The United States addresses constant economic pressures and ever-changing financial trends. Its intricate geoeconomic architecture is shaped not just by China’s domestic industrial policy, but by its foreign policy. Looking back, recent developments reveal the extent to which former President Donald Trump’s policies continue to put pressure on the U.S. dollar. At the same time, China is deepening its chokehold on global trade, developing a monopoly on crucial ports and making strides in the high-tech sector.
As I write this, the U.S. teeters on the brink of yet another government shutdown. Optimistically, economists think this will get better in the next few weeks. Now the effects of these bad policies are becoming manifest. Real soon, Americans from every walk of life are going to realize the result of the tariffs that were levied during Trump’s term in office. Amid these dynamics, China’s sustained export growth and strides in clean energy, robotics, and technology further complicate the U.S. economic outlook.
China now controls well over a third of the world’s 100 largest ports. This dominance not only highlights China’s strategic positioning in international trade but raises questions about the U.S.’s competitive edge. China has by no means lacked for resilience in holding its export ground. It has made huge progress on complete industries including clean energy and robotics. These developments indicate a shift in global economic power dynamics, as China continues to innovate and expand its technological capabilities.
Financial indicators show a mixed bag of results in the United States. As spending approaches, the 10-year yield is still quite low and the 20-year yield has been falling since June. The 2/10 spread has jumped around between 0.4% and 0.65% since May, which indicates a lack of clarity in the bond market. Such ebbs and flows are indicative of an overall skittish investor mood about what’s to come economically.
Now a potential U.S. government shutdown threatens to add new stressors to the quest for financial stability. As these negotiations persist, many observers believe a compromise solution could soon materialize. The effects of past fiscal policies are still being felt, most acutely in the case of tariff revenues. Since the start of the Section 301 tariffs, the U.S. has collected upwards of $200 billion in tariff revenue. Experts warn that this misguided approach would ultimately hurt American consumers.
Just this past week, radical centrist economist Paul Krugman lamented the absence of any serious economic policy from the Trump administration. He announced, “He has lost the thread of reality. This concern is shared by most, including some who claim that the current path may set in train long-lasting inflationary pressures.
Fernando Martin of the St. Louis Fed drew attention to something truly important in a recent paper. He noted that a new decomposition of national inflation dynamics shows that the U.S. could be in a “persistent above-target regime” right now. Inflationary pressures are an increasing burden on American households. As you can see in the projection above, the value of $1,000 today will erode—due largely to inflation—perhaps more than half in just over 30 years.
As the world watches these developments play out, ambiguity hangs over future trade agreements with China. Though talks for a new bilateral trade deal have begun, what form that would take is unknown. The intricacies of these negotiations might have significant consequences for the economies of both nations.