"Triple Weakness: Is Now the Time for the U.S. to Rebuild Global Trust?"

A Way of Reading the News: The Smoot-Hawley Tariff Act of the 1930s Reflects Today’s U.S. Tariff Policy

The Smoot-Hawley Tariff Act, enacted 93 years ago, can be seen as a mirror to the current U.S. tariff policy. Back then, the U.S. imposed tariffs averaging 59% on over half of all imported goods. The key question we must ask is: why did the U.S. impose such tariffs at that time?

The 1920s were a period of global economic recovery following World War I. The U.S. had profited immensely by supporting the war effort while avoiding the destruction experienced by combatant nations. As a result, America enjoyed substantial economic growth. Meanwhile, Europe, having suffered great damage, was also beginning to recover and pursue economic revitalization.

The problem was that this all occurred under the gold standard. The gold standard didn't allow nations to simply print money as needed. Currency issuance was strictly tied to the amount of gold held in reserve. In such a system, one nation’s economic growth could come at the expense of another’s stagnation or decline. During this period, both Europe and Japan were striving to grow, while the U.S. was already expanding—meaning global capital was in short supply.

This scarcity of capital triggered protectionism. Tariff measures, especially those initiated by the U.S., met with resistance worldwide, leading to a wave of retaliatory tariffs and the erection of global trade barriers.

The Result: The Great Depression

The tariffs were not the only cause of the Great Depression, but they undeniably played a major role. And now, nearly a century later, the U.S. has revived a similar tariff policy. But the context is different.

Today’s America carries enormous national debt. Its manufacturing base has eroded, leading to widespread industrial hollowing. Financially, interest costs have become overwhelming. On the industrial front, the U.S. has fallen behind in competitiveness compared to China and other countries. This has triggered a sense of internal crisis—the fear that America could lose its global dominance. That fear paved the way for Trump’s return and the beginning of the tariff wars.

The Dollar’s Weakness: A Combination of Falling Bonds, Declining Equities, and a Crisis of Trust

steve miran

The weakening of the U.S. dollar should be seen not just as a result of falling bond prices and stock market declines, but also as a deepening trust issue. While rising inflation certainly contributes to the fall in U.S. bonds, a major factor behind this is the absurd idea proposed in the Steve Miran report, such as issuing 100-year bonds.

Steve Miran Report PDF

To put it simply, the idea is to force current bondholders to convert a portion of their holdings into ultra-long-term 100-year bonds with lower yields. In effect, the U.S. would be forcibly shifting the burden of its debt onto other countries—something that naturally undermines trust in the United States as a sovereign issuer.

What’s more, the U.S. is currently engaged in a tariff war with countries like China, Russia, and Iran. In such a situation, these nations have no incentive to continue holding U.S. bonds. In fact, selling off their U.S. bond holdings would be far more beneficial for them.

Even America’s allied nations are deeply concerned about this kind of debt management strategy. As a result, they too are likely to join the wave of bond dumping, further accelerating the loss of trust in the U.S. financial system.

If countries or institutions were to sell U.S. bonds, they would likely hold onto U.S. dollars in the meantime. But if the U.S. economy were showing strong growth, that capital might naturally flow into the U.S. stock market. However, we’re seeing the stock market declining as well. That means holding U.S. dollars brings no clear benefit from a national or corporate perspective. In fact, selling dollars and moving into other countries’ bonds or domestic bonds could be a more profitable alternative.

This strengthens the dollar sell-off, and that is precisely the current root cause of the dollar’s weakness.

The flow of events is as follows:Tariff war → Inflation and 100-year bond proposal → Rising interest rate expectations → Higher bond yields → Heightened uncertainty due to inflation and retaliatory tariffs → Falling stock market → Declining trust in the U.S. → Lack of incentive to hold dollars → Dollar depreciation.

In this situation, the most critical step for the U.S. to overcome the triple weakness (stocks, bonds, and the dollar) is to restore market confidence. But would Trump be willing to do that?

Trump, in his second term, likely understands well that he needs to front-load his political capital and policy momentum in the early part of his term. Why? Because lame-duck syndrome inevitably becomes more pronounced as time passes. Additionally, since he can't run for a third term, he’ll want to leave a legacy—his mark on history.

That legacy, of course, would be containing China’s rise, weakening surrounding nations, and preserving U.S. and dollar hegemony. To achieve this, Trump views the ongoing tariff war as essential. Backing down now would be, in his eyes, a strategic mistake.

Another critical factor to consider is the midterm elections next November. For Trump, a rising asset market from Q2 of this year to early next year might be politically inconvenient. If the tariff policies succeed in reshaping the global trade environment to his vision and meaningful reshoring begins, Trump likely believes U.S. manufacturing could rapidly rebound. If this happens, today's market downturn could become the foundation for a strong rally next year.

And if that rally coincides with the midterms, he would be able to showcase the success of his campaign slogan—“Make America Great Again”—which would likely increase the chances of Republican victory. That, in turn, would provide him with momentum to push his agenda hard through the end of his term.

Given all of this, the real question is: Would Trump want to reverse today’s downturn into an uptrend right now? Probably not.

In light of these considerations, I believe we’ve now entered a period of peak uncertainty. Neither the upside nor downside is clearly defined. But overall, it seems likely that the downward trend will continue, at least through Q3 or Q4.

Of course, if this correction sets the stage for a rebound later, then having the “heart of a beast” as an investor by the end of this year could pay off. Still, the question remains: Is now really the right time to invest?