Tariff from U.S. Threats and the Fragmentation of Global Trade

U.S. tariff threats and the fragmentation of global trade. The global economic landscape is undergoing a seismic shift as the U.S. escalates trade tensions with aggressive tariff threats. President Trump’s recent warnings of 30% levies on the EU and Mexico have rattled markets. It has raised questions about whether we are witnessing a managed recalibration of globalization or a full-blown fragmentation.

Mohamed El-Erian, president of Queens’ College, Cambridge, and a veteran economist, argued that the U.S. is behaving more like a “developing nation” than the traditional leader of the global economic system. The era of “uber-globalization”—characterized by seamless trade flows and deep economic integration—appears to be fading. Instead, the world is moving toward “Globalization Light, which is a more controlled, rules-based system where trade is managed rather than fully open.

El-Erian suggests we won’t know the final outcome for years, but the U.S. is accelerating the shift with its unpredictable tariff policies.

U.S. Acting Like a Developing Economy?

Unusual market behaviors—such as the dollar weakening despite rising Treasury yields—are more typical of emerging markets than the U.S. This reflects investor uncertainty about whether Trump’s policies will lead to a “Reagan moment” (successful economic restructuring) or a “Carter moment” (stagflation and recession). Despite tariff threats, U.S. equities remain surprisingly resilient due to Big Tech and large-cap stocks continuing to outperform on solid earnings. Markets believe Trump is “escalating to de-escalate,” betting that deadlines (like the August 1 tariff decision) will be pushed back or softened.

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