efficiency and innovation, it increases the likelihood of these companies surviving – especially if domestic demand is supported by monetary and fiscal policy interventions.

5. Common Strategy During Great Power Conflicts

In times of major international conflict, tariffs are influential in ensuring the nation retains essential domestic production capabilities.

They help build resilience in key industries that may otherwise be vulnerable in a disrupted global trade environment.

6. Reduction of External Economic Dependencies

Tariffs can help rebalance both current and capital account deficits.

In plain language, they reduce reliance on foreign goods (current account) and foreign investment or debt (capital account).

This reduced dependency is most valued during periods of geopolitical tension or war.

First- and Second-Order Effects of Tariffs

First-Order Effects

The initial or first-order consequences of tariffs include their direct impacts:

• revenue generation
• changes in production efficiency
• inflationary and deflationary pressures
• domestic industry protection
• strategic security, and
• the reduction of foreign dependencies

Second-Order Effects: Reactions and Adjustments

Beyond the direct effects, much depends on how various players respond.

These responses shape the second-order consequences, which can either amplify or offset the original impact of tariffs.

Key areas of reaction include:

• Retaliatory actions by tariffed countries
• Shifts in currency exchange rates
• Changes in monetary policy and interest rates by central banks
• Adjustments in fiscal policy by national governments
  

1. Reciprocal Tariffs Amplify Stagflation

If the countries affected by tariffs respond with reciprocal tariffs of their own, the result is a broader and more globalized form of stagflation – simultaneously slowing growth and increasing prices across multiple economies.

2. Monetary Policy Adjustments Based on Inflationary or Deflationary Pressures

Central banks often respond to tariff-induced imbalances with monetary policy changes.

In countries facing deflationary pressures, easing monetary policy (e.g., lowering interest rates or increasing liquidity) reduces real interest rates and weakens the currency – standard policies for combating economic slowdowns.

Conversely, in countries experiencing rising inflation due to tariffs, tightening monetary policy raises real interest rates and strengthens the currency – standard moves to prevent overheating.

3. Fiscal Policy Adjustments to Offset Economic Imbalances

Governments may also adjust fiscal policy in response to tariff-driven shifts.

In regions with disinflationary weakness, they may loosen fiscal policy through increased spending or tax cuts to stimulate demand.

Where inflation is stronger, they may tighten fiscal policy to cool the economy.

These changes can partially neutralize the inflationary or deflationary effects introduced by tariffs.

Complexity of Measuring Tariff Impacts

Because these second-order responses vary across countries and economic environments, the overall impact of tariffs is very complex and multifaceted.

So, evaluating the market and economic consequences of significant tariffs requires more than analyzing their direct effects – it also involves understanding the mix of all these reactive measures.

The Inevitable Shift in the Global Economic and Political Order

1. Unsustainable Global Imbalances Must Be Resolved

Production, trade, and capital imbalances – especially high levels of debt – are very unsustainable.

These imbalances threaten monetary stability, economic health, and geopolitical balance.

As a result, the existing global monetary, economic, and geopolitical systems ultimately can’t remain as they are.

Fundamental change is inevitable. It’s just a matter of timing.

2. Abrupt and Unconventional Adjustments Are Likely

The resolution of these imbalances will likely not be smooth or traditional.

Abrupt, unconventional shifts are expected to be influential in the transition to a new global order.

3. Long-Term Outcomes Depend on Trust, Productivity, and Governance

The lasting effects of these changes will hinge on three main factors:

• Trust in the quality of a country’s debt and capital markets as reliable stores of value
• The productivity levels of nations and their capacity to generate real economic value
• The strength and attractiveness of political systems that make countries desirable places to live, work, and invest

These underlying fundamentals will shape which nations rise or fall in the next phase of global realignment.

But Why Tariffs?

So, why tariffs and not something else?

The most sustainable solution would be structural reform – making the appropriate investments to achieve broad-based productivity, broadening and diversifying supply chains, and increasing real incomes, which in turn should work to at least slow down debt growth.

But that process is slow and isn’t easy to do.

It takes time, coordination, and consistency. It’s usually less popular because it doesn’t deliver quick wins.

Tariffs, on the other hand, offer immediacy. That’s what makes them appealing.

Tariffs allow politicians to translate abstract frustration into visible decisions. They create the illusion of control, even when the structural issues run deeper.

In a highly leveraged and imbalanced system, speed and the illusion of doing something may come at the expense of long-term resilience.

Also, in democratic systems, elected leaders operate on relatively short political timelines, which incentivizes tactical, visible actions like tariffs over difficult strategic reforms that require long lead times and yield benefits beyond their term.

The Reserve Currency Status of the US Dollar and Its Global Implications

1. The Dollar as the World’s Primary Reserve Currency

There is ongoing debate about whether it’s beneficial or harmful that the US dollar holds the position of the world’s dominant reserve currency.

On the positive side, this status increases global demand for US debt and other capital assets.

That demand wouldn’t exist at the same level if the US lacked the privilege of issuing the world’s reserve currency.

2. The Abuse of Reserve Currency Privilege and Its Consequences

Because markets drive currency flows, the US has historically been able to exploit this reserve status by over-borrowing.

This repeated abuse of privilege has contributed to today’s debt accumulation and the economic imbalances the US now faces.

As a result, the US must confront the hard realities of reducing trade, capital, and production imbalances, taking extraordinary steps to manage its debt burdens, and lessening foreign dependencies – especially under growing geopolitical conflicts.

3. Currency Adjustment Proposals and Strategic Negotiation

There has been discussion around the idea that China’s currency, the renminbi (RMB), should appreciate.

This is a policy shift that could potentially be negotiated directly between the US and China as part of a broader trade and capital agreement, analogous to a type of Plaza Accord.

4. Non-Market Adjustments and Their Complex Effects

Any such adjustment – particularly if it’s non-market-based or politically negotiated – would come with unique and difficult consequences for the countries involved.

These impacts would likely trigger the kinds of second-order effects previously discussed, including shifts in monetary, fiscal, and exchange rate policies designed to cushion and rebalance the resulting economic pressures.

Related: How Do Currencies Lose Their Reserve Status?

The Deeper Forces Behind the Tariffs: A Historic Breakdown in Global Order

With the meltdown in global stock markets after the April 2025 tariffs, this led to intense and justified focus on the tariffs and their effects on markets and economies. 

Nevertheless, far less attention is being paid to the deeper conditions that led to their implementation – and to the even greater disruptions likely still to come.

To be clear, these tariff announcements are major developments, and it’s widely recognized that Trump initiated them. But in concentrating on the immediate headlines, many are overlooking the fundamental forces that not only brought him to power but also made these tariffs politically inevitable.

More critically, the tariffs are just one symptom of something much larger: the unfolding breakdown of the existing global monetary, political, and geopolitical systems. 

This kind of systemic unraveling is rare, but it’s not without precedent.

Throughout history, similar collapses have taken place when conditions became economically and politically unsustainable.

Structural Shifts in the Global Order: Debt, Politics, Power, Nature, and Technology

The Monetary System Is Breaking Under the Weight of Unsustainable Debt

Behind today’s policy debates and market volatility lies a deeper unraveling of the global financial system.

Debt levels have reached historic highs, and the pace at which new debt is being added is unsustainable.

Economies and capital markets are now dependent on this excess, caught in a cycle where borrowing nations – like the United States – run persistent deficits to sustain consumption, while lending nations – such as China – continue selling goods in exchange for dollar-based assets.

This co-dependency is fragile and fundamentally flawed.

Growing Distrust Is Undermining Global Financial Interdependence

This economic arrangement no longer holds up in a world where trust between major powers is evaporating.

Large trade and capital imbalances are incompatible with rising geopolitical risk, especially when countries fear being cut off from essential goods or financial payments.

The US increasingly questions its reliance on foreign suppliers, while China questions the reliability of American debt repayment.

As these concerns escalate, countries are turning inward, prioritizing self-sufficiency and national security over global integration.

This shift is forcing these long-standing imbalances to correct – voluntarily or through disruption.

The Old US–China Model Is Reaching a Breaking Point

The past model – where Americans consumed and borrowed while China produced and lent – has run its course.

It eroded the US manufacturing base, weakened a substantive proportion of the middle class, and left America more vulnerable to supply disruptions from strategic rivals.

With today’s rising protectionism and deglobalization, such imbalances are no longer viable.

At the same time, US government debt is spiraling at an unsustainable rate.

These realities point toward a fundamental and disruptive shift in the global monetary order.

We’re at the early stages of this transition, and its impact on capital markets and economic systems will be profound down the road.

Domestic Political Instability Is Deepening Along Socioeconomic Fault Lines

Internally, nations are becoming more polarized.

Deep divides in skills, education, productivity, opportunity, wealth, and values have fueled the rise of two opposing populist movements – one of the left and one of the right.

With traditional political systems failing to bridge these divides or offer functional solutions, compromise has eroded, and faith in democratic institutions is declining.

History shows that when democratic norms and the rule of law falter under such conditions, strongman leadership often follows.

Economic shocks – such as a market crash or inflation spike – could easily spill over into political upheaval and amplify the cycle of instability.

The US-Led Global Order Is Being Replaced by Power-Driven Rivalries

Globally, the post-Cold War order – centered on US-led multilateralism – is giving way to a fragmented, competitive landscape.

The United States remains a dominant power, but its foreign policy is shifting toward unilateralism and self-interest, which is reflected in trade disputes, technological decoupling, diplomatic standoffs, and even military engagements.

The cooperative model that once defined global governance is being replaced by a realpolitik framework in which strength and leverage determine outcomes, not consensus or shared rules.

Nature and Technology Are Accelerating Systemic Disruption

Beyond politics and economics, natural and technological forces are reshaping the landscape.

Climate-/acts of nature-related disruptions – floods, droughts, pandemics – are becoming more frequent and damaging, straining resources and global systems.

Meanwhile, breakthroughs in artificial intelligence are transforming how economies operate, how militaries strategize, how societies function, and how governments respond to crises.

AI will influence everything from productivity and employment to international competition and disaster resilience.

This creates both new risks and new power dynamics.

A World in Transition

We tend to think that the future will be a slightly modified version of the past and present – which also tends to get priced into markets.

But all of these forces – debt saturation, political division, strategic realignment, environmental volatility, and technological disruption – are converging at once.

Together, they signal the breakdown of the post-WWII global system.

What comes next is still uncertain, but what’s clear is that the existing frameworks are no longer sustainable.

Focusing on the Big Picture: The Five Forces Driving Major Global Shifts

Keep Your Attention on the Core Forces—Not Just the Headlines

As we’ve covered, while headline events like new tariffs grab attention, they’re not the true drivers of change.

What really matters – and what deserves sustained focus – are the major forces shaping the world and how they interact.

These forces collectively drive the long-term, structural evolution of economies, politics, and global systems.

If we become distracted by dramatic but surface-level news, we risk missing the deeper story.

Specifically:

• We might overlook how these big forces created the very headlines we’re reacting to.
• We’ll fail to consider how today’s events will feed back into and alter those same forces.
• And most importantly, we’ll lose track of the predictable patterns that have recurred historically, patterns that provide essential clues about where we’re headed.
  

Understand the Interconnections Between Major Forces

It’s not just the individual forces that matter, but how they influence each other in real time.

The dynamics between them is where the most powerful and lasting changes occur.

To see this clearly, let’s take the example of Trump’s tariff actions and examine their effects across the major forces:

1. Impact on the Monetary, Market, and Economic Order

Tariffs introduce economic friction, disrupt global supply chains, and shake investor confidence.

These moves destabilize trade flows and pricing mechanisms, increasing stagflationary pressures.

As a result, they force central banks and capital markets to adapt in ways that can lead to volatility or systemic recalibration.

2. Impact on the Domestic Political Order

Internally, such policies may hurt the very constituencies they aim to protect.

If tariffs cause economic pain – through higher prices, job losses, or supply disruptions – public support may weaken, including for the leaders who imposed them.

Polarization, populism, and political instability may grow in response.

3. Impact on the International Geopolitical Order

On the global stage, tariffs deepen mistrust between major powers.

They accelerate decoupling, inflame trade wars, and often spill into broader conflicts.

These conflicts can be diplomatic, strategic, and even military.

They signal a retreat from multilateral cooperation toward zero-sum rivalry.

4. Impact on Climate and Environmental Efforts

Tariffs and trade barriers can hinder global coordination on climate initiatives.

For example, disruptions in clean energy supply chains, or shifts in production to less efficient regions, may slow down progress on addressing climate change at a time when global cooperation is critical.

5. Impact on Technology and Innovation

Tariffs can both help and harm the tech sector.

On one hand, they may encourage reshoring of advanced manufacturing and secure strategic technology supply chains.

On the other, they can damage investor confidence, restrict capital flow to innovation hubs, and fragment international R&D collaboration.

The Bottom Line: Track the Forces, Not Just the Events

Staying informed is important – but staying oriented is essential.

The relationship between monetary systems, domestic politics, global geopolitics, environmental conditions, and technological advancement is what drives lasting change.

Each dramatic news story is just one small chapter in a much bigger narrative.

To anticipate what’s coming next, keep your focus on the major forces and how they shape the overall structural changes.

Learning from History: Understanding Today Through the Lens of the Past

Today’s Disruptions Are Echoes of the Past

What we’re witnessing now isn’t unprecedented – it’s a modern version of patterns that have repeated throughout history.

The breakdowns in economic systems, domestic political structures, and international relations that we’re experiencing today have all happened before in different forms.

From depressions to civil wars to global conflicts, these crises have historically led to the collapse of old systems and the creation of new monetary, political, and geopolitical orders.

Study How Past Policy Makers Responded in Times of Crisis

To navigate what’s ahead, it’s essential to study how previous generations of leaders and policymakers dealt with similar conditions.

When pushed to the edge, governments have implemented policies that once seemed unthinkable.

These have included:

• Suspending debt payments to adversarial or “enemy” nations
• Enforcing capital controls to limit the outflow of money and protect domestic financial systems
• Imposing extraordinary or one-time taxes to shore up public finances or fund war efforts

Understanding the logic, mechanics, and outcomes of these historical responses, we can better anticipate what actions modern policymakers might take under similar stress.

Some Measures May Seem Extreme – Until They Happen

Many of the policies mentioned above would have seemed politically impossible or economically irrational not long ago.

But in periods of extreme pressure, what once felt unthinkable can quickly become standard practice.

That’s why it’s so important to examine how these policies were introduced and executed in the past, and to consider how they might function in today’s context.

The Cyclical Nature of Global Order

History shows that the breakdown and rebuilding of systems is cyclical.

Monetary systems collapse and are rebuilt.

Political institutions lose legitimacy and are replaced.

Geopolitical power structures fracture, reset, and re-emerge in new forms.

These cycles – between internal disorder and external conflict, followed by reordering – are among the most important phenomena to understand if we want to see what’s coming next.

With that said, let’s look into the implications for strategic and tactical asset allocation:

Core Principle: Diversified Strategic Allocation First

Before anything else, allocate capital across multiple geographies, assets, asset classes, currencies, and time horizons to protect against systemic shocks and matters beyond your control.

Portfolios should ideally be built to remain resilient across a wide range of market, economic, and macro conditions.

So, diversification is chiefly about resilience in not only a system facing structural transformation but can produce positive, stable returns across diverse environments.

We go more into this concept here.

Your Base Could Include:

• Global Equities – Spread across developed and emerging markets to balance risk.
• Real Assets – Commodities, gold, land, infrastructure – protection against stagflation and fiat devaluation.
• Fixed Income with Quality Filters – High-grade bonds from stable jurisdictions. Avoid overexposure to sovereigns with unsustainable debt dynamics (especially fixed-rate sovereigns). Consider inflation-linked bonds.
• Alternative Assets – Private equity, private credit, hedge funds, and other alternatives to gain exposure to less correlated/uncorrelated or emerging return streams.
• Cash and Short-Term Liquidity Vehicles – For opportunistic moves, especially in dislocations.
  

Tactical Overlay: Trading with the Big Forces in Mind

1) Inflation, Stagflation, and Monetary Response

Tariffs, deglobalization, and supply chain shifts are stagflationary.

Expect inflationary pressures alongside stagnant growth, especially in developed economies like the US

Strategy:

• Long inflation-hedged assets – Gold, TIPS, commodity ETFs, resource stocks.
• Short duration bonds – Reduce exposure to long-dated debt that will be hurt by rising rates.
• Tactically trade FX – Go long on commodity-linked currencies (e.g., AUD, CAD) and selectively short on over-indebted sovereigns.
• Tilt equity exposure toward pricing power sectors: energy, defense, agriculture, and infrastructure.
  

2) Domestic Industry Protection and Industrial Policy

Tariffs and onshoring efforts will benefit domestic producers in strategic sectors but distort efficiency and suppress long-term growth.

Strategy:

• Long US industrials and reshoring beneficiaries – Machinery, semiconductors, rare earth processing, logistics.
• Watch for zombie companies propped up by protectionism. Short inefficient domestic firms that lack innovation but rely on political shielding.
• Monitor policy-driven flows – Follow government spending via the CHIPS Act, Infrastructure Bill, defense budgets, etc.
  

3) Reserve Currency Strain and Capital Controls Risk

The USD’s status as reserve currency is under long-term structural strain.

Future responses may include capital controls, strategic currency shifts, and non-market-based realignments.

Strategy:

• Reduce overexposure to US dollar assets – Begin diversifying into currencies with surplus balances or stronger fundamentals.
• Gold and crypto allocations become critical as stores of value in a fractured system.
• Monitor RMB appreciation and potential bilateral trade currency agreements as they could alter FX and capital flow dynamics.
  

4) Political Instability and the Risk of Unconventional Policy

Political fragmentation and populism increase the risk of sudden policy shifts – wealth taxes, capital flow restrictions, debt freezes.

Strategy:

• Avoid concentrated domestic exposure in politically unstable regions.
• Own assets outside politically fragile jurisdictions.
• Track populist trends and election cycles – they precede major fiscal and regulatory moves.
• Prepare for tail risk hedging – options, volatility products, or inverse ETFs in case of domestic political chaos.
  

5) Geopolitical Fragmentation and the End of Globalization

The US-led global order is being replaced by multi-polar power blocs.

Trust in trade, capital flows, and cross-border cooperation is breaking down.

Strategy:

• Defense and aerospace equities have long-term structural tailwinds.
• Select emerging markets with high self-sufficiency, commodity wealth, and stable politics (e.g., India, Brazil, parts of MENA).
• Energy diversification is key: nuclear, LNG, renewables, and transmission infrastructure.
• Expect regional ETF outperformance as global indices underperform due to decoupling.
  

6) Environmental and Technological Disruption

Climate volatility and exponential tech (especially AI) will drive new winners and losers – both in industry and national positioning.

Strategy:

• Long AI enablers – cloud infrastructure, semiconductor design, frontier software, robotics applications.
• Green energy and climate resilience – water management, sustainable farming, weather risk mitigation.
• Watch for policy tailwinds – carbon credits, emissions trading systems, and climate legislation.
  

Long-Term Orientation: Think Cycles, Not Just Events

Think Like a Historian:

• Study prior periods of debt saturation, reserve currency transition, capital control regimes, and industrial shifts.
• Expect that policies previously unimaginable – debt moratoriums, forced savings programs, windfall taxes – will resurface.
  

Protect Against the Unknown:

• Scenario planning beats forecasting. Build portfolios that can perform in inflation, deflation, or disorder.
• Liquidity buffers and mental flexibility are key. The system is evolving fast and strategies must adapt.
  

Final Checklist for Investors & Traders

• Is my core portfolio diversified across different economic outcomes – i.e., falling/rising growth and inflation, changes in interest rates and risk premiums between asset classes?
• Am I exposed to structural themes, not just market momentum?
• Do I have hedges against political, currency, and inflation risks?
• Have I stress-tested my capital for geopolitical and policy shocks?
• Am I allocating strategically, and not being overly reactive/tactical/predictive to headlines?

Conclusion

1) Tariffs serve as a revenue tool and strategic policy instrument that redistributes economic burdens between producers and consumers, reduces global production efficiency, triggers stagflationary pressures, protects domestic industries, strengthens national resilience during geopolitical conflicts, and reduces dependency on foreign goods and capital.

2) The full impact of tariffs extends beyond their immediate effects – e.g., revenue generation, inflationary pressure, and industry protection – to second-order influences shaped by retaliatory tariffs, currency shifts, and policy responses. This makes their overall economic and market outcomes highly complex and dependent on how governments and central banks react.

3) The global economic and political order is undergoing an inevitable transformation driven by unsustainable debt and trade imbalances, likely to be resolved through abrupt, nontraditional shifts, with long-term outcomes determined by each nation’s financial credibility, productivity, and governance strength.

4) The US dollar’s role as the world’s primary reserve currency creates sustained demand for US debt but has enabled chronic over-borrowing, contributing to deep economic imbalances that now require correction.

5) Potential currency adjustments and politically driven negotiations – such as RMB appreciation – may trigger complex second-order effects across global monetary and fiscal systems.

6) The 2025 tariffs and resulting market falls are symptoms of a far deeper systemic breakdown, as underlying economic, political, and geopolitical imbalances reach unsustainable levels – mirroring historic periods of structural collapse that have triggered major global realignments in the past.

7) The global system is undergoing a historic transformation as unsustainable debt, political polarization, strategic decoupling, environmental stress, and disruptive technologies converge. This is breaking down the post-WWII order and ushering in a new era defined by fragmentation, instability, and systemic realignment.

8) True change in the global system is driven not by headline events like tariffs, but by the interaction of five core forces – monetary dynamics, domestic politics, geopolitical conflict, environmental shifts, and technological disruption – which collectively shape long-term cycles and must be tracked to understand where the world is headed.

9) Today’s global disruptions mirror historical cycles of systemic breakdown and renewal, where economic collapse, political fragmentation, and geopolitical conflict have repeatedly led to radical policy shifts and the formation of new global orders. This makes it essential to study past responses to anticipate what may come next.

10) Given we’re facing structural transformation across monetary, geopolitical, environmental, and technological domains, the foundation of any investment strategy is a diversified, resilient allocation. For those who are more active traders, this can be supplemented by tactical positioning aligned with inflation dynamics, industrial policy shifts, currency risks, political instability, geopolitical fragmentation, and disruptive innovation. 

11) Successful traders and investors must think in terms of the causes and effects and cycles that recur, while putting current events in their proper historical context – rather than headlines. Studying historical patterns, preparing for extreme but recurring policy shifts, and building adaptable portfolios designed to withstand inflation, deflation, falling growth, and geopolitical shocks is key.

Summary

It’s less about the tariff headlines and more about the underlying circumstances that are driving the ongoing breakdown of the major monetary/debt/economic, political, and geopolitical orders that made these policies inevitable.

Tariffs are essentially a symptom of these broader structural shifts.

Most important are the structural forces, the interrelationships between them, and how they interact with the established orders: unsustainable debt growth, financial imbalances, geopolitical breakdowns as an emerging power (China and its allies) comes up to challenge an entrenched power (the US and its allies), deglobalization, domestic political polarization (e.g., differences in productivity, opportunities, wealth, values), and technological change.

If we focus only on the headlines, we end up missing the deeper forces and cycle driving the changes.

It may seem unusual in the context of our lifetimes, but it’s a contemporary version of the same things that have happened over and over again throughout history for basically the same reasons.

We can also study how past policymakers in analogous circumstances responded to anticipate potential actions today, such as debt suspensions, capital controls, and special taxes (also policies that would have seemed unimaginable not that long ago).

Understanding and navigating what comes next requires focusing on the roots of change and not just the immediate events they produce.

Also, for traders and investors, while a lot of the focus is on understanding where assets should mathematically be trading at, provided how tariffs flow through into the money and credit flows that affect market pricing, it’s important to think of how the underlying circumstances and ongoing forces influence strategic asset allocation decisions.

What can you do to become more resilient across a wide range of macro environments and economic conditions?

Appendix

In April 2025, President Trump announced a new “reciprocal” tariff policy that would impose a weighted average tariff rate of 18.3% on US trade partners, which was approximately 3 percentage points higher than many analysts had anticipated. 

About one-third of total imports would be exempt under the plan, bringing the effective increase in the US tariff rate to 12.6 percentage points.

Including tariffs already announced earlier in the year, the total projected rise in the effective US tariff rate now stands at 18.8 percentage points. 

This projection assumes that trade negotiations will lower the final “reciprocal” rates compared to the initial proposal. 

Nonetheless, the potential for further escalation – particularly through retaliatory measures and sector-specific tariffs – suggests the eventual rate increase could exceed prior expectations of around 15 percentage points.

Ultimately, the effect is a tax on real disposable income, suppressed consumer spending, increased financial market volatility, more business uncertainty (which dampens investment), and only modestly improved trade balances. 

Although expected tax cuts may offer some fiscal stimulus, they’re unlikely to fully counteract the economic drag from the new tariffs and related immigration measures.

In terms of inflation, a common estimate is that each 1 percentage point rise in the effective tariff rate adds roughly 0.1 percentage point to core PCE inflation.