Transatlantic Trade Monitor: Facts You Need Now | The Unraveling Anchor: America’s Volatility and the New Global Order

By Marc Chandler, Chief Market Strategist, Bannockburn Capital Markets

The global economy has entered a phase of heightened uncertainty—and at the center of this turbulence stands the United States. In a striking reversal of its traditional role as a pillar of predictability and leadership, the U.S. has adopted an increasingly erratic posture, marked by sudden policy feints, reversals, and mounting institutional strain. Nowhere is this more evident than in the Trump administration’s economic and foreign policy approach, which resembles less a coherent strategy and more an exercise in disorienting escalation.

At the heart of this approach lies the deliberate use of the “flood-the-zone” tactic: a relentless barrage of policy actions that overwhelm constitutional norms and leave the media, public, and institutional checks reeling. The strategy extends far beyond tariffs and trade. It encompasses executive overreach, targeted budget cuts against multilateral institutions like the WTO, and a strategic pivot that isolates the U.S. from traditional allies in critical forums such as the United Nations and the G7. Blocking a G7 statement condemning Russia’s latest aggression in Ukraine is emblematic of this new unilateralism—sowing confusion abroad and political fragmentation at home.

Domestically, the warning lights are flashing. A widening gap has emerged between “soft” data—such as business and consumer sentiment—and “hard” indicators like payrolls and output. But even the hard data is beginning to falter. Payroll tax withholdings are slipping, possibly signaling early cracks in the labor market. This vulnerability is likely to deepen amid growing layoffs in government sectors and the sustained impact of both formal and informal immigration restrictions. If the sentiment surveys prove predictive, a material downturn may be closer than Washington is willing to admit.

Globally, America’s push to decouple from China is proving disruptive. Despite denials from U.S. officials, it’s increasingly evident that China holds “escalation dominance” in the trade standoff. In the short to medium term, China can more easily replace U.S. demand than the U.S. can substitute its dependence on Chinese electronics and rare earth processing. Surprisingly, China’s economy is showing resilience: domestic consumption is rising, and if official data can be trusted, investment is holding up.

Beijing has signaled readiness to boost both monetary and fiscal support to fortify internal demand. Its exports are now more diversified, and a weaker yuan against the euro and yen has improved competitiveness beyond the dollar sphere. U.S. unilateralism may end up redirecting China’s surplus production toward other markets—potentially pressuring them into their own protectionist responses.

Meanwhile, anti-American sentiment is growing—most conspicuously among U.S. allies. Reports of consumer boycotts in Europe and Canada, along with a sharp drop in U.S.-bound tourism, are already impacting America’s hospitality and retail sectors. Speculation is mounting over a possible capital strike, though conclusive evidence remains elusive given lagging financial flow data. However, increased allocations to Europe-focused funds may suggest broader repositioning—even by American investors.

In anticipation of higher import duties, businesses and consumers have front-loaded purchases, temporarily inflating sales and inventories. U.S. auto sales have spiked in response—but the question is what happens when that wave passes. Once inventories are drawn down, businesses will face tough decisions. If a softer labor market and weaker consumer demand materialize, firms may hesitate to ramp up production in an increasingly uncertain climate.

Markets delivered a stark verdict in April: U.S. equities, bonds, and the dollar all sold off in a sweeping repricing. Former Treasury Secretary Larry Summers called it an “emerging market moment”—an exaggeration, perhaps, but not without insight. Spooked by the market reaction, the administration momentarily paused the rollout of its so-called reciprocal tariffs. Yet the broader trajectory remains unchanged. New investigations have been launched into sectors such as pharmaceuticals and rare earths. Tariff threats now extend to lumber, dairy, and foreign cargo ships—especially Chinese ones—with new levies expected in Q4.

Even after sending shockwaves through markets with planned auto tariffs set for early May, President Trump hinted at a possible delay. But this appears more a tactical maneuver to manage backlash than a genuine policy reconsideration.

In response to U.S.-driven turmoil, global monetary policy is shifting. Downside risks are mounting. Among the G10, the U.K., Australia, and New Zealand are expected to cut rates in May. Emerging markets are following suit—Mexico is poised to slash another 50 basis points, while Brazil bucks the trend with continued tightening. South Korea, Poland, and the Czech Republic are also likely to ease policy.

The Federal Reserve, however, is likely to hold steady—for now. Inflation remains stubborn, and the labor market appears strong, at least on the surface. But political interference looms large. President Trump has publicly criticized Chair Jerome Powell, and reports suggest the White House is exploring ways to remove or sideline him. While markets have so far taken these threats in stride, any escalation—such as a firing or installation of a “shadow” Fed chair—could ignite serious volatility.

Congress, too, may be gearing up for a confrontation. As trade tensions deepen and emergency powers are increasingly used to justify unilateral tariffs, bipartisan voices are questioning the constitutional scope of executive authority. Legal challenges and legislative efforts to reclaim trade powers may emerge as a defining political issue. Nearly a dozen states are suing the federal government, claiming the president has exceeded his authority to impose a tax on American (tariffs).

This blend of economic dislocation, institutional strain, and geopolitical backlash is already registering in currency markets. The dollar has weakened sharply. While technically oversold and due for a short-term bounce, the broader trend is downward. This reflects more than monetary conditions—it signals deepening global doubts about America’s direction, dependability, and role in the world.

For decades, U.S. leadership rested on a foundation of rule-based order, openness, and institutional integrity. That foundation is cracking. Whether by design or dysfunction, Washington is forcing the world to reprice America—not just as a trading partner, but as a systemic actor. The signs are clear in markets, trade patterns, and diplomatic realignments. And the story may only be beginning.

Compliments of Bannockburn Capital Markets – a member of the EACCNY