Back to 1933

Anyone interested in history should take note - the US is now charging an average tariff on its imports of 19.5%, the highest since 1933.

1933 is generally regarded as a miserable time. Japan left the League of Nations, Adolf Hitler became Chancellor of Germany, an earthquake in California killed many, and the Depression was at its height. Against those missteps however 1933 saw the end of Prohibition, the movie King Kong was released, and a new President, F. D. Roosevelt, took office. He created 43 new 'Alphabet Agencies' as part of his 'New Deal'. Perhaps this litter of bureaucracies was not so great.

The OECD (Organisation for Economic Cooperation and Development), the 38-member global economic club invented in 1961, arrived at the startling US tariff figure in its latest forecasts for 2025 and 2026.

Its report is grim. Wherever you live.

Economic growth in the US will slow from 2.8% in 2024 to 1.5% in 2026. In the UK the figure was 1.1% in 2024; in 2026 it will be 1%. China will slow from 5% in 2024 to 4.4% in 2026; Russia from 4.3% to 0.7%. The handful of countries which may grow (South Korea, Saudi Arabia, Germany) will do so only painfully slowly. If we want some optimism then Russian figure suggests its posturing against NATO doesn't have real underlying strength. The full impact of US tariffs is yet to arrive, warns the OECD.

Uncertain times...

"Finding the right balance in uncertain times" is the name of the OECD report. Like most multinational bureaucracies which come up with global forecasts the OECD is determined to offend no-one and thus pulls its punches.

This can lead to notable errors; the OECD didn't predict the 1990s dotcom bubble - nor its crash. It didn't spot the lurking mayhem in 2007 nor the Great Financial Crash of 2008. Queen Elizabeth II of Britain asked the only sensible question about 2008 - "why did no one see it coming?"

In 2017 an OECD economist put out a "response" to her question. He wrote that "forecasters always had a poor track record in predicting economic downturns...[and] will continue to struggle to predict the timing of future downturns." Small comfort.

Who knows? The OECD might be behind the flow today.

...are always with us

One danger to financial stability that creeps continuously closer is debt.

Another multinational bureaucracy has just published a reassuring-sounding article stating that "global debt has stabilized, though it remains at an elevated level". The IMF (International Monetary Fund) goes on to say "total debt was little change last year [2024], just above 235% of global gross product...public debt rose to nearly 93%".

The US isn't the country with the biggest national debt, even though it's now more than $37.5 trillion. What's disturbing however is that the US possesses the fiat currency that has been - perhaps no longer is - the world's most sought international reserve. Even a decade ago you could circulate the globe and everywhere you went the US Dollar was the most useful currency. That status is today no longer so secure.

Financial stability is not permanent. For eight decades we have lived in a world in which global conflict has been a stranger, and financial order has been a US factor. That is now changing. China is poised to become the leading superpower. Along with other countries, China is restless with the current Dollar dominance.

So China is reducing its exposure to Dollar-denominated assets, while building up its holdings of gold. It's already the world's biggest gold producer.

This transfer of global power is not going to be completed this year, next year, or even next decade. Who knows - it may never happen. This is not going to be an OECD/IMF challenger.

But one thing is certain - China is more than happy to play a long and cautious game. And the US is currently ruled by a President who seems happy to rapidly switch policy - one day Ukraine can go to hell, another it's Russia who loses all support.

The Dollar has lost more than 10% against other currencies in the first half of 2025, the biggest decline in 50 years. This may change of course. The Dollar may regain its status and once again become the world's favorite fiat currency.

But what if that doesn't happen?

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