Gunboats and Dollar Diplomacy
By Leif Torkelsen
April 07, 2025
The Geopolitics of the Mar-a-Lago Accords
Trade, war, and diplomacy have been inextricably linked since the first armed merchant travelled from one city-state to another. As of 2024, global trade totals nearly $33 trillion annually. Given that the Trump administration is attempting the most significant overhaul of trade in half a century, it behooves soldiers, sailors, and diplomats to consider what this means for them. To properly evaluate the strategic implications of Trump’s policy, one must first understand the current global trade system and the proposed changes. The potential strategic consequences can then be considered. This exercise suggests that the president’s diplomatic and military policies are not supportive of his goals. It also implies that Eurasia, rather than the Pacific, will be the key to future conflict with China.
A New Global Architecture
For economists “comparative advantage” is the arbiter of trade, but that term often conceals an ugly reality. The success of many exporters is not due to some native genius for manufacturing, but to interventionist government policies. For example, China’s state banks pour cheap loans while the hukou system controls labor costs. The result is an economy that produces more than it can consume, so foreign demand becomes essential to maintain employment. Because global capital accounts must balance, countries that create artificial trade surpluses effectively force other countries to run trade deficits. America has absorbed this surplus as the world’s “consumer of last resort” for decades by selling capital assets, notably debt. By this means, America’s trading partners have become its creditors.
President Trump seeks to alter the current global architecture by creating conditions in which the country can resume trading manufactured goods for imports. Tariffs have been introduced as a bargaining tool. The president’s critics have rightly argued that tariffs only impact bilateral trade while trade occurs in a global context. Therefore, to achieve Trump’s goals a comprehensive restructuring of global trade is necessary (“the Mar-a-Lago Accords”). Whatever the final agreement, it will fundamentally require foreign central banks to allow their currencies to appreciate against the dollar.
https://www.realcleardefense.com/articles/2025/04/07/gunboats_and_dollar_diplomacy_1102315.html
