The tariff war instigated by US President Donald Trump is a symptom of a deeper, more fundamental shift in global power relations. Geopolitics expert Alan Dupont shares his thoughts on the implications of this shift for global markets.
Shortly after the inauguration of Donald Trump as President of the United States, it became glaringly clear this wasn’t going to be a simple extension of his previous term.
On 1 February, Trump 2.0 shook the world by kicking off a trade war, increasing tariffs on imported goods from China by 10 per cent, while imposing tariffs of 25 per cent on Canada and Mexico.
What followed was a rapid escalation of retaliatory tariffs from many sides, culminating in a tariff rate of 145 per cent on exports from China to the US in early April.
It sent the global trade system into such a tailspin that the illustrious big three executives in the investment world – JP Morgan Chief Jamie Dimon, BlackRock CEO Larry Fink and Berkshire Hathaway Chief Executive Warren Buffett – all felt the need to speak out against the measures.
A modicum of de-escalation followed and, for now, US tariffs have been wound back to 10 per cent for most countries, but still stand at 55 per cent on exports of Chinese goods into the US.
I see a higher level of tariffs than we've seen historically, certainly than in the last 70 or 80 years, and we're going to have to live with it for the next three and a half years, and possibly beyond
Yet, it is hard to tell whether this will change in the future, leaving global markets with a heightened level of uncertainty for some time to come, according to Alan Dupont, geopolitical strategies expert and Chief Executive Officer of Cognoscenti Group.
“What we’re all trying to work out is how long they’re going to be on, what is the floor on tariffs, what’s the ceiling and will they continue after Trump?” Dupont said at the recent [i3] Insurance Investment Forum in Sydney.
“I think we’re going to have to resign ourselves to a higher level of tariffs than we have seen because I don’t believe that Trump will go below 10 per cent tariffs across the board and there’ll be higher tariffs on certain products in certain countries.
“I see a higher level of tariffs than we’ve seen historically, certainly than in the last 70 or 80 years, and we’re going to have to live with it for the next three-and-a-half years and possibly beyond.
“It would be a mistake to assume that once Trump leaves the White House, everything will go back to the way it was before. I don’t believe it will.”
Facing a New World Order
The tariff war is a symptom of a more fundamental shift in global power and might be an indication that the so-called Pax Americana, the period of relative peace following World War II, is coming to an end.
And Trump seems to be accelerating this fundamental shift.
It is not only the tariffs against both friend and foe that signal the different role the US is taking on the global stage, but also his attempts to intimidate Denmark into selling Greenland, questioning Canada’s sovereignty and forcing Ukraine to surrender mineral wealth in exchange for US protection that point to a more self-interested orientation, away from its previous position as global arbiter.
But the cracks in Pax Americana started well before Trump came on the scene, Dupont said. The relationship between the US and China, the two main powerhouses of the global stage, has been deteriorating for some time.
“It’s pretty clear US-China relations have been on a downslide for the best part of the decade now. I don’t see that lessening. I think it’s going to get worse, essentially because the US and China both understand if they want to be number one in the world, then the other guy has to be number two,” Dupont said.
In addition to China, there are several authoritarian states that have been challenging US primacy for some time, including Russia, Iran and North Korea. If they can form a pact with China, then this could seriously disrupt the current world order.
The US and China both understand if they want to be number one in the world, then the other guy has to be number two
“The Chinese are supplying the Russians with explosive material and the electronics they need for their war-fighting capabilities. Iran’s supplying Russia with drones. The North Koreans sent their own troops to fight on Russia’s side against the Ukrainians. I mean, who would have thought that would happen last year?” Dupont said.
“This is something that’s relatively recent and if they stay together, [their ability to] change the balance of power in the region should not be dismissed.”
This could lead to a situation where the power balance shifts from a unipolar world, where the US was so dominant it was hard for anyone to challenge it, to a multipolar world where new blocs appear that form military, political and trade alliances among themselves.
“The new system that’s emerging is no longer one dominated by Western values and Western interests. You might think: ‘So what?’ Well, it does matter because people tend to invest in trade with countries that share their values and share interests,” Dupont said.
Attacking Allies May Lead to a Multipolar World
Facing increasing adversity from unfriendly states is a development that has been in the making for some time, but Trump is accelerating the US’s abdication of global keeper of the peace by now attacking its allies too.
“I think it has shocked a lot of people to see the way the Trump administration has vociferously attacked the Europeans. You would think the Europeans were the main adversary, not China or autocratic challengers,” Dupont said.
“So why is that? Because the Trump administration believes that Europe is full of woke progressives who no longer believe in democracy, freedom of speech – all the things the Trump administration says it believes in – and Europeans haven’t been prepared to pay for their own defence.
“[Europe] has been complacent and, really, why should the US be protecting and supporting countries that won’t defend themselves?”
The invasion of Ukraine by Russia has caused the European Union to reconsider its expenditure on defence. And in March, the European Commission put forward The Readiness 2030 package, which aims to support Europe’s defence industry, deepen the defence market and step up defence spending.
In 2023, countries in the European Union spent on average 1.3 per cent of their gross domestic product (GDP) a year on defence. The European Commission estimates that this rose to 1.5 per cent in 2024 and expects defence expenditure to reach 1.6 per cent in both 2025 and 2026.
This is still well below the level of expenditure in the US, which spent 2.9 per cent of GDP on defence in 2023, or the UK, which spent 2.1 per cent in 2022.
The Trump administration believes that Europe is full of woke progressives who no longer believe in democracy, freedom of speech – all the things the Trump administration says it believes in – and Europeans haven’t been prepared to pay for their own defence
“Europe … has been anaemic. It has been spending around 1.3 per cent of GDP on defence, when in fact 2 per cent is the bare minimum and 3 per cent is the new standard. So, to get from 1.3 to 2 or 3 is an enormous amount of money that has to be spent,” Dupont said.
“The problem is the Europeans have hollowed out their industry and defence industrial base. They might not be starting from scratch, but they’ve certainly got a hell of a long way to go.”
If we were to move to a multipolar world, it would have serious implications for Australia’s position in the world too. China is our most important trading partner, while the US has been a big investor.
Every country needs to decide if they want to be a member of a China-led or US-led world, or whether it’s still possible to enjoy the benefits of both as Australia has done over the past 20 years. But sitting on the fence between the two competing world orders may not be feasible in an increasingly polarised world.
What is clear is that deglobalisation is likely to continue, although Dupont doesn’t believe it will be completely reversed. The world is too intertwined for that to happen, he said.
“I think we’re going to get selective decoupling in strategic areas as determined by Washington and Beijing. We are being deglobalised to some extent, but we’re not going to have complete deglobalisation because we’re going to go back to the Stone Age if we do that, which no one wants,” he said.
“We’re going to find some new balance point, but the new balance point in the future will be different from the past: there will be less globalisation and countries are increasingly prepared to pay what I call a ‘national security premium’ for essential goods and services produced domestically.
“Governments will start to invest in sectors of the economy where they believe they need to have sovereign capabilities, even though they have to pay a high price for it. So you might be able to get something from China 50 per cent cheaper than you can make in Australia, but we’ll make it in Australia anyway.
“Governments are starting to make that decision all over the world, the US in particular, which is reshoring and friendshoring. This is the new normal.”
Technology War and the Fight for Global Dominance
Looking back through history, you can see many of these shifts in global power and economic dominance have happened before. Often these cycles, also known as Kondratiev waves, have been triggered by the development of new technology as major breakthroughs lead to periods of prosperity and subsequent decline as technologies mature and are replaced.
If it is true the current cycle under Pax Americana is coming to an end, then the new cycle might be facilitated by technological innovation that is currently underway.
“Pax Americana has lasted for nearly 80 years and it’s running out of steam. What is the technology change that might drive the new system? The question mark here is health, but I would put AI there. I think AI is probably the leading candidate to be seen as the new stimulator of growth for the future,” Dupont said.
What is clear is that both the US and China recognise that technological superiority is a key ingredient in global supremacy. And as a result, the technological war between the two countries, not just to keep intellectual property secure, but also to be on the forefront of innovation, is heating up.
“This tech war between the US and China has been going on now for probably the best part of the decade … because both countries realise that whoever controls the commanding heights of the future economy and the technologies that sustains it, will more or less be the number one power in the world, so it’s an existential conflict for the US and for China and the rest of the world,” Dupont said.
The US is on the verge of losing its technological supremacy to China in many of the areas that matter... It's probably got a two to three year lead on China in AI, but in many other critical technologies China is ahead
“In 2018, the Trump administration started to deliberately decouple the US from some Chinese technologies. Think of Huawei, for example, because they understood that if Huawei became the rule setter in telecommunications, that meant that would reinforce China’s geopolitical aspirations.
“They want to protect their own technology, but they also want to maintain their technological supremacy and that is why we have a tech war, and it can’t be disassociated from the trade conflict.”
And there are indications the US is losing the battle for technological supremacy.
Dupont quoted figures from the Australian Strategic Policy Institute, which estimates China leads on 37 out of the 44 key technologies that are central to the global economy. The institute’s Critical Technology Tracker report shows China is leading in areas such as advanced aircraft engines, drones, advanced robotics and autonomous systems
operation technology.
“I’ve seen other similar reports saying the same thing, so I believe that the US is on the verge of losing its technological supremacy to China in many of the areas that matter,” Dupont said.
“This might be sobering for those who think the US is way ahead – it is clearly still ahead in AI, despite DeepSeek. It’s probably got a two to three-year lead on China in AI, but in many other critical technologies China is ahead.”
Weaponising the US dollar
The battle for global dominance has major implications for currencies too. Trump has not been shy to use every method at his disposal to maintain US dominance in the world and that includes the US dollar.
As the reserve currency of the world, the US dollar is a powerful weapon to yield in global trade.
“When the US started to think about how it could push back against China, they understood that the one weapon that they had at their disposal, that no one else could compete with, is the US dollar. So they have weaponised the US dollar in ways we haven’t seen for a long time,” Dupont said.
“Trump is very happy to use this because he sees this as, excuse the pun, one of his trump cards. That is going to have big implications for US investors because now money is being politicised in a way that hasn’t happened before in history.
“Why doesn’t China retaliate? Well it is trying to retaliate, it’s trying to push for the petro-yuan, it’s trying to do currency swaps and various other things. But the bottom line is that it’s coming up against a brick wall and I don’t think they are going to be successful in the short term.”
He pointed out it is not a given that the US dollar remains the global reserve currency. Since the 15th century there have been five countries that have held the power of reserve currency, including Portugal, Spain, France, the Netherlands and the United Kingdom.
If history is a guide, then we are due for a shift in reserve currency.
“How long did [these countries] last? On average about 94 years. How long has the US held the reserve currency status? I think it’s 105 years,” Dupont said.
“So at some stage the US is going to lose it, the question is when? I’ve done a net assessment of this with some colleagues and I still think the US, notwithstanding what Trump’s doing, notwithstanding he’s trashing the US reputation in many ways, including financially, I think the US dollar is still going to be there for the foreseeable future as the reserve currency.”
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