by Daniel Brouse
April 11, 2025
For decades, economists have quietly asked a disturbing hypothetical: What happens if the U.S. launches a trade war and a credit war at the same time? It was an academic curiosity — a thought experiment for textbooks, not real life. Until now.
Donald Trump has turned that hypothesis into reality.
During Trump’s first term (Trump 1.0), he laid the groundwork — tearing up trade agreements, undermining global institutions, and threatening America’s economic alliances. But now, in Trump 2.0, he’s gone from testing the waters to executing a full-scale economic experiment on a global stage.
What was once theory is now practice. And the world is starting to buckle under the strain.
Trade War Meets Credit War: A Dangerous Combination
Most people think of tariffs as isolated tools — a tax on imported goods here, a protectionist policy there. But in a global economy powered by complex capital flows, the consequences are far more sweeping. Tariffs don’t just hit goods — they hit trust, stability, and most importantly: liquidity.
By weaponizing trade, Trump has triggered a second, even more dangerous war: a global credit war.
Here’s why that matters.
The U.S. dollar has long been the world’s reserve currency because global trade flows through it. Countries that export goods to the U.S. accumulate dollars — and those dollars flow right back into U.S. assets like Treasury bonds. That system keeps interest rates low, funds U.S. debt, and stabilizes the global economy.
But what happens when that trade flow is deliberately choked off?
The Early Signs of System Failure
If foreign countries export less to the U.S., they earn fewer dollars. If they have fewer dollars, they buy fewer U.S. Treasuries. And if they buy fewer Treasuries, U.S. borrowing costs go up — triggering higher interest rates, tighter credit, and financial instability.
This is not just a theoretical concern anymore. We are seeing early evidence that this credit war is underway:
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Bond market liquidity is evaporating.
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Foreign demand for U.S. Treasuries is declining.
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Global central banks are diversifying away from the dollar.
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Gold, commodities, and non-dollar assets are surging.
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Interest rates are rising — not because of growth, but because of risk.
Chaos Theory in Action
This is a classic example of a complex, non-linear dynamic system at work — the domain of chaos theory. The parts are all connected, but not in simple, linear ways. A shock in one area — tariffs — is now producing unpredictable disruptions in areas that may seem unrelated but are fundamentally tied together.
The variables in this system include:
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The value of the U.S. dollar
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U.S. debt and Treasury markets
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Interest rates (both domestic and global)
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Inflation and deflation pressures
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Recession — or worse, depression
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Foreign cash flows and investment patterns
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Trade wars and their escalation
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Climate disasters exacerbating supply shocks
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Immigration pressures triggered by economic collapse
The Big Question: What If the Dollar Loses Its Reserve Status?
Ultimately, the darkest scenario is no longer unthinkable: What happens if the U.S. dollar loses its status as the world’s reserve currency?
This would unleash a profound economic reset, marked by:
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Exploding U.S. borrowing costs
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A collapse in consumer purchasing power
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Global capital flight from U.S. assets
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Severe contraction in both trade and credit
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Domestic political and economic instability unlike anything in modern history
Conclusion: We Are In the Experiment Now
This is no longer just economic theory.
This is real.
Trump’s trade war has metastasized into a global credit war. The feedback loops are forming. The shocks are compounding. And the system is starting to behave exactly as economists long feared: chaotically, violently, and unpredictably.
Welcome to the experiment. We’re all in it now. The only question left is whether the damage is reversible — or if we’ve already crossed the tipping point.
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