Why is the US President Donald Trump waging a trade war against its closest neighbors and allies, Mexico and Canada? Why is the United States abandoning Ukraine and its security commitments to Europe? Why is he befriending Russia’s authoritarian, Vladimir Putin, and sacrificing Europe, which shares democratic values with the United States? Why does Trump want to impose universal tariffs on America’s friends, and not just China? Why does Trump let the world’s richest man, Elon Musk, and his DOGE (Department of Government Efficiency) slash and burn federal institutions?
The answer is national insecurity. The US is anxious that it’s entering the twilight of its empire. The US is a country addicted to debt. The US deficit is approximately P124 trillion in 2023, or 6% of its GDP. The total debt-to-GDP ratio was 124% in 2024. As British historian Niall Ferguson observed, when the interest the US pays on its debt is bigger than its defense expenditures, it’s a sign of an empire in decline.
The US is no longer so rich that it can take care of the needs of its citizens at home and maintain its security commitments abroad. Its ability to fight a two-front war — in Europe and in Asia, against a militarily powerful China, is increasingly in doubt. It’s finding that China is nipping at its heels, especially in core and leading technologies like artificial intelligence, quantum computing, semiconductor manufacturing, robotics, and biotechnology.
The US’s security vulnerability has been exposed by COVID-19 and the Ukraine war. During COVID, the US’s lack of manufacturing made it dependent on vital imports, from masks to ventilators. China supplies a significant share of the active pharmaceutical ingredients (APIs) as well as antibiotics, painkillers, and vitamins that go into US made drugs.
Supply chain disruptions during COVID, particularly of semiconductors. demonstrated American vulnerability. Semiconductors are the brains of almost all modern products, from doorbells and microwave ovens at the low end, to iPhones and supercomputers on the other end. However, the US has only 12% of the world’s semiconductor manufacturing capacity. Moreover, the leading-edge chips are manufactured in Taiwan and South Korea, both countries facing security threats from China and North Korea, respectively.
The US has allowed its shipbuilding industry to wither. China has 200 times more shipbuilding capacity than the United States. China presently has the world’s largest navy, while its commercial ships are now blanketing the world’s oceans.
The Ukraine war also showed that the United States needs to rebuild its defense industrial base. The war caused a rapid depletion of tanks, artillery shells, armaments, and drones of Ukraine and its US and European allies. One lesson from that war is that sustaining and eventually winning an intense and protracted war needs a strong and vibrant defense industrial base.
Considering the US’s national insecurity, Trump wants to rebuild manufacturing capacity in the United States. (American deindustrialization under free trade is what Trump calls “American carnage.”) The tariffs on steel and aluminum are intended to encourage producers to establish factories in the US.
Why desire Canada to be the 51st state? Because it has the rich mineral resources and cheap energy to power a US manufacturing revival. It guards the Artic, which has become a strategic geographic asset because of climate change and opening of vital sea routes.
Why target Mexico? Not because of fentanyl but because it’s a backdoor for Chinese goods to enter the US duty-free through NAFTA (North American Free Trade Agreement).
Why target allies like Japan and South Korea with tariff threats? Because they are seen as benefiting from the US security umbrella, but posting large trade surpluses against the US. They are also seen as unreliable allies because China is their largest trading partner.
Why DOGE? Because the US urgently needs to get its fiscal house in order. Whether firing federal employees will make a dent in the US budget deficit, considering that Social Security and Medicare represent the biggest budget items, is another question.
Why deregulation? Because US capitalists, particularly the IT behemoths represented by Jeff Bezos, Elon Musk, Marc Andreessen, and Peter Thiel, believe too much regulation is holding them back. The US needs a productivity revolution powered by Artificial Intelligence, to outpace the rise in debt.
Why abandon Ukraine, torpedo NATO (North Atlantic Treaty Organization), and befriend Russia? Because Russia is not an existential threat to the US. Perhaps to Europe, but not the US. Russian GDP is less than a tenth of that of the US. Russia’s economy is weak. It’s based on natural resources, and not advanced technology (it can’t produce its own semiconductors). Its military capacity is brittle. It can’t even conquer Ukraine.
Why deride Europe and abandon its commitments to NATO? Because Europe is seen as not spending enough for its own defense and “free riding” on the US security umbrella. Its dependence on the US is highlighted by the lack of innovation in its economy, its slow productivity growth, and widening disparity with the US on economic output per capita.
Trump wants to make America great again by cutting government spending, avoiding non-strategic wars, deregulating and unbinding tech capital, and restoring its industrial capacity by reordering the international trading system to balance its trade deficit.
The move to blow up the post-World War II rules-based order based on free trade, multilateral institutions like the WTO (World Trade Organization), and strong integrated alliances represents a high-risk gamble by the US that this will restore America’s greatness.
Waging a trade war with allies like Canada, Europe, and Japan can make them lose faith in the US and make the US strategically weaker without allies and friends. High tariffs can prompt domestic producers to raise prices for US consumers without them investing in new plants and equipment, especially given the erratic implementation of Trump’s tariff plan. The move to shift from the US dollar could accelerate, raise the cost of US debt, and undermine a major source of US power, which is the US dollar as the world’s reserve currency. Overall, Trump’s policies risk a lose-lose move for the US and the world.
On the other hand, the other superpower, China, is similarly insecure. China is still not self-sufficient in energy and food. It doesn’t have the blue water navy capable of defending its supply lines of oil from the Middle East, or its imports of food from the rest of the world, or the exports for which its economy is dependent. It has an unbalanced economy with low private consumption and overproduction. Accordingly, China faces a deflationary crisis, with falling prices and stagnant demand. It has a high debt-to-GDP ratio. It suffers from high income inequality, with a GINI coefficient (a measure of inequality) of more than 0.46, much worse than the United States.
While it has high-tech smart cities, a significant share of the population (about 500 million), mostly rural, is uneducated. A sharp urban-rural divide exists that could lead to social instability. (According to the Sinologist and economist Scott Rozelle in the book Invisible China, China has one of the lowest educational attainments of its rural population of any comparable country.) China is also facing a demographic disaster with a fast-ageing population (one of the fastest in the world) and a shrinking labor force.
It’s our bad luck that two insecure superpowers are butting heads in our neighborhood. With insecurity comes instability and the risk of a hot war. (Japan attacked Pearl Harbor because of its insecurity about its oil supplies, which former US President Franklin D. Roosevelt cut off.)
There’s a saying that when elephants fight, it’s the grass that gets trampled on. We — and the rest of the world — are the grass. Sigh.
Calixto V. Chikiamco is a member of the board of IDEA (Institute for Development and Econometric Analysis).
totivchiki@yahoo.com
