Tariff troubles and the future of the global economy

China has not missed the opportunity posed by the United States’ economic self-immolation to present itself as a responsible champion of the international trading system.

Mid-April, shortly after the Trump “Liberation Day” tariffs were announced, saw the unusual spectacle of trade ministers from China, Japan and South Korea pledging to protect free trade – ostensibly creating a renewed impetus to negotiate a long-stalled trilateral free trade agreement.

Beijing has also removed self-imposed obstacles to an otherwise moribund trade and investment pact with the European Union. China even had the audacity to enjoin Australia to jointly resist President Donald Trump’s tariffs, just over six months after removing the last vestiges of Covid-19-era trade barriers.

The perversity of 2025 is such that China’s campaign of economic coercion against Australia looks calculated and sober compared to some of the capricious spasms emanating from the White House. The China de-risking agenda, has at least for now, been superseded by a new imperative to de-risk from the United States.

China’s ambition to achieve self-sufficiency and capture global market share across the breadth of the modern industrial economy was unabashedly crystallised in its Made in China 2025 strategy.

This is all grist for the mill for China’s public messaging and diplomatic posturing. Taken at face value, China is open for business and ready to help victims of US tariffs find new markets. But salutary optics can only go so far in obfuscating economic reality. The attractiveness of the Chinese export market has had huge caveats attached to it for some time.

Take Germany, South Korea and Japan – all export-orientated economies with a lot to lose from Trump’s tariffs and who Beijing appears intent on wooing. Across the decade from 2013 to 2023, Japan and South Korea both saw their exports to China decrease in nominal terms.

Germany’s exports rose by 13 per cent, a decline when adjusted for inflation. In fact, a more granular examination of German export data shows that Germany Inc’s China-bound exports have essentially remained stagnant since 2012. Across the same time period, German exports to the European Union and the United States have registered much more appreciable growth.

China’s ambition to achieve self-sufficiency and capture global market share across the breadth of the modern industrial economy was unabashedly crystallised in its Made in China 2025 (MIC25) strategy, launched in 2015. MIC25 has succeeded in key areas, albeit with considerable wastage and without making China’s economy more productive. China has dramatically reduced import dependency in most targeted sectors since 2015, even if it remains some distance from the cutting edge (with a few very notable exceptions, including electric vehicles, drones, rare earths processing and solar panels).

MIC25 is not merely a product of President Xi Jinping’s China – it was built on solid autarkic foundations. China’s imports of manufacturing goods peaked as a share of GDP more than two decades ago, in 2003.

Other economies have traditionally ceded market share in more labour-intensive and lower-tech sectors as they have moved up the value chain. But in 2023, Xi explicitly rejected the categorisation of traditional industries as “low end” and called for the upgrading of these industries through automation. This is bad news for major US-reliant textile exporters such as Bangladesh and Cambodia, who have previously grabbed market share from China.

So who has benefited the most from the China market?

In the decade to 2023, Taiwan, Malaysia and Vietnam recorded healthy increases in China-bound exports – though the latter two have both seen their manufacturing-based exports plateau since 2019. The intricacies of regional trade, whereby goods often cross borders multiple times before being exported to Western markets, may make China-bound export figures look better than they otherwise would.

Undertaking meaningful steps to increase consumption’s share of Chinese GDP would also provide solace for exporters facing US tariff uncertainties.

The countries that have benefited most from China-bound exports in recent years have overwhelmingly been commodities exporters. Russia (especially since 2022), Brazil, Australia and Indonesia all stand out here. More recently, Argentina and Brazil have moved to position themselves as alternative suppliers of agricultural commodities that China previously sourced from the United States.

China’s own reliance on US-bound exports – including direct shipments and supply chains feeding into the United States via Southeast Asia and Mexico – has prompted renewed calls for Beijing to finally get serious about raising consumption. China’s consumer spending is only around 40 per cent of US levels. This is despite boosting consumption being a stated priority for Beijing since 2004.

Undertaking meaningful steps to increase consumption’s share of Chinese GDP would also provide solace for exporters facing US tariff uncertainties. Higher consumption doesn’t only mean more demand for foreign goods. In the Chinese context, it also applies a diminution of the largesse lavished on manufacturers, often at the expense of China’s social safety net.

Yet there is little sign that Beijing has any intention to make fundamental changes to China’s growth model. Thus far, Beijing has prioritised producers over households in its response to the trade war. Measures that overwhelmingly favour producers over consumers may ultimately further entrench Chinese exporters’ cost advantages – as occurred during Covid-19.

Exporters facing diminished access to the US market may soon be presented with even fiercer Chinese competition on their home turf.

The US imposition of a universal 10% tariff on all imports, along with proposed additional duties of up to 50% for trade-surplus countries, triggered renewed urgency across the Indo-Pacific region to recalibrate economic policy. Although many tariffs were initially suspended for 90 days, the signalling effect was immediate, fuelling global market volatility and intensifying fears of prolonged economic disruption.

Many Indo-Pacific economies had already begun diversifying trade and reconfiguring supply chains during Trump’s first term. Strategies such as “China+1”, along with participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), reflect early efforts to reduce overdependence on any single partner. What distinguishes the current moment is its intensity. The 2025 tariffs have accelerated these trends and exposed the vulnerabilities of regional economic architecture.

China: Firm yet realigned

China reacted assertively. It imposed retaliatory duties of up to 125% on selected US goods, launched a WTO complaint and tightened export controls on critical materials. American firms were added to a blacklist and regulatory scrutiny of US companies operating in China intensified. Although a truce in May reduced US tariffs on Chinese goods from 145% to 30% and China’s from 125% to 10%, Beijing framed the outcome as a validation of its firm negotiating posture.

Across the Indo-Pacific, the economic centre of gravity is tilting towards regional self-reliance.

Geoeconomically, China is repositioning. It has ramped up trade and investment with ASEAN and the Global South, using tariff relief and infrastructure pledges to consolidate influence. The conclusion of the ASEAN–China Free Trade Area 3.0 negotiations in May, an initiative launched in 2022, underscores its attempt to frame itself as a reliable economic partner in contrast to US volatility.

Japan and South Korea: Coordinated hedge with domestic cushioning

Japan and South Korea have borne significant but manageable costs. Japan faced an effective 24% tariff, while South Korea was hit with a 25% hike. Tokyo has refused partial deals that exclude key sectors like automobiles, while Seoul is pursuing a comprehensive arrangement after its June 2025 elections.

Both countries share a three-pronged approach: negotiating with Washington, cushioning domestic industries with relief packages and expanding engagement through ASEAN+3 and, in particular, trilateral talks with China which were resumed after a six year hiatus. South Korea has been redirecting supply chains, including major arms exports to Eastern Europe and the Middle East.

India: Opportunism with caution

With a relatively moderate 26% tariff, New Delhi is pushing for a negotiated exemption by July. It has resumed bilateral trade talks with Washington, while promoting its “Make in India” and Production-Linked Incentive schemes to attract companies diversifying from China. Investments such as Foxconn’s expansion in Tamil Nadu reinforce this trend.

India’s April-May 2025 trade data suggest modest gains in sectors such as machinery and textiles, though the tariffs could still reduce overall US-bound exports. Concurrently, India continues to engage multilaterally, joining WTO statements against unilateral tariffs and participating in BRICS coordination. Its cautious diplomacy reflects a desire to maintain autonomy while reaping gains from the current turbulence.

ASEAN: Unity in diplomacy, diversity in action

Southeast Asia remains one of the most affected regions. With a US$227 billion surplus with the United States in 2024, ASEAN economies such as Vietnam, Cambodia and Laos faced tariff rates of up to 49%. Yet the bloc’s 10 April joint statement rejected retaliation, opting instead for dialogue and a reaffirmation of multilateralism. At the 46th ASEAN Summit last week, leaders reinforced this posture, proposing collective dialogue with Washington to avert further disruption while exploring strategies to enhance economic resilience, including diversifying trade partnerships and deepening regional integration.

Behind this unified message lie divergent national strategies. Thailand is narrowing its surplus via increased US energy imports. Malaysia is boosting semiconductor competitiveness. Vietnam is hedging – expanding ties with both the US and China, while Indonesia has pushed to join CPTPP and deepen Global South engagement.

In response to the shock, ASEAN has accelerated the implementation of RCEP and upgrades to the ASEAN Trade in Goods Agreement (ATIGA). As leading analysts note, RCEP is not a Chinese initiative, but an ASEAN-led platform intended to consolidate trade norms and counter fragmentation. With nearly 80 per cent of RCEP’s total trade occurring with external markets as of 2023, its members share a fundamental interest in defending multilateral trade norms. Despite underinvestment in its institutional capacity, RCEP remains the most viable vehicle for defending multilateralism in Asia.

A region hedging and rebalancing

The Indo-Pacific is not retreating from global trade, but it is hedging more assertively. RCEP’s consolidation of rules of origin and facilitation of trans-regional value chains gives member economies tools to build resilience. Yet the credibility of the United States as a trade partner has diminished, even among allies. The ASEAN+3 finance ministers’ joint statement in May, which included China, Japan and South Korea, expressed concern about growing protectionism and affirmed support for transparent, rule-based trade.

This moment may be remembered less for the tariffs themselves and more for how they accelerated a longer shift. Across the Indo-Pacific, the economic centre of gravity is tilting towards regional self-reliance, pragmatic pluralism and institutional recalibration. Whether the US can re-establish trust remains uncertain. But regional actors are no longer waiting to find out.

The views expressed in this article are the author’s own and do not reflect those of his workplace and affiliated institutions.

Review: Our Dollar, Your Problem, by Kenneth Rogoff (Yale University Press, 2025)

In 1971, US President Richard Nixon shocked global financial markets by ending US dollar convertibility to gold, unanchoring exchange rates and ending the norms established at Bretton Woods in 1944. John Connally, Nixon’s Treasury Secretary, told stunned foreigners that this was "our dollar, but your problem". President Trump didn’t invent America First: it has long been in force.

Kenneth Rogoff, Harvard academic and chess grandmaster, takes this quote as the title of his latest book, a lucid and sometimes laconic narrative of international economics in the decades since.

The book has attracted attention because of the current public interest in the dollar’s role as global reserve currency. But its scope is much wider than that. Rogoff participated in many debates over the past four decades on international economics and fiscal policy. He bridged the gap between the academic world and policymaking with clear, rigorous and common-sense arguments. This book records his version of these debates — triumphs of prescience and perspicacity, plus a few slip-ups and revisions.

Rogoff cites two perhaps conflicting maxims. One is the old saw that "the questions never change — just the answers." The other is: "this time is different" (the ironic title of an earlier Rogoff book on government debt).

Macroeconomic thinking has indeed evolved, with new policy answers to old questions.

The dogmatic belief in neoliberalism and free markets, fashionable in the early 1980s, has softened. The initial enthusiasm for free-floating exchange rates, deregulated financial sectors and unconstrained international capital flows ignored the need to allow time for adaptation to the deregulated world. Floating exchange rates initially showed disruptive volatility. Newly deregulated financial sectors almost invariably experienced a crisis. International capital flows can be damagingly volatile, flowing in too fast and out even faster.

Views on fiscal policy have fluctuated, from the optimistic post-war Keynesian budget activism to the budget austerity seen in many countries after the 2008 financial crisis, then back again to the huge fiscal stimuluses during Covid.

In this policy evolution, Rogoff provided hard econometric evidence to help resolve issues. His 1983 paper with Ed Meese showed that the real-world behaviour of free-floating exchange rates did not fit textbook models. Contrary to the confident prediction of Milton Friedman and other free-marketeers that exchange rates would maintain stable equilibrium, rates over-reacted to news and were subject to fickle changes in confidence.

Rogoff...bridged the gap between the academic world and policymaking with clear, rigorous and common-sense arguments.

Over the years, Rogoff has made some good calls. His 1983 lesson on the inexplicable volatility of freely floating exchange rates fell on deaf ears. The conventional wisdom maintained that it was futile to try to influence exchange rates. But during the decades-long transition to financial deregulation, some central banks (including Australia’s) made substantial profits from exchange rate intervention.

This deregulatory transitional phase was particularly fraught for emerging countries, with the 1997-98 Asian crisis demonstrating that a combination of poorly regulated financial sectors and volatile international capital flows could result in hugely excessive fluctuations in exchange rates and consequent financial collapse.

Rogoff, as Chief Economist at the IMF in the years shortly after the crisis, supported the Fund’s vigorous advocacy for free-floating exchange rates and did nothing to shift the Fund towards the benefits of discrete management of both exchange rates and capital flows. Belatedly, both he and the Fund have come to accept that Asian economies have been successful in stabilising their exchange rates through foreign-exchange intervention, and that "capital flow management" has a place in the policy toolbox.

Also belatedly, he accepts that Japan got a raw deal in the 1985 Plaza Accord, with the resulting large appreciation of the yen contributing to Japan’s subsequent lost decades. He is still waiting for Japan’s huge government debt overhang to cause collapse.

He was always sceptical about the euro, but it has survived. He was prescient in calling the Chinese housing bubble and sees growth slowing further in China. Sensibly, he regards the still common view that interest rates are now "lower forever" as misguided.

He supports cryptocurrency and stable coins, even though he accepts that crypto has no legitimate use as a currency and facilitates a variety of anti-social and nefarious activity.

He has consistently been an outspoken critic of activist fiscal policy. If countries run big budget deficits and accumulate substantial government debt, this will cause problems sooner or later, no matter how confident countries are that "this time is different". Rogoff has no time for the argument that fiscal policy shifted too quickly towards austerity in the aftermath of the 2008 financial crisis. He shares the common view that the fiscal expansion after Covid was excessive and inflationary.

His active proselytising against government debt led to controversy over a 2010 paper (with Carmen Reinhart) arguing that when government debt reaches about 90 per cent of GDP, growth rates fall substantially. It turned out that the data were faulty; correction changed the conclusion. And the causation could be the other way: slow-growing countries need budget stimulus.

On the current arguments about the dollar’s international role, he shares the consensus: being the global currency has on balance been advantageous for America, and Trump’s America First policies will accelerate the longstanding gradual erosion of the dollar’s importance. But for Rogoff, it is the ongoing huge US budget deficit and debt build-up that is the greatest threat to the dollar’s international role.

The freshly re-elected Australian Prime Minister Anthony Albanese is wasting no time, making the customary first overseas visit to Indonesia on Wednesday only one day after swearing in a new cabinet. There will be much to talk about, but critical minerals will likely be a priority for the Indonesian side.

On a call with President Prabowo Subianto, Albanese proudly stated the relationship between “Australia and Indonesia is an unbreakable bond” and on Australian television declared “We have no more important relationship than Indonesia just to our north”.

Critical mineral cooperation is fast becoming central to how Indonesia imagines future economic engagement between the two countries.

Indonesia wishes to explore critical mineral collaboration with Australia – an ambition Australia needs to take seriously

Indonesia has rapidly become the world’s largest supplier of nickel after adopting a surprisingly successful mix of industrial and trade policies to expand processing capacity and battery manufacturing, dubbed “downstreaming”. This downstreaming is now envisaged for other critical minerals and non-mineral commodities and seen as a pathway for Indonesia to reach high income status by 2045.

This is why Indonesia wishes to explore critical mineral collaboration with Australia – and an ambition Australia needs to take seriously.

A receptive Albanese government established a collaboration mechanism in 2023 with the aim of “mapping EV supply chains, joint scientific and research studies, as well as fostering new business-to-business links”. The focus is primarily on critical mineral processing and battery manufacturing.

Australia already devoted A$2 million to funding joint research activities into transport decarbonisation and battery recycling. Indonesia, meantime, signed similar cooperation agreements with the Western Australian and Northern Territory state governments.

The Indonesian Ministry of Foreign Affairs recently hosted a closed-door seminar, inviting speakers from the National Economic Council, a nickel company, Indonesian academia, and the Lowy Institute, to explore further critical mineral collaboration with Australia. Indonesia is serious about building opportunities with Australia and recognises that a “greener” Indonesian nickel industry will be a necessary step. This is welcome given growing concerns about the industry’s environmental, social and governance standards.

Indonesia sees Australia’s status as the largest producer of lithium and Indonesia as the largest producer of nickel as a collaboration opportunity. Both minerals are crucial inputs for certain EV batteries.

There is merit in this assessment. Several ideas have already been explored, such as a division of production between the two countries, where certain stages of mineral processing and battery manufacturing take place in each country.

But our research into Indonesia’s nickel downstreaming suggests cooperation may be harder than it first appears, although progress is possible in some narrow areas.

Indonesian firms could acquire stakes in Australian lithium projects alongside lithium refining firms, much like the joint venture model in Indonesia’s nickel industry.

Several essential factors led to Indonesia’s success in nickel processing: Technology, financing, skilled labour, large mineral reserves, the right policy environment, and abundant energy. Each pillar must be present if a critical mineral processing industry is to develop. In the case of Indonesian nickel, China provided the first three while Indonesia provided the latter three.

Australia has a similar comparative advantage to Indonesia, able to provide mineral reserves, favourable policy, and abundant energy. But Australia lacks some skilled labour. It also does not have cost-effective technology to compete with China, with projects reliant on state support because Australia only received US$2 billion in foreign investment for new critical mineral projects in 2023–24. Indonesia received between US$2–$10 billion in seven out of the last ten years of downstreaming. So Australia will not be able to play the role of China in further Indonesian downstreaming efforts.

Indonesia also cannot provide processing technology or skilled labour. But Indonesia has finance potential. Indonesian acquisitions of Australian coal and copper mines are an example. Indonesian firms have spent A$3 billion acquiring coal mining projects in Australia since 2016. Indonesian firms could acquire stakes in Australian lithium projects alongside lithium refining firms, much like the joint venture model in Indonesia’s nickel industry.

One stumbling block is low commodity prices. A major lithium refiner in Australia already announced production declines last year. Investments look risky but could be cheaper given this outlook.

Australia would also need to consider the risk of foreign investments from Indonesian firms involved in Chinese critical mineral supply chains.

As Albanese travels to Indonesia, critical mineral collaboration will be high on the Indonesian economic agenda. Australia needs to temper expectations where necessary but lithium ambitions may be a path forward.

After a combined 265 years in operation, the domination of the two great artificial waterways – the Panama and Suez canals – in global trade is under threat from alternative routes for shipping. One is via an even more ambitious constructed canal that would blindside US President Donald Trump’s plan to take over the Panama Canal, while the others are open sea routes and “land bridges” that link ports with rail.

But first, what’s wrong with the original waterways – global trade’s historic “choke points”?

In the case of Panama, the canal is not wide or deep enough to take the new giant container ships that currently have to sail all the way around the Cape of Good Hope. Last year’s El Niño-triggered drought also slashed transits and left doubts about the canal’s long-term viability, despite plans to build a reservoir that would keep the locks topped up.

As for the Suez, it remains highly volatile, despite Trump declaring an end to the Houthi’s missile attacks.

For these reasons, the gigantic “Nicaragua Canal” project has come back into the frame. The latest proposal is for a US$50 billion, 278-kilometre waterway – nearly three and a half times longer than the Panama Canal – that would link the Pacific and Atlantic coasts and shorten by 900 kilometres the route through Panama. There would be more than enough room for the new generation of giant box ships able to carry 24,000 twenty-foot equivalent units of cargo.

Meanwhile, Russia’s nuclear-powered icebreakers are opening the Northern Sea Route that passes through the Arctic along the Russian coast.

First proposed nearly 500 years ago, the enormous scheme in Nicaragua routinely attracts interest. A Chinese communications tycoon undertook a symbolic groundbreaking on a version of the project a decade ago, only to make no real progress before abandoning the idea. But in late 2024, Nicaragua’s president Daniel Ortega invited Chinese – but not American interest – at a summit in the country’s capital of Managua.

China may now be more willing to foot the bill in Nicaragua. Under pressure from Washington, the Panamanian government has promised to end its embrace of Belt and Road in 2026, while Hong Kong-based ports giant CK Hutchison has just sold to a BlackRock-led consortium for $22.8 billion its 90 per cent interest in the ports of Balboa and Cristobal at opposite ends of the canal. Thus, China’s ambitions in Panama are blocked.

As volumes of cargo grow inexorably, alternative corridors like land bridges or “dry canals” become more viable. Although they can’t carry the same volumes as waterways, they are cheaper and faster to build, generally taking five years instead of 10-15 years for a transoceanic canal.

Of these, Mexico’s 303-kilometre Tehuantepec Interoceanic Corridor could be first off the blocks. It was previous president Manuel Lopez Obrador who revived the idea in 2023, declaring that “Panama is saturated”. The $4.35 billion scheme would connect the two oceans with airports, warehousing, industrial parks and other infrastructure located along the track. For his part, Ricaute Vasquez, administrator of the Panama Canal, believes the “Mexican option could be a potential threat”.

According to a review in trade publication Port Economics, Management and Policy, “every Central American country with access to both the Caribbean and the Pacific has dry canal projects in various phases of planning or development”.

That leaves the sea routes. Russia’s nuclear-powered icebreakers are opening the Northern Sea Route that passes through the Arctic along the Russian coast. At 12,800 kilometres, it’s a 40 per cent shorter voyage between Europe and Asia than through the Suez Canal and, in favourable conditions, 10 to 15 days faster. “Russia’s fleet of nuclear icebreakers is accelerating the route’s evolution into a full-fledged transport highway”, explains Arctic Review, the publication of the Arctic Council.

Russian President Vladimir Putin’s ambition is for year-round voyages as soon as 2030. “Melting sea ice is both lengthening the shipping and navigation seasons and facilitating use of the Northern Sea Route by larger and more diverse vessels capable of travelling without icebreaker accompaniment,” notes Arctic Review. Russia has also budgeted $215 billion for rail corridors into its Arctic regions.

The other Arctic route is the Northwest Passage, for North Pacific to the North Atlantic Ocean. There are historic sovereignty issues – Trump has laid a claim but Canada and Denmark stand in the way. But the potential is there, even if both the Northern Sea Route and the Northwest Passage depend on a warming climate.

As Donald Trump set about to single-handedly reorganise global trade and supply chain flows, only one headline seems to have given him pause. In times of market stress US Treasuries are the safe haven investment, but as markets plummeted after “Liberation Day”, bond yields initially fell as investors looked for shelter. Then, after days of chaos and confusion, government bonds too started to be sold. Treasuries were no longer the safe bet.

Soon after, Trump paused most of the tariffs except on China. As treasuries sold off, and it became clearer that China was the prime villain in Trump’s trade drama, the question was asked, might China be dumping its vast US holdings? Had Beijing hit the economic nuclear red button?

A few days later reports that China had stopped investing in US private equity only amplified the idea that China was perhaps trying to use its financial clout to pressure Wall Street to get Trump to restrain himself (as if he would listen!).

China may be the factory of the world and boast a trillion US dollar trade surplus, but the world it trades in is a US dollar denominated one, and it doesn’t like it. For the first few decades of Beijing’s reform and opening era, China’s economy grew but its capital account was walled off from the world. The Chinese yuan or renminbi was for domestic use only. Only in 2010, by which time China was already the world’s second largest economy, did it start to open up its currency to overseas use. Since then, the use of the currency has increased but relative to the size of its economy, the Chinese yuan remains a minor global trade currency. Some special transactions denominated in yuan are significant, such as Hong Kong–China trade or Russia–China trade. But very little trade between non-Chinese entities uses the yuan.

Ironically, it is China’s political partners and friends who operate outside of the dollar world.

Since that limited opening in 2010 various pundits have predicted the rise and importance of the renminbi. When in 2016 the International Monetary Fund added the renminbi to its SDR (Special Drawing Rights) basket, some thought the progress would be unstoppable. But there has been no breakthrough when it comes to the use of the Chinese currency. Chinese leaders have often criticised the US dollar-based system, but they have shied away from proposing something different and have been very reticent about making the renminbi a viable alternative.

That China has hugely benefited from the existing global system is not in doubt, but it has also grown ever more wary of the power of the US administration to weaponise the US financial system against companies and countries. US sanctions can be so damaging because they are able to cut off entities from dealing in the world economy. This was amply demonstrated in response to Russia’s invasion of Ukraine, as Russian banks were cut off from the SWIFT messaging system and Russia’s foreign currency reserves held overseas were frozen. What’s the point of reserves if you can’t access them? It is hardly surprising then that Russia-China trade is denominated in renminbi, the Russians simply don’t have anyone else to deal with, they will take the terms the Chinese offer.

Chinese reluctance to directly promote the renminbi as a counter to the dollar is primarily driven by the unwillingness to lose control over its currency. Operating with a largely closed capital account, and a currency rate that is set daily by the People’s Bank of China with narrow daily trading bands, the control-obsessed Chinese Communist Party isn’t going to hand over economic power any more than it is going to hand over political power. Even the proposal that its BRICS partners should try and promote more local currency trade, or perhaps even a BRICS currency, has little support within the group. It is also already on Trump’s radar, with him promising tariffs on the BRICS countries if they trade and move from the dollar.

China then finds itself between a rock and a hard place. It is tied to the US dollar financial system and simply isn’t able to remove itself from it. Its own holdings of US debt stand at around US$1.1 trillion by the best-informed estimates – although claims vary. This amount is too big to sell without driving down prices and negatively affecting its own valuation. It would also only leave China with US cash to invest somewhere else. Even if China does sell its existing dollar assets the nature of a trade surplus means it will only accrue more dollars that it needs to invest.

Not investing in US private (or public) equity might grab headlines but that means the Chinese are cutting themselves off from what remains the most dynamic global companies.

Ironically, it is China’s political partners and friends who operate outside of the dollar world. Russia, Iran and North Korea have all been cut off from the mighty dollar. And while China might like to ally with these renegade states at a political level, it is certainly not foolish enough to want to share their economic fate. China might be an economic whale, but it swims in a dollar sea.

Downgrading delicately

It is hard not to spare a thought for economists at the International Monetary Fund, required to produce a global economic outlook in the eye of the deglobalisation being pursued by the Trump administration.

Not only are the trade facts changing almost by the day, but the plan to slash the State Department only underlines that US support for the IMF itself could quickly wither if its analysis upsets the White House.

But what is most striking about this week’s IMF World Economic Outlook is not so much the downgrades in growth estimates due to what are delicately described as “headwinds from a range of challenges”. It is, instead, the reminder of how well the US economy has recovered from the pandemic era when Trump was last in control.

In 2020, the US slumped 4.1% below its trend growth trajectory. Back then, Trump was questioning the value of Covid vaccinations. But the United States is now growing at 3.6% above its pre-pandemic trend.

The United States has been a positive outlier in the economic recovery from the pandemic, despite Trump’s relentless maligning of the country’s fortunes since he left office.

China, by contrast, fell 3.5% below trend during the time it was locking people in their houses. But China is now even worse off, at 5.3% below trend. And the Euro area fell a massive 7.2% below trend in 2020 and is now still 2.5% below.

As the IMF Outlook puts it, the United States has been a positive outlier in the economic recovery from the pandemic, despite Trump’s relentless maligning of the country’s fortunes since he left office. And the IMF underlines the point by noting how the US terms of trade have improved due to its reduced energy imports. Its labour productivity has also increased in contrast to peers.

This might be sugar coating to pave the way for a report which has slashed the global economic growth outlook from 3.3% in January to 2.8% now, due to how a “swift escalation of trade tensions has generated extremely high levels of policy ambiguity”.

But more importantly, it seems to only underline that the policy ambiguity coming out of the White House reflects much deeper cultural changes and resentment about relative imperial decline than any economic analysis from the IMF can explain.

Too big to fall

The IMF couldn’t be blamed for finding nuanced things to say about the United States in this week’s Outlook and associated publications, given that Project 2025, as an ideological roadmap for a future Trump administration, backed a US withdrawal from both the Fund and the World Bank.

The Heritage Foundation managed document argued that the IMF supported economic theories and policies that were inimical to the free market and traditional American principles of limited government.

So, after the US withdrawal from the Paris Agreement on climate change and a pause on financial contributions to the World Trade Organisation ahead of the tariff chaos, this week’s grudging acceptance of the IMF and World Bank by Treasury Secretary Scott Bessent might be a new benchmark for some nuance from the administration.

Bessent at least seemed happy to fully embrace the US role in creating the Bretton Woods system named for the New Hampshire resort where the IMF was conjured up after the Second World War. As he put it:

“The IMF and World Bank have enduring value. But mission creep has knocked these institutions off course. We must enact key reforms to ensure the Bretton Woods institutions are serving their stakeholders – not the other way around.”

Perhaps more importantly he argued:

“America First does not mean America alone. To the contrary, it is a call for deeper collaboration and mutual respect among trade partners.”

This sentiment probably won’t save the IMF and World Bank from some funding cuts by the United States on what Bessent calls “sprawling beyond their prescribed mandates”. But it has placed a welcome bottom line under how far the Trump administration is prepared to go in destroying the core institutions of globalisation.

It is also another sign of how the global financial market can still exercise constraint on Trump. Trashing the US-dominated IMF would have been an act of financial fratricide for the recently weakening US dollar, given the important role the IMF plays in shoring up the greenback as the global reserve currency.

Australia finds home

A little like the changing policy ground under the IMF World Economic Outlook, this year’s survey of Southeast Asian opinion maker sentiment also seems to have been mistimed to analyse the Trump turmoil.

The ISEAS - Yusof Ishak Institute State of Southeast Asia survey was conducted around the time Donald Trump was being sworn in. So its respondents perhaps didn’t fully anticipate his policy intentions when they elevated the US to be the choice in a showdown with China, in contrast to last year when China came out on top.

Putting the bountiful and rich data on broader regional attitudes aside, this column has long turned to the specific results on Australia as the best available proxy for judging how Australian government ASEAN region engagement policy is faring. As noted here last year, the data on how Australia is regarded by these opinion makers is at best mixed.

It is pretty much all we have to objectively judge an increasingly high-level foreign policy priority.

This year things have looked up, which will come as good news to a federal government facing an election where, as we have noted, ASEAN engagement has become its go-to answer to global instability.

Last year’s ASEAN-Australia Special Summit in Melbourne and the associated development aid-style policies, including the Southeast Asia Investment Finance Facility, seem to have contributed to some improved sentiment towards Australia. Indeed, on the economic policy ally front, views have improved at a time when Australia has slipped slightly as a holiday destination, which has tended to be an historic strength.

Australia’s ranking as the first choice in this survey is always fairly low. It is up against the likes of the United States, China, and the European Union. Nevertheless, it is pretty much all we have to objectively judge an increasingly high-level foreign policy priority.

This year 2.6% of respondents rank Australia as the region’s free trade leader compared with 1.7% last year. And 0.9% rank Australia as the region’s economic power compared with 0.4% last year. The ASEAN opinion makers see ASEAN itself as the free trade leader, at 23.8% down from 28.7% last year. And they see China as the economic power at 56.4% down from 59.5% last year.

Australia has also received a noticeable boost as the region’s principal strategic power at 1.2% compared with 0.5% last year. China is the winner there at 37.9%, which is down from 43.9%. Australia is also up as the rules-based order leader, at 2.6% compared with 1.6% last year, with the US still leading this category at 26.5%.

These are welcome small improvements on an important diplomatic and economic relationship at a time when there are few other promising options.

Hours after the United States paused its stinging 46 per cent tariff on Vietnamese exports, a reprieve granted for 90 days, both nations signalled their intent to strike a deal. This narrow window arrives at a pivotal moment in the Trump administration’s global trade war. With economic disruption and tariff tensions simmering across multiple fronts, from stalled talks with the European Union to lingering disputes with India and Malaysia, seizing on Vietnam’s eagerness to accommodate offers the administration a rare opportunity to both demonstrate that its “tough love” approach can yield swift wins without escalating conflict while undercutting China’s attempt to position itself as a credible alternative.

Vietnam’s scramble to avoid tariffs began months ago. In March, Hanoi slashed import duties on US liquefied natural gas, ethanol, and agricultural goods, a pre-emptive bid to ease tensions. By early April, as the tariff impost loomed, Vietnam offered to buy more American defence equipment and expedite orders for Boeing jets.

But the window for talk is fleeting. With the United States maintaining 10 per cent blanket tariffs on most imports and struggling to resolve disputes with larger partners like the European Union, a Vietnam deal offers low-hanging fruit to showcase mutually beneficial progress.

The urgency stems from three factors.

First, Vietnam’s willingness to negotiate contrasts sharply with the gridlock elsewhere. While talks with the EU remain bogged down in agricultural disputes and India resists US demands on digital trade, Vietnam’s concessions on market access and regulatory reforms provide a clear path to a deal.

Second, the US-Vietnam relationship is at a diplomatic high point, historically speaking, having been elevated to a Comprehensive Strategic Partnership in 2023. Striking a trade agreement now would enhance this goodwill ahead of the 30th anniversary of normalised relations in 2025.

Vietnam’s rise as a manufacturing hub is a direct consequence of the US-China trade war.

Third, global supply chains are still reeling from the US-China trade war. A deal with Vietnam would lock in the “China+1” manufacturing shift, ensuring American companies retain access to competitive alternatives while further isolating Beijing.

Vietnam’s rise as a manufacturing hub is a direct consequence of the US-China trade war. When tariffs hit Chinese goods, firms including Apple and Intel shifted production to Vietnam, reducing reliance on Beijing. A US-Vietnam deal would accelerate this trend, offering tariff relief in exchange for Vietnamese commitments to curb trans-shipment of Chinese goods and deepen supply chain integration with US firms. This would marginalise China’s role in global trade networks while positioning Vietnam as a reliable partner – a narrative Beijing is desperate to counter as it markets itself as a stable alternative to US volatility.

A deal would also send a message to other nations: constructive engagement pays. Malaysia and Thailand, both facing US tariff threats, are watching closely. If Vietnam secures favourable terms by addressing US concerns, such as intellectual property protections and digital trade barriers, it will pressure others to follow suit. This is particularly vital as the administration seeks to rebalance relationships without triggering broader trade wars.

Critics may argue that concessions undermine US leverage, but the reality is more nuanced. Vietnam’s tariff cuts on LNG and agriculture directly benefit US exporters, creating jobs in states critical to the administration’s political base. Meanwhile, addressing currency manipulation, a longstanding US grievance, would create a template for future deals, including with China. The alternative – letting tariffs take full effect – risks disrupting supply chains for US retailers and manufacturers, many of whom shifted production to Vietnam precisely to avoid China tariffs.

The next three months offer a rare chance for the United States to turn tariff tensions into a durable framework for fairer trade. By securing a swift deal with Vietnam anchored in commitments on market access, regulatory reforms, and supply chain integrity, the administration can demonstrate that its tough stance yields concrete results without escalating conflict. More importantly, it can solidify a vital partnership that helps diversify supply chains away from China, reinforcing America’s economic security and geopolitical influence in the Indo-Pacific.

For Washington, this is not just about Vietnam: it is about setting a precedent for trade diplomacy that balances pressure with pragmatism before the 90-day window closes.

Money was an amazing invention that drove productivity growth by facilitating exchange. Unlike the old barter systems, when everyone in a market is willing to use a common token with an agreed exchange value a person selling eggs and wanting to buy fish no longer needs to find a fish seller wanting to buy eggs.

The next big step up in productivity came from developing leverage – a trusted entity, let’s call it a bank, offers to hold your surplus cash for you. As long as they are sure that not everyone will want their deposits back at the same time, they can lend out some of this cash to others who can use it to invest in expanding their production. If the bank does its job well the borrower will be able to repay the loan with interest, so the bank can reward depositors to encourage them to save more.

This is the process of money creation through the money multiplier. The starting point is the issue of currency, which, until the introduction of cryptocurrencies in recent years, had been almost exclusively the preserve of banks.

Cryptocurrencies are digital currencies recorded on a blockchain, a digital ledger, and set up mostly by private entities. Most cryptocurrencies have some rule about how they are created that puts constraints on their supply. Their use value comes from their ability to be used in transactions that, at least on first pass, are more difficult to trace, facilitating transactions on the dark web and in scam operations. But speculative hype has seen the value of some, most notably Bitcoin, reach dizzying heights. The list should include memecoins, such as DOGE and $Trump.

The international financial sector architecture established over the last 80 years has been a continual effort to keep up with the innovations of the private sector in financial products.

Some governments have issued their own digital currency (some based on blockchain) and others are considering it. Government (central bank) issued digital currencies differ from those issued by the private sector as, like national currencies (cash) or government bonds, they have a guarantee to convert their digital currency into cash on request.

The international financial sector architecture established over the last 80 years has been a continual effort to keep up with the innovations of the private sector in financial products. This has ranged from the collateralised debt obligations that triggered the 2007-08 global financial crisis to the massive, much of it speculative, options market. The stability of the financial market matters for ordinary people, as they are the ones who suffer when crises bring about recessions and erode the value of their pensions.

This history points to the importance of regulations to maintaining confidence in money and in financial systems. Cryptocurrencies could improve the performance of the financial system by increasing competition, such as in remittance payments, and in bringing financial services to people poorly served by the current financial institutions. But to date too many crypto transactions are “pump and dump” and “rug pulls” as traders seek to take advantage of the gullible.

Regulation is needed to ensure that the public are not misled. Throughout history, banks started by private individuals made their founders rich, but too often collapsed because borrowers could not repay, or depositors wanted their money back at the same time. The Silicon Valley Bank is a recent example of the latter situation. The US Federal Reserve system was established in 1913 following the 1907 financial panic that saw banks collapse as depositors lost confidence.

With digital currencies, the need for regulation is the same. Stablecoins, issued by private entities, need to hold a reserve of liquid assets so the stablecoin can be converted at face value to cash on request. Some, such as Tether, appear to do this (although yet to be audited), others clearly do not. Other cryptocurrencies can be traded on an exchange with a buyer willing to pay cash or another crypto.

But regulations need to ensure that stablecoins are backed with real assets, and that crypto can mature beyond a get-rich-quick, Ponzi-style instrument to one that provides real competition to poorly managed government currencies and financial service providers.

This brings us to the proposed policies of the Trump administration.

First there is the conflict of interest – in addition to the memecoins, Trump and his family are major investors in World Liberty, a platform for borrowing against crypto holdings.

But more worrying are the risks that the Trump administration’s policy agenda poses to the financial system, the ordinary crypto investor, and the primacy of the US dollar. The administration has been busy undoing the Biden administration’s efforts to regulate cryptocurrencies. This includes abandoning a range of lawsuits over misleading behaviour by crypto issuers. Gary Gensler, the crypto hawk head of the Securities and Exchange Commission has been replaced with a crypto-friendly chair. Along with the effective shutdown of the Financial Consumer Protection Bureau, these moves signal that ordinary buyers of crypto will be on their own in dealing with fraud and misleading information.

The same is not true for the big players, who have successfully lobbied for the US government to establish a “Strategic Bitcoin Reserve and Digital Asset Stockpile”. This has the job of stabilising prices, an essential element if crypto is to expand beyond fringe uses in international financial markets, and including if it will ever replace the US dollar.

Financial institutions face considerable regulation because their activities pose systemic risks that governments know they will have to deal with. So far, the crypto industry has extracted government support, while shifting all the risks back to the public. It is pretty clear that the Trump administration will be focused on protecting the interests of the cryptocurrency companies and not the mug punters who dream that crypto will make them rich.

For decades, the tiger economies of the ASEAN region have flourished under an export-led growth model, anchored by strong trade relationships with major economies, including the United States and China. In 2023 alone, the United States and China respectively accounted for 16% and 15% of total ASEAN merchandise exports. Given this significant trade dependence, it is unsurprising that the region is now expressing serious concerns over the potential economic fallout from the new US tariff policy.

ASEAN comprises a diverse mix of economies, from more advanced markets like Singapore and Malaysia, to developing nations such as Cambodia, Myanmar, and Laos. Aspirational middle powers like Vietnam, Thailand, and Indonesia are positioned in between. All ASEAN members are expected to be negatively affected by the new US tariffs, albeit to varying degrees.

Singapore faces a relatively mild impact, with a tariff rate of around 10%, while Vietnam and Cambodia are among the most heavily hit, facing tariffs exceeding 40%. Notably, even Vietnam’s pre-emptive tariff reduction on US imports has not shielded it from high tariff rates since the oversimplified calculation of the US tariff formula, which takes trade deficits relative to imports and fails to account for actual trade policy, non-tariff barriers, or bilateral engagement.

ASEAN must navigate the dual impact of Trump’s tariff policy.

First, the tariff induces a direct economic effect in disrupting trade flows, raising export costs, and pressuring countries to strike deals favourable to the United States, which may include lowering business barriers and increasing imports of American goods. Vietnam and Japan have taken such steps, although Japan’s attempt failed to lower the recently announced tariff, as well as the 25% tariff on steel and autos that took effect on 3 April.

Second, the tariff causes an indirect political impact, designed strategically to limit China’s ability to reroute exports through ASEAN, a practice the Trump administration has accused Vietnam of enabling.

If the US wants to maintain its global economic and political leadership, it must move beyond a one-size-fits-all tariff strategy.

The challenge for ASEAN is to turn this disruption into an opportunity to balance its economic interests and geopolitical considerations. To address this dual impact, ASEAN countries must find an alternative strategy for expanding their market share.

While other Asian regions are actively scrambling to negotiate with the United States to secure tariff reductions, for ASEAN, the new US tariff regime is likely to accelerate its ongoing trade and export diversification strategy. Cambodia, Vietnam, and Thailand are particularly exposed, given their high export reliance on the US market. In 2023, exports to the US accounted for 42% of Cambodia’s, 27% of Vietnam’s, and 17% of Thailand’s total merchandise exports. With the tariffs now raising the cost of accessing the US market, these economies and the broader ASEAN bloc will be further compelled to pursue alternative export destinations.

ASEAN has already laid important groundwork in this direction. In 2024, several ASEAN member states, including Malaysia and Thailand, secured observer status in BRICS. At the same time, ASEAN countries such as Singapore, Malaysia, and Indonesia have recently signed or are in the process of negotiating new trade agreements with the European Union, and the bloc as a whole has expanded economic cooperation with the Gulf Cooperation Council (GCC). Collectively, these developments position ASEAN to respond to the US tariffs not by retreating inward but by stronger engagement with non-US markets. While the United States remains one of the largest importers of ASEAN goods, a broader diversification strategy would gradually reduce US influence in the region, both economically and politically.

While the blanket tariffs aim to encourage reshoring to the United States, it remains unclear whether American industries have the capacity to absorb the resulting production shift, particularly in low-cost manufacturing sectors such as garments from Cambodia or downstream manufacturing goods from Vietnam and Malaysia. With domestic labour shortages and high operating costs, the US risks creating a lose-lose scenario in which it fails to absorb the displaced production while simultaneously raising domestic prices and facing geopolitical fallout.

This geopolitical alienation could come at a high cost. In its effort to counter China’s growing influence in the Asia-Pacific, the United States needs the support of regional partners. Yet, the indiscriminate application of tariffs risks pushing even longstanding allies away, undermining trust and weakening American influence in a region central to the US-China strategic balance.

If the US wants to maintain its global economic and political leadership, it must move beyond a one-size-fits-all tariff strategy. A more rational, partnership-based trade approach, with preferential terms for core allies and trusted partners, would better serve both US interests and ASEAN’s role in a rapidly shifting global trade landscape.