Trade has been an integral part of the human condition for as long as there have been humans.
But for much of our history, that trade was restrained… by (a lack of) technology and geography. A tradesman in the classical age, after all, could only walk or sail so far. Even Rome, for all its glory, was mostly constrained to the Mediterranean. And its primary trade routes only expanded eastward to about the Balkans.
Even as recently as the very early 20th century, trade was mostly confined to spheres of influence. In 1913, for instance, roughly half of American trade was conducted with Europe. About one-third was with the Americas (Canada, Mexico, South America, etc.).
Of course, that all changed a few decades later. After World War II, the Bretton-Woods agreement laid the foundation for a dollar-backed international system. The U.S. Navy patrolled the world’s trade routes, ensuring a free flow of commerce.
The foundations for globalization, as we understand it today, were being laid. And the results can be summed up in the below chart.
Source: Statista
The upside for importing countries like the U.S. was a flood of cheap goods that made their way to your neighborhood Walmart. For developing nations like China, it led to tremendous economic growth as factories sprung up and much of the population was lifted out of poverty.
But there were downsides, of course…
Businesses realized how much cheaper it was to outsource their manufacturing. So, they shipped those jobs overseas, where they could pay next to nothing, comparatively speaking.
As a result, national companies turned into global powerhouses. The improved margins thanks to cheaper labor and material inputs were welcome news for investors. Those were the winners. But there were also losers.
Whole U.S. cities – and even swaths of the country – lost their economic edge. Cities like Detroit and Pittsburgh, once icons of American manufacturing, were hollowed out. The people who lived there suffered. Economic insecurity leads to desperate behavior – addiction, suicide, overdoses.
A sad fact: In 1999, there were five overdose deaths per 100,000 residents in Michigan alone. By 2018, the figure was six times higher. It’s a similar story in other, previously industrialized parts of the country.
And America, once known for production, became one giant consumer instead – ultimately dependent on everyone else for our way of life.
This, in a nutshell, is what the current administration is trying to address.
This was summed up on April 2 on WhiteHouse.gov when Trump attacked “structural imbalances in the global trading system.”
Due in large part to lenient and dismissive policies by previous U.S. administrations, America ended up with:
… a lack of reciprocity in our bilateral trade relationships, disparate tariff rates and non-tariff barriers, and U.S trading partners economic policies that suppress domestic wages and consumption, as indicated by large and persistent annual U.S. goods trade deficits…
And so, he outlined an entire system of “reciprocal tariffs” to change the game.
Regardless of whether you agree with that premise or not, and regardless of how many trade deals Trump is able to arrange in the end, globalization as we’ve known it is dead.
To be clear, I’m not saying trade is dead. But now, it will happen on different terms.
Trump’s Latest Trade Agreements
I’m sure you saw the news that Japan, Indonesia, and the Philippines have all come to trade agreements with Trump.
Japan was the biggest piece of news yesterday. It agreed to remove its strict rules and regulations on U.S. auto imports, which was huge. But it will also buy 100 Boeing (BA) aircrafts… plus raise its own defense spending by $17 billion per year instead of relying as heavily on U.S. provisions.
And, as Trump described on his Truth Social page:
Japan will invest, at my direction, $550 Billion Dollars into the United States, which will receive 90% of the Profits. This Deal will create Hundreds of Thousands of Jobs – There has never been anything like it. Perhaps most importantly, Japan will open their Country to Trade including Cars and Trucks, Rice and certain other Agricultural Products, and other things. Japan will pay Reciprocal Tariffs to the United States of 15%.
This is an enormous deal considering how the U.S. ran a $63 billion trade deficit with Japan last year alone. I assume 2026 and even 2025 will look much different.
In fact, I wouldn’t be surprised if trade deficits with many other countries look very different in a few years.
Consider how the federal government has already collected about $100 billion in tariffs so far this year… a number that’s set to expand substantially come August 1 if the original “Liberation Day” tariffs go back into effect. Although, in all likelihood, Trump is likely angling for more deals like the one with Japan.
Moving on to the Philippines and Indonesia, both settled for 19% tariffs. The U.S. won’t face any in return from the Philippines, and the two have also agreed to military partnerships.
Meanwhile, Indonesia will remove 99% of its tariff barriers on American agricultural products, industrial goods, and technology. That’s significant enough, but it’s not even the best part of the deal.
This is: Indonesia will lift its previous trade restrictions on rare earth minerals.
While it doesn’t have nearly the same amount of these critical resources as China, this remains one more step in making the U.S. less dependent on that Asian giant. That in and of itself is a global game changer in trade and geopolitics alike.
I expect to be writing more about that topic in the coming weeks as we learn more about how Trump’s tariffs unfold…
Expect Europe to Follow Soon Enough
On July 10, I wrote how Trump and key members of his administration thought they’d have “90 deals in 90 days” back when they first unveiled their tariffs plan.
“Yet,” as I wrote, “three months later, there have only been three: with the U.K., Vietnam, and China. And there’s still plenty of trade tension to sort out with China, as we all know.”
So now we have six trade deals, which is better than three… but still very far from 90.
Clearly, the administration has more work to do…
But I still think we’ll be seeing more trade deals before long. Maybe not from India, as we were told would happen a week or two ago.
Apparently, it’s very concerned about Trump’s demands to open up its agricultural and dairy sectors to international trade. India has long since argued that its many small-scale farmers would suffer if they had to compete globally.
Plus, it has an enormous population that recently surpassed even China’s. So, it argues, it needs all the food it can grow to feed those citizens.
But while India might be up in the air, there’s reason to believe that the European Union – which are currently facing 30% tariffs – will ink out deals soon enough.
One of my trusted associates, Leo Nelissen, is an expert researcher of supply chains, infrastructure, and commodities. He’s also European. From the Netherlands, to be precise.
When I asked Leo for his opinion on Trump’s tariffs yesterday, he had a very quick and confident response:
They will back down. They have no leverage. Germany, for example, needs the export market for machinery and cars.
They will likely try to go after service revenues to hurt American Big Tech. But the price [they’ll] pay is too high. They need tariffs to be as low as possible, even if they end up with more American imports.
Europe’s manufacturing industry is a mess. We cannot risk any disruptions.
His opinion echoes JPMorgan (JPM) CEO Jamie Dimon’s remarks two weeks ago while speaking at Ireland’s Department of Foreign Affairs. If anything, Dimon was even more blunt.
You’re losing. Europe has gone from 90% [of] U.S. GDP to 65% over 10 or 15 years. That’s not good.
[The U.S. has] this huge, strong market and our companies are big and successful [with] huge kinds of scale that are global. You have that, but less and less.
That’s not a position of strength to negotiate from. Especially against the man who literally wrote The Art of the Deal.
The Final Word on America’s Role in Globalization
Trump fully recognizes what Japan, the Philippines, and Indonesia just had to admit: Access to U.S. markets is a necessity for many economies. And Trump is more than willing to leverage that.
Globalization used to happen at Americans’ expense, specifically at the expense of American workers. But Trump’s rewriting that old playbook.
Contrary to what you might hear, trade isn’t going anywhere. But it’s changing. And the trend of globalization as we’ve understood it for decades… is dead.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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