Estimates by international institutions for April to June confirm the slowdown in global output and trade. The World Bank forecasts a decline in GDP growth from 2.8% in 2024, to 2.3% in 2025, and a sharp fall in trade from 3.4% to 1.8%.
The main cause of the new slowdown is the tariff war declared by Donald Trump, who has so far imposed a universal minimum tariff of 10%. The uncertainty arising from his peculiar art of the deal
, consisting of lunges, postponements, relaunches, U-turns, and pauses, makes the policy of the world's leading power unpredictable. It is also paying the highest price, with US growth halving, from 2.8% to 1.4%. The Eurozone has been floating at a rate of less than 1% since 2023 and, according to the World Bank, will remain below this level in 2025 and 2026, while the OECD and the ECB predict a return to 1% in 2025. China will fall from 5% to 4.5% (4.7% according to the OECD, 4% by the IMF's calculation).
Long slowdown
The second cause is the proliferation of government debt, accelerated everywhere by defence spending in response to the increased burden of wars, whether fought, feared, or anticipated. A significant contributing factor is the increase in the burden of interest paid by debtor States: in developing countries, interest accounts for one-third of public deficits. The World Bank indicates the continuity of the slowdown in the first three decades of the 21st century. Developing countries' average ten-year growth rate has dropped from 5.9% in the first decade to 5.1% in the second, further falling to 3.7% in the current decade, while over the same time period the pace of growth of world trade has fallen from 5.1% to 4.6%, and to 2.6% this decade. Over the three decades, in China growth has fallen from 10.3% to 7.7%, to 4.8% this decade. The sharp slowdown following the pandemic of the century and the war in Ukraine has fostered economic nationalism and rearmament, which had already blossomed in the previous decade, as seen in populist responses to globalisation and the reaction of a weakened American imperialism to the disruptive rise of Chinese imperialism.
The third cause of the slowdown is the decline in investment, as highlighted by the OECD: investment in advanced countries has not returned to its pre-crisis trajectory of 2008–2009, nor to its pre-COVID-19 trajectory. The bubbles created by the banking systems and monetary powers, pumping fictitious capital at will into the stock exchanges and real-estate markets and reducing the cost of capital to zero, have not produced an adequate increase in investment, but have created mountains of debt. According to the OECD, after 2007, the average rate of investment in relation to GDP fell from 2.5% per annum to 1.6%. Taken together, tariffs, debt, and lower investment have reduced potential growth from 2% in the 1990s to 1.3% today.
Currency wars
We have often reaffirmed the Marxist assumption that trade and industrial wars do not remain confined to their respective spheres, but are intertwined with currency wars, financial wars, and military wars. In 2008, we pointed to how the Fed opened the taps against the deflationary winds of globalisation. This and Washington's mixture of debt and the wars in Iraq and Afghanistan were the conditions that created the speculative and real-estate bubbles that exploded in the global financial crisis. We summarised this in the phrase from bubble to bubble, from war to war
.
The tariff war and bipartisan economic nationalism are already producing unexpected monetary effects. The dollar has weakened, and the geopolitical shocks that at other times made it a magnet for frightened capital are not reviving it. Today, given the current intensity of the crisis in the world order, this capital is seeking other refuges. The Swiss franc has appreciated by 12% since the beginning of the year, forcing the Swiss National Bank to bring its rate back to zero. The revaluation of the yen has forced the Bank of Japan to suspend the reversal it had undertaken to end the deflationary era of low rates. The ECB has cut rates eight times, halving its rate in a year to 2.15%, in support of anaemic European growth and expected weaker US demand due to tariffs, but also against the excessive appreciation of the euro. Conversely, the Fed is resisting inputs from the White House, which is calling for drastic cuts to the cost of money. The central bank fears the inflationary effects of tariffs and Trump's big and beautiful
budget, but also fears that the dollar will fall sharply.
Meanwhile, by the end of 2024, gold had already taken second place, accounting for 20% of global central bank reserves, which had purchased more than 1,000 tonnes in a year, surprisingly overtaking the euro (16%), while the dollar remained in first place (46%). The frenzied acquisition of gold and the mad rush by the US to legalise and promote cryptocurrencies, under the aegis of the White House and the Trump family, give an idea of the ferocity and unprecedented nature of the currency war in the current change of an era
.
Kindleberger trap
It is significant that gold – the universal equivalent par excellence, money without a homeland – is silently and arrogantly having its status of barbarous relic
revoked, a status which it had been given by the inconvertibility of the dollar. It is being deployed among the monetary weapons
, in the capacity of a deterrent, usable tous azimuts or as an extreme guarantee, as it is not subject to sanctions by adversaries or allies. Economists and bankers are murmuring about the possibility that in the coming years the conditions for a Kindleberger trap
may arise. Charles Kindleberger described the situation that arose in the early 1930s between the pound and the dollar, in which neither was in full possession of the hegemonic monetary role of lender of last resort. That condition plunged the world into depression
and propelled it towards the Second World War.
Robert McCauley, a scholar at Boston University's Global Development Policy Center, attempts to update this hypothesis in a paper for the Center for Economic Policy Research (CEPR), which was picked up by Gillian Tett in the Financial Times. The danger described by McCauley is that the Federal Reserve could fall under the control of MAGA champions who just hate bailing out Europe again
(in the words of US Vice President JD Vance). In the event of a crisis, the Kindleberger trap
would see the Fed no longer willing to act as lender of last resort, unlike in the crises of 2008 and 2020, when it activated a network of permanent or temporary swap lines with fourteen central banks, providing a total of more than $1 trillion in liquidity. According to McCauley, there is currently no rising monetary power capable of challenging the dollar. However, he writes that one could be built through a coalition of the same fourteen central banks – excluding the United States – which have US safe assets
worth $1.9 trillion that could be mobilised at the time and place of future crises. McCauley is counting his chickens before they hatch, as the Washington government would have to agree to its safe assets
being freely used by a coalition from which it would be excluded.
Lagarde in Beijing
The ECB is seeking to strengthen its resources. Christine Lagarde is very active in promoting the idea that this is the global euro moment
, presenting this concept first in Berlin at the end of May and then in an article in the Financial Times in June. It is interesting to note the acceleration that the Bank of France wants to give to the process, setting January 1st, 2028, as the date for the creation of the Savings and Investments Union, just as Jacques Delors did when he set the deadlines of January 1993 for the Single Market and January 1999 for the single currency.
In her speech on June 11th at the People's Bank of China (PBC), Lagarde looked back at some moments of crisis between the two wars, during the Cold War, and in recent years, drawing brief lessons that sound critical of current unilateral American policies, but are also open to possible compromises. Lagarde drew three lessons from the crisis of the 1930s: One-sided adjustments failed to resolve the underlying problems
; without strong alliances to contain tail risks, tensions escalated
; and protectionism offered no sustainable solution
.
After the Bretton Woods crisis, neither the Smithsonian Agreement, which followed the Nixon shock in 1971 and provided a temporary solution to the fixed exchange rate crisis, nor the Plaza Accord in 1985, which established some corrections to floating rates in order to depreciate the dollar, addressed the root causes of the tensions; but they did avoid the risk of a broader turn towards protectionism – which was rising
. Finally, Lagarde drew two lessons from more recent years: Coercive trade policies are not a sustainable solution
; and we must pursue cooperative solutions – even in the face of geopolitical differences. And that means both surplus and deficit countries must take responsibility and play their part
. She concluded with a call for multilateralism: Working with like-minded partners to forge bilateral and regional agreements rooted in mutual benefit and full WTO compatibility
.
Mar-a-Lago, Chinese style
On the eve of the tariff agreement between Trump and Xi Jinping, Chinese economist Yao Yang, director of the China Center for Economic Research (CCER) at Peking University, wrote an article in Project Syndicate expressing his support for the monetary agreement between the US and its trading partners proposed by Stephen Miran, current chairman of Donald Trump's economic advisers. Yao is one of the Chinese voices that enjoy freedom of expression. The biggest surprise in the article is that, along with Miran's controversial proposal for a new Plaza Agreement, he accepts some of its main arguments.
The Beijing economist is sympathetic to the first act of Miran's plan, the flood of punitive tariffs
to force the rest of the world to accept monetary realignment around a depreciated dollar. Yao argues that since the world needs a reserve currency, [...] America's provision of it amounts to a global public good. One can thus think of a coordinated dollar devaluation as the price the rest of the world must pay in exchange for that good
. Yao estimates that, based on the proportions of Chinese and American GDP, there is room for an appreciation of up to 50% of the yuan, but that a one-off appreciation of 15–20% would suffice. Yao lists the advantages for China: the wealth effect
created by currency revaluation would boost consumption, the government's primary objective; the revalued yuan would slow exports, thereby reducing tensions with trading partners. China could invest in the US and contribute to the American reindustrialisation desired by Trump; in return, it could obtain the withdrawal of the 20% tariffs imposed during the president's first term.
This is an offer of appeasement that expresses the will of part of the Chinese leadership and responds to the desiderata of an important part of the American establishment that has invested and continues to invest in China. Yao does not fear the Japan effect
that followed the Plaza Accord, i.e., a revaluation of the yen well above expectations, which opened the world to Japanese capital exports but at the cost of an uncontrollable bubble and a long-term fall into deflation. To the list of advantages enumerated by Yao, we should add the mitigation of the formidable obstacles facing the internationalisation of the yuan, which would find an accelerator or facilitator in a more or less close embrace with Washington. But Yao is careful not to endorse Miran's entire plan, which includes a massive restructuring of US debt at the expense of partners, friends and enemies alike.