The End Of Globalization

By Benjamin Picton, senior macro strategist at Rabobank

There was a clear message emanating from Western policy makers over the weekend: the world is facing the end of the era of globalization. The ECB’s Isabel Schnabel made the point in a speech to business leaders in Italy on Saturday when she said that “Liberation Day was not liberating, but it seems to have marked the end of global free trade.”

Similarly, UK Prime Minister Keir Starmer is set to give a speech later today where he will say that globalization has “failed” as an economic model, and its time is now at an end.

Such comments are staggering for their candor and gravity, if not for their unexpectedness. Equity markets were in freefall on Thursday and Friday of last week as the announcement of long-flagged tariffs rapidly unwound hopium-driven Trump trades and markets came to the cold realization that it’s not all just a negotiating ploy and tariffs really are happening.

The Chinese government announced that it would be retaliating by placing a 34% tariff on all imports from the United States and European officials said that they would be throwing up fresh trade barriers of their own to prevent industry-destroying dumping of cheap goods while they also prepare “countermeasures” against US tariffs.

Trump cabinet members did nothing over the weekend to assuage fears of further market falls. Commerce Secretary Lutnick simply insisted “tariffs are coming” and Secretary of State Marco Rubio shrugged at the market losses by saying “I don’t think it’s fair to say economies are crashing. Markets are crashing because markets are based on the stock value of companies who today are embedded in modes of production that are bad for the United States.” The TLDR on that is: “we don’t care about your portfolio, we’re making America Great Again.” As I noted late last week, ‘Making America Great Again’ means making America a production-based economy again.

With no government knights-in-shining-armour riding over the hill to save equity markets, futures this morning are deep in the red. The S&P500 looks set to open down 3.8%, and NASDAQ futures are pointing to a 4.9% loss at the open. Asian markets are also looking ugly. The Nikkei is down 8% and the highly China-adjacent ASX200 has shed 5.90% at time of writing. Might the Fed ride to the rescue this week with some cheap liquidity?

Brent crude is down 3.40% this morning to $63.33 after falling 6.42% on Thursday and a further 6.50% on Friday. Despite its status as a safe-haven asset, Gold was sold down below the $3000/oz level (liquidating to meet margin calls elsewhere?), but it caught a bit of a bid early on Monday following news that China had added to its state gold reserves for a fifth-straight month. US 10-year Treasury yields are now down to 3.92% (and falling). That ought to come as welcome news to Treasury Secretary Scott Bessent, who has the job of refinancing something like $25 trillion worth of US debt over the next four years.

Bessent echoed Rubio’s “the market is not the economy” line over the weekend by saying that he didn’t expect a recession in the United States this year and suggesting that lower interest rates and energy prices were actually very good news for American business. He also made some interesting comments in an appearance on the Tucker Carlson podcast where he said that 88% of the US stock market is owned by the top 10% of Americans, 12% is owned by the next 40% and that the bottom 50% of households basically own none of it and instead have debt (discussed first on ZH in „The US Is Officially A Banana Republic: The Top 1% Now Own More Wealth Than The Entire Middle Class”).

Bessent said that it is these people in the bottom 50% who needed help so, again, the subtext here seems to be: “We don’t care about your stock portfolio. We care about rebuilding America’s manufacturing base, and with it the blue-collar middle class”.

.@SecScottBessent: „The old system wasn’t working and if you look at a system that’s not working you have to be brave to change it … It would’ve been easy to keep pumping up the economy, borrowing a lot of money, creating gov’t jobs … but you were going to end up in a… pic.twitter.com/NI5dZXF5Dt

— Trump War Room (@TrumpWarRoom) April 4, 2025

Hedge fund manager Bill Ackman is making headlines today by describing the tariffs as an “economic nuclear winter” and calling for a 90-day “timeout” on their implementation. Trump Administration officials are reportedly claiming that more than 50 countries have reached out offering to reform their trade practises in exchange for a reduction in announced tariffs.

Taiwan has offered to drop all tariffs on US goods imports to zero and begin investing more money into the USA. Vietnam has also offered to drop its tariffs on US imports to zero, but White House Trade Advisor Peter Navarro dismissed the offer by saying that it is not enough to close the persistent trade imbalance because of all of the non-tariff “cheating” that goes on.

Of course, many economists and world leaders have been outraged by the crude simplicity of the reciprocal tariffs, which have seemingly been calculated by taking each country’s goods trade balance with the USA, dividing by exports and then dividing by two. Plenty of economists have pointed out that tariffs are not ‘welfare-maximizing’ because they create deadweight losses and that Ricardian trade theory says welfare would be maximized if every economy has no barriers to trade and specializes according to comparative advantage.

The problem with this is that Ricardian trade theory also says that persistent trade imbalances shouldn’t happen (because exchange rates should adjust to prevent it) and assumes that both labor and capital are not internationally mobile. Clearly, this is not the case in the real world, and the US Dollar’s status as reserve currency has caused it to remain overvalued relative to peers, thereby hampering US trade competitiveness. It’s no coincidence that artificial devaluation of various currencies against the US Dollar is one of Navarro and Trump’s major gripes, so keep an eye on USDCNY this week and any announcements from the PBOC to cut the reverse-repo-rate.

From the perspective of the Americans, what is happening now is that countries all around the world who have been quietly practising a great deal of protectionism where it has suited them are suddenly becoming death-bed converts to free trade. Adam Smith is back in vogue, but given that the US is adopting these protectionist policies to rebuild its manufacturing base just in case it ever needs to fight a major war again, recent converts seem to be forgetting this little gem from Smith: “defence is of much more importance than opulence”.

Given the zeitgeist, this Millennial financial market analyst is suddenly wondering if he might have been better served by learning how to weld.