Trump’s Aggression Fueled by America’s Hidden Financial Risks

How should we analyze the new wave of trade tensions that gripped the world in 2025? To better understand the issues at stake, the World Inequality Lab recently published a historical study on global trade and financial imbalances since 1800, titled “Unequal Exchange and North-South Relations: Evidence from Global Trade Flows and the World Balance of Payments 1800-2025.”

Several conclusions are clear. In general, the idea of spontaneously balanced and harmonious free trade does not stand up to scrutiny.Since 1800, there have been massive and persistent imbalances, and a repeated tendency by dominant powers to abuse their position to impose terms of trade that favor them, at the expense of poorer countries.

What is new about the current crisis is that the United States has been losing its grip on global power and now finds itself in a situation of unprecedented financial fragility. That explains the aggressiveness of the Trump management. However, giving in to demands, as the Europeans have just done on military budgets (which are largely transfers to the US defense industry) or on multinational taxation, is the worst possible strategy. It is time for Europe to shake off its complacency and join forces with democracies of the Global South to rebuild the commercial and financial system in support of a different model of development.

Permanent Trade Fails

First, let us remember that trade flows have never been higher than they are today. Total exports (and imports) now amount to around 30% of global gross domestic product (GDP), with 7% for raw materials (agricultural, mining and fossil fuels), 16% for manufactured goods and 7% for services (tourism, transport, consulting, etc). By comparison, trade flows were about 7% of global GDP in 1800, 15% in 1914 and 12% in 1970 (of which 4% was for raw materials, 5% for manufactured goods and 3% for services). The increase observed since 1970 has been dizzying across all sectors – with a material footprint and environmental damage that we are only beginning to realize. It is often pointed out that world trade has stabilized as a percentage of global GDP since the 2008 crisis. This is true, provided one specifies that it is a stabilization at the highest level ever recorded in history.

How might the escalating national debt influence the severity of future economic downturns in the US?

The Looming Debt Crisis & Political Posturing

Donald Trump’s frequently enough-aggressive rhetoric and policy decisions, even seemingly unrelated ones like restricting entry for foreign students – as evidenced by recent actions against Harvard students [1] – can be partially understood through the lens of America’s precarious financial situation. While ofen discussed in abstract terms, the national debt, coupled with escalating entitlement programme costs and a fragile global economic landscape, creates a pressure cooker for political instability. This isn’t simply about numbers; it’s about the potential for economic shocks that necessitate drastic, and frequently enough populist, measures. Understanding US debt risks is crucial to interpreting current political trends.

Understanding the Core Financial Vulnerabilities

Several key financial risks are silently eroding America’s economic foundation:

National Debt: Exceeding $34 trillion, the US national debt is historically high and continues to grow. Servicing this debt consumes an increasing portion of the federal budget, limiting funds available for crucial investments. Government debt impacts future economic growth.

entitlement Programs: Social Security and Medicare face long-term funding shortfalls as the population ages and healthcare costs rise. Addressing these requires politically unpopular choices – raising taxes, cutting benefits, or increasing the retirement age.

Inflation & Interest Rates: Persistent inflation, even if moderating, coupled with rising interest rates, increases the cost of borrowing for both the government and individuals. This can stifle economic activity and lead to recessionary pressures. Inflation risks are a major concern.

Global Economic Interdependence: The US economy is deeply intertwined with the global economy.A slowdown in major trading partners, geopolitical instability, or a financial crisis abroad can have significant repercussions domestically. global financial stability is paramount.

Dollar Dominance Challenges: The US dollar’s status as the world’s reserve currency is facing increasing challenges from currencies like the Euro and the Chinese Yuan.A decline in dollar dominance could lead to higher import costs and reduced US influence.

how Financial Anxiety Translates to Aggressive Policies

The perception – or reality – of these financial risks fuels a specific type of political response. Hear’s how:

1. Nationalism & Protectionism: When economic anxieties rise, politicians often resort to nationalist rhetoric and protectionist policies (tariffs, trade barriers) to “protect” domestic industries and jobs. This appeals to voters feeling left behind by globalization. Trump’s trade wars with China are a prime example.
2. Scapegoating & Xenophobia: Economic hardship can lead to the scapegoating of immigrants or foreign entities, blaming them for domestic problems. This is where policies like restricting entry for foreign students, as seen with the Harvard case, fit into the pattern. it’s a distraction tactic, diverting attention from systemic issues.
3. fiscal Irresponsibility (Ironically): While campaigning on fiscal conservatism, politicians facing economic pressure may engage in short-term, populist spending measures (tax cuts, infrastructure projects) to stimulate the economy, even if it exacerbates long-term debt problems.
4. Geopolitical Assertiveness: A perceived decline in economic power can lead to a more assertive foreign policy, aimed at projecting strength and maintaining global influence. This can manifest as increased military spending or a willingness to engage in conflicts.

Case Study: The 2008 Financial Crisis & Subsequent Political Shifts

The 2008 financial crisis provides a stark example of this dynamic. The crisis exposed deep vulnerabilities in the US financial system and led to a massive government bailout. The subsequent public anger and economic hardship fueled the rise of the Tea Party movement and laid the groundwork for Trump’s populist appeal in 2016. The crisis highlighted the dangers of financial system risks.

The Impact on Immigration Policy

The restriction of entry for foreign students, particularly those from elite institutions like Harvard, isn’t solely about national security.It’s also about controlling perceived “leakage” of intellectual capital and resources. In a climate of economic anxiety, the argument that foreign students are taking opportunities away from American citizens gains traction. This taps into anxieties about economic competition and job security.

benefits of Addressing the Underlying Financial Issues

Proactively addressing these financial risks offers significant benefits:

Sustainable Economic Growth: Sound fiscal policies and investments in education, infrastructure, and innovation can foster long-term economic growth.

reduced Political Polarization: Addressing economic anxieties can help to bridge the political divide and promote greater social cohesion.

Enhanced National Security: A strong economy is essential for maintaining national security and projecting global influence.

Improved Standard of Living: Responsible fiscal management can definately help to ensure a higher standard of living for future generations.

practical tips for Individuals & Investors

While large-scale solutions require government action, individuals can take steps to mitigate their own financial risks:

Diversify Investments: Don’t put all your eggs in one basket. Diversify your investment portfolio across different asset classes.

* Reduce Debt: Pay