Trump has taken the world by surprise. Everyone, invested and interested, is sleeping late watching the Nasdaq ticker go up and down and endlessly scrolling through X. I have been no different. Apart from keeping track from minute to minute changes, I also started understanding the drama in detail.

I have read quite a bit but still haven’t scratched the surface in figuring the complex subject of macroeconomics and global politics. I thought its too early to put any conclusions on paper for me. The next best thing to do is to share what I have been reading with you all.

Before I share the various content I have consumed that I think you should go through too, let us understand a few basic terms that will help you navigate better. These terms are being heavily used in the current context.

1. Tariffs: Taxes levied by a government on imported goods (or occasionally exports). Tariffs aim to protect domestic industries, generate revenue, or influence trade policies.

2. Trade Deficit: When a country’s imports of goods and services exceed its exports in value over a period. It indicates more money is flowing out to pay for foreign goods than is coming in from exports, often sparking debates about economic competitiveness.

3. Fiscal Deficit: The gap when a government’s total expenditures exceed its revenues (excluding borrowing) within a fiscal year. This deficit is typically financed through borrowing, contributing to national debt, and reflects fiscal policy priorities.

4. Trade Surplus: When a country exports more goods and services than it imports in value. This results in a net inflow of foreign currency, often seen as a sign of economic strength, though it can complicate trade relations.

5. Capital Account: A component of a country’s balance of payments, it records transactions involving capital transfers and non-financial assets (e.g., debt forgiveness, migrant transfers). It’s less prominent than the current account but tracks specific cross-border asset movements.

   The capital account is like a record book for a country that tracks certain kinds of money and asset movements across its borders. Think of it as keeping tabs on "special transactions" that aren’t about everyday trade (like buying cars or selling crops) but involve things like transferring big sums of money or assets for specific reasons.

   For example, imagine someone in another country forgives a debt your country owes them—that gets recorded here. Or if a family moves abroad and takes their savings with them, that’s noted too. It also includes things like a country selling off rights to natural resources or getting money for big international projects, like building a dam.

   In simple terms, it’s a way to track money and stuff that crosses borders for reasons other than regular buying and selling, helping show how a country is handling these unique financial dealings.

6. Capital Deficit: Occurs when a country’s capital outflows (e.g., investments abroad or loan repayments) exceed inflows (e.g., foreign investments or loans received) in the capital account. It’s less commonly discussed but can signal reliance on external financing.

7. Capital Surplus: The opposite of a capital deficit, when capital inflows exceed outflows in the capital account. This might reflect foreign investment or asset sales to non-residents, indicating confidence in the economy.

8. Trade Balance: The difference between a country’s exports and imports of goods and services. A positive balance (exports > imports) is a trade surplus, while a negative balance (imports > exports) is a trade deficit. It’s a key metric in assessing economic relations with trading partners.

Why Is America Worried?

I am going explain this in simple words because that’s how I understand.

In the late 20th century, the United States began outsourcing manufacturing to Asian countries due to significantly lower labor costs. Outsourcing wasn’t just about labor costs. Fewer regulations (e.g., on pollution) and global supply chains (cheapshipping) also made Asia attractive. This shift allowed American companies to reduce production expenses but led to a reliance on imported goods. As a result, the U.S. imported more than it exported, contributing to continuous trade deficits. The flow of dollars out of the U.S. to pay for these imports was substantial.

As manufacturing jobs moved abroad, many Americans who lost their positions had to transition into lower-paying roles in sectors like retail and fast food. some workers couldn’t even find retail jobs and left the workforce entirely, increasing reliance on government aid. This job shift also widened inequality—tech and finance workers thrived, but blue-collar workers got stuck. This transition reduced disposable income for many households, as manufacturing jobs were generally better compensated. The decline in high-paying jobs also impacted government revenues, affecting funding for essential programs such as healthcare, education, defense, and infrastructure.

The decrease in tax revenues contributed to increased fiscal deficits for the U.S. government. The fiscal deficits also increased because the American government chose to fund various wars in the middle East. An aging population boosted social security costs as well. To address these deficits, the government relied heavily on issuing bonds. The dollars that flowed out of the U.S. to countries like China and Mexico were invested or spent, often finding their way back into the U.S. through investments in Treasury bonds, which were seen as a safe haven. US was seen as a safe haven because of the Bretton Woods history. You must read about it.

In recent years, the U.S. continued to borrow under low interest rates, but the situation changed post-COVID with rising interest rates. The U.S. debt now exceeds $35 trillion, requiring higher interest payments to service it. The problems in US also increased as other countries started doing the high end manufacturing themselves and reduced their dependencies on the US thereby expanding their trade surplus and increasing America’s trade deficits (deficits increased because US had to spend the money to ensure their citizens dont suffer by leaving more money in the hands of consumer through various schemes and lower interest rates).

China and other nations also played smart in this entire dynamic by keeping their exports competitive by lowering the value of their currency. As American dollar continued to hold a stronger value, the country did not have much option but to import cheap goods for consumption. Stronger dollar also continued to attract investors worldwide.

In response, the U.S. has implemented measures like tariffs on imports to address these imbalances and protect domestic industries.

(If you want to understand why dollar become the currency of choice for the world, read about the Bretton Woods Agreement)

Reading References

You should start with reading what Deepak Shenoy has to say. There are lots of charts as well to give you a better understanding.

Follow it up by understanding some history and figuring what happened after the Smoot Hawley Act of 1930. The idea of Tariffs is not new. Srinivas Peri is an excellent financial history writer and a good friend. You must subscribe.

Next step should be to read the possible solutions for America. The Sovereign Wealth Effect written by Michael McNair is easy to understand the possible outcomes in American future.

Finish it by reading this long blog on the dynamics of global trade.

Impact on Financial Markets, Global and Indian

First, start with reading what Howard Marks has to say. Summary, nobody knows. However, there is light at the end of the tunnel. Marks has been through multiple such financial crises and emerged strong. You must read his latest.

Move on to reading Morgan Housel’s note on ensuring that you do not lose your shit while everyone else around you goes crazy.

I’ll end just by saying I’m as optimistic as I’ve ever been, particularly for the long term. I’ve always talked about the idea of rational optimism, which is the idea that I am very optimistic that the world is gonna be a better, wealthier place 20, 30, 40, 50 years from now, but I’m rational in the belief that it’s gonna be very difficult between now and then.

In the context of Indian markets, the economy is stronger than ever. Here are some points to note -

• Our exposure to US exposure is fairly low compared to our GDP. Ex of services, we only export around $55 billion USD which also comprises of ten billion of pharma exports. Our economy is valued at $4.3 trillion.

• US accounts for 65% of global market cap but only 26% of global GDP. The lost confidence in US will be beneficial for countries like India where the growth story is intact.

• Falling crude prices help India massively.

• Rate cuts have started happening in India which could spur demand.

• There is going to be more money in the hands of Indians because of upward adjustment in tax slabs.

• Shift of production from China could see growth of manufacturing in India.

• RBI has been easing liquidity.

While the Indian economy slowed down in the last 12 months, there are green shoots visible in revival of growth amidst the global uncertainty. As an investor in the Indian economy, all you need to do is stay calm, hold a diversified portfolio, increase your emergency fund if you are exposed to a sector where you could see a possible job loss, and stay invested.

I will write more about investing in these uncertain times in the following weeks. I hope this helps. It definitely helped me clear a lot of concepts though I will need to go back and read these long blogs again and probably pick up some books.

Thanks for reading. Kindly excuse errors, if any. This newsletter is more of a learning exercise for me than anything else.

📚 My favourite books and gadgets

𝕏 Twitter

▶️ Youtube

📝 Personal Blog

📝 Sign up for my paid newsletter focused on credit cards and rewards

☕ Buy Us A Coffee

📈 10% discount on portfolio tracker I use - MProfit

💍 10% discount on the Ultrahuman ring