Dollar at risk of being left behind
The dollar has struggled this year, especially since Mr Trump's April 2 tariff announcement. While the currency is on pace for one of its strongest weeks this year after jumping about 1% on July 28 following the announcement of US-EU trade deal, this short-term move doesn't change the long-term trends that could undermine the greenback's position.
MOVING IN REVERSE
Economic dominance in the future could largely depend on access to affordable, efficient energy to power artificial intelligence technologies. And in the race to dominate the industries of the future, the US is arguably going in reverse.
It's retreating from the renewables space, as seen in the administration's recent move to eliminate many clean energy subsidies. The president appears to be making the bet that the US can maintain energy dominance indefinitely by relying on its own fossil fuel resources.
This could ultimately result in uncompetitive power costs in the future, especially given that China is already dominating in clean energy technologies like solar and electric vehicles.
As historian Adam Tooze argues, "for the first time in two centuries the West is no longer the leader in future technologies but the follower".
TWIN DEFICITS
While Mr Trump may be seeking to enhance American self-sufficiency, the administration's policies may actually be increasing the country's dependency on foreign capital.
Mr Trump's recently passed budget bill -- which looks pretty ugly to fiscal watchdogs despite its name -- could cement the US's position as the world's biggest capital importer by adding an expected $3.4 trillion to the US deficit over the next decade, according to estimates by the nonpartisan Congressional Budget Office, potentially locking in 6% to 7% budget deficits for years.
Importantly, the US has also been running current account deficits of roughly 4% over the past several years, and this widened to 6% of GDP in Q1 2025, according to the US Bureau of Economic Analysis.
By spending beyond its means and running these twin deficits, the US will continue to require large amounts of foreign capital inflows.
But unfortunately for Washington, this capital may soon be harder to come by, if both Europe and Asia seek to keep more of it closer to home.
Europe is pushing for increased defense spending, as seen in its new goal to spend 5% of GDP on defence in the coming decade. While the bloc has agreed to increase US energy purchases through the recently announced US trade deal, much of that agreement remains up in the air and the volumes suggested are pretty unrealistic. Meanwhile, Asia has begun to trade more internally, as China has been focusing on export diversification.
TRI-POLAR FX BLOCS
A growing regionalisation of supply chains began during the pandemic and appears to be accelerating as Mr Trump seeks to drive production back to the US and all major global powers focus on securing regional raw material access (eg, rare earths and other critical minerals) for national security purposes.
This shift could eventually create the foundation for true regional FX blocs across Asia, Europe and the Americas.
This development would have a major impact on the global economy, currency values and capital markets, arguably providing a more balanced global economy with three poles of supply and demand, each attuned to their own regional dynamics rather than the current set-up whereby the global economy responds primarily to the Federal Reserve and US internal dynamics.
Recently, European policymakers have discussed what ECB President Christine Lagarde has termed a "Global Euro" moment, one built upon a European Savings and Investment Union designed to foster both a European safe-haven asset that could eventually compete with US Treasuries and deeper, more liquid European capital markets to fund European infrastructure and innovation.
Of course, this won't be an overnight shift. The dollar remains the world's dominant reserve currency, and the US debt market is estimated to be more than three times the size of Europe's, according to the World Economic Forum.
But simply having a larger percentage of European capital stay at home could make a huge difference. Europe's current account surplus has averaged roughly $400 billion over the past few years, and Europe invests roughly $300 billion per year in offshore financial assets, according to the New York Times.
Within Asia, Pan Gongsheng, Governor of the People's Bank of China, has recently highlighted China's interest in having the yuan play a larger role in a multi-polar currency world.
Other officials soon followed, discussing how China plans to improve home market access for foreign capital while expanding opportunities for the Chinese to invest abroad. While China's capital account remains closed, Asian currencies already primarily trade off the yuan rather than the US dollar.
Even though China faces challenges, such as its fight against deflation, its efforts on this front -- namely, boosting consumption and reining in excess supply, especially in the renewable energy space across solar, wind and batteries -- could ultimately help attract more foreign capital by boosting China's growth profile and corporate earnings.
There is obviously no guarantee that these measures will be successful, but the government's intense focus on achieving these goals is evident. The recent decision to provide $12.4 billion in childcare subsidies suggests a potential policy Rubicon has been crossed, as China has typically resisted these types of direct fiscal stimulus measures in the past.
In a world of currency blocs, both Europe and Asia could emerge as potential winners, as they erode the US's position as the world's financial powerhouse. So while many investors may get lost in the short-term currency noise, it might be wise to instead focus on the long-term signal. Reuters
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By adjusting certain items such as transshipment products and products indirectly exported to China, Thailand's export value to both China and the US was almost equal at 1.5 trillion baht in 2024. So far, the government and the private sector are only preparing to deal with an export reduction arising from Mr Trump's tariff. Nobody is prepared for an export reduction from China, which is likely to be more severe due to the reasons above. Tourism income is an important but overlooked issue. In 2024, foreign tourists brought in 1.4 trillion baht of income to Thailand. That is equivalent to 7.6% of GDP. About 19% of that tourism income came from Chinese tourists. The number of Chinese tourists has already dropped 34% since the beginning of the year. Mr Trump's 30% tariff on Chinese products will make this number much worse. A 50% drop in Chinese tourists? I am using estimates published by the Independent, a trustworthy online British newspaper. I believe the numbers are the work of Prof Niven Winchester at Auckland University of Technology in an article titled "GDP changes due to additional US tariffs". The effect on Thailand is a 0.44% GDP reduction. Want to know the GDP reductions for Vietnam and Indonesia? They are 0.30% for Vietnam and 0.11% for Indonesia. The same or similar tax rate produces different results in different economies. Those, particularly the government, who think Thailand has a better deal than its peers should think again. Since we are already looking at the GDP effects from the tariff, it is a 0.34% reduction for China, 0.29% reduction for South Korea, 0.13% reduction for the EU, and a 0.09% reduction for Japan. As for the US itself, which has to pay for higher priced imports, the GDP reduction is 0.36%. Out of 15 economies under this estimation exercise, Thailand is the second-most-affected economy. Number one is Switzerland with a 0.47% GDP reduction. It is not that Thailand has a stronger economic structure, but the Swiss were hit with a 39% reciprocal tariff rate. The following are my estimations, and not from Prof Winchester. The Chinese effect on Thai GDP would be twice as strong as the US effect. Because it would include import substitution and product dumping effects. My estimation is that less buying from China would cut 0.88% from Thai GDP growth. Furthermore, fewer Chinese tourists would cut another 0.55% from GDP. As such, the China tsunami would cause 1.43% in total damage to Thai GDP. The negative impact on Thai GDP is three times higher than the 19% Trump tariff. While both the government and the private sector is fully geared up to embrace the impact of a 0.44% GDP cut from Mr Trump's earthquake, no measures have been prepared, or even discussed, for China's tsunami. I do not mean to blame the Thai negotiation team. To have a reciprocal tariff rate on a par with our peers is essential. There are more issues than just trade. They are the issues of competitiveness and investment attractiveness. However, there is a price to pay to Mr Xi. I hope Mr Xi is a gentleman and does not take revenge on ungrateful Asean nations for abandoning China. I am talking about non-tariff barriers like raising product standards and requiring complicated documentation for imported products. Worst of all, China should not provide subsidies to local manufacturers to compete against Asean imports. Before I end the article, there are a couple of things on my mind about the agreement with the US. One is the definition of transshipment products. There is no clear agreement on Rules of Origin. If using the Asean standard, it requires a minimum of 40% of local content. If using the US standard, it varies from product-to-product, ranging from 50% of local content to 70%. Furthermore, the US does not trust local certification. All Rules of Origin on imports are verified by US Custom and Border Protection. A second issue is the commitment to purchase US products. Can the Thai government commit private companies to purchasing products from the US such as Thai Airways buying 100 Boeing jets? Mr Trump's tariffs have shaken the whole world. They have shaken China and shaken Thailand. Unfortunately, the shaking China will turn around and shake Thailand. The country must be prepared to be shaken by Mr Xi. If my analysis is right, the impact is frightening.
