What more you should expect and Be ready from Trade War Series 1

This is a deep and multifaceted scenario, being outlined essentially as a geoeconomic war masked as policy moves, with strategic shifts in diplomacy, trade, monetary policy, and even tourism.  At the end of January, foreign countries owned $1.32 trillion worth of U.S. mortgage-backed securities, or 15% of the total outstanding. Trump wants the stock market to collapse, as he wants the stocks to be cheap and to encourage more retail participation in the coming days from his people. He wants interest rates to decrease so that the cost of borrowing returns to 2020 levels.

This is the 3^rd world war and not a trade war now. It will create less trust among the developing countries.  Now only the supply chain but also political ties will change dramatically, creating another economy of super power.

But in between, we need to know how different countries are placing their bets to create more issues and problems as retaliation against the U.S and also how it will impact the global economy.

Let's break it down into several key dimensions to fully grasp how it might impact the global landscape:

 Strategic Pivot from China: Building an Asian Bloc

• Xi’s diplomacy with India, Japan, and South Korea: This is a move to counterbalance U.S. encirclement and decouple from Western-dominated economic dependency. A regional bloc could lead to:
• New trade pacts and investment corridors, reducing dollar reliance.
• Supply chain localization in Asia, which undercuts U.S.-centered logistics.
• A push toward alternative reserve assets, possibly yuan-denominated.

 The Weaponization of Financial Markets

• China dumping U.S. MBS and Treasuries: A potential retaliation with wide-reaching consequences:

·        If China wanted to hit us hard, they could unload Treasuries. Is that a threat? Sure, it is.        At the end of January, foreign countries owned $1.32 trillion worth of U.S. MBS, or 15% of the total outstanding

·        China had already begun selling off some U.S. MBS last year, with the country’s holdings at the end of September down 8.7% year over year and down 20% by the start of December. Japan, which had shown gains in its MBS in September, showed a drop at the start of December.

·        The $29-trillion Treasury market had surged in recent weeks as investors dumped stocks for the safety of government bonds in a tariff-fueled risk-off shift.

• Yields on U.S. Treasuries could spike, pushing borrowing costs higher.
• Could create liquidity crunches if confidence in U.S. debt instruments wanes.
• This is a soft nudge toward destabilizing U.S. monetary hegemony without a direct military response.

 Economic Retaliation — But at What Cost?

• 104% tariffs are more than a pressure tactic—they're an economic nuclear option. They're likely to:
• Lead to supply chain cost explosions in electronics, EVs, batteries, etc.
• Cause inflationary pressure domestically as imports become expensive.
• Drive interest rate confusion—the Fed wants to cut, but tariffs could keep inflation sticky.

 Tourism Collapse & Soft Power Erosion

• A loss of $64 billion in tourism is not just economic—it signals a cultural and diplomatic breakdown.
• Visa difficulties and travel warnings from allies like Germany, the UK, Netherlands show reputational damage.
• This could also impact student inflow, innovation pipelines, and talent mobility, eroding U.S. soft power.

The New Global Alignment: Emerging Players & Alternate Economies

This could set the stage for:

• BRICS expansion or the birth of a new Eastern bloc financial system.
• Rise of commodity-backed currencies or regional trade ledgers.
• Major shift in energy alliances, with oil/gas trade moving away from the petrodollar framework.