It’s been three weeks since I first published Economic Blitzkrieg so I figured it’s worth doing a quick overview of where we are and where I think we are headed:

First to summarize:

The thesis was Trump didn’t really care that much about tariffs.

He cares about fortifying US hegemony by cutting out China.

But to be more precise I’m going to fully outline what he cares about and then what he’s trying to do about each.

Top of the list are his primary issues that needed to be addressed quickly & forcefully:

A) Chinas growing industrial, technological and militaristic strength relative to the US

B) A dependence on China at the base layer of U.S. industrial and military supply chains

C) An unsustainable fiscal debt load and budget deficit that couldn’t be easily addressed without either irreparably impacting reserve status or forcing significant voter pain via austerity

Less pressing but still relevant downstream issues that were also considered, in no particular order:

D) Fentanyl crisis

E) A free riding Europe that benefited from the U.S. security umbrella without commensurate compensation

F) Growing economic entanglement between China and supposed military allies to the U.S.

G) Growing unwillingness by voters around the world to take economic pain as the price of being a “good ally” as demonstrated by continued flow of Russian gas into Germany

H) A concerted and accelerated shift of the Chinese economic model up the value-add ladder following the bust of their real estate bubble into areas that have traditionally been staples of higher-income economies including autos, semis and robotics

I) Increased concern around the value of IP and the US’s assumed ability to control access to AI following Deepseek and the subsequent torrent of similar models out of China despite two years of GPU import restrictions

J) A near term fiscal setup that seemed incredibly bleak given Yellen’s decision to short-date the govts debt in the form of $10T of maturities in 2025 while at the same time juiced fiscal spending to a degree that practically gaurentee economic malaise of the deficit were to be closed cold-turkey.

So my thesis is that Trump turned to a number of high-IQ and mid-IQ advisors and asked for a plan.

People such as Miran, Thiel, Pottinger, Colby, maybe Bessent… and yes maybe even obsessive single-issue types like Kyle Bass and Navarro.

Who came up with the plan only mildly matters at this point…

And these individuals constructed the following sweeping plan that attempts to solve everything all at once within the constraints he has.

Constraints that include: midterm elections, the existing rule of law in the U.S. (loosely), high debt loads throughout the developed world and general unwillingness to “rock the boat”, an adversary who can exert far more economic pain on most countries vs the US.

And most importantly, and adversary who has a defacto emperor for life while Trump has to wake up every morning and check the polls.

Said another way, an adversary with a much higher pain tolerance vs either US politicians or voters.

So what was the plan:

Isolate China.

Force countries to choose between two spheres of trade. Two spheres of military security. Two spheres of financial rails.

But because of the aforementioned constraints you couldn’t just go to countries and ask them nicely to walk into an economic woodchipper… and while they were at it please run don’t walk since you have midterms coming up.

So the strategy had to introduce game theory. It had to magnify the economic leverage. It had to introduce time constraints. It had to be binary. In or out. No room for ambiguity that can be undone by a subsequent government administration.

1/n continued below… 2/x
So roughly it looks something like this:

No country who opts into the new sphere is allowed to trade with any country that has yet to make up its mind.

Until you fully renounce your trade relationship with China and also renounce trade with all countries still trading with China you couldn’t join the new sphere.

Membership in the new sphere isn’t without its benefits:

A) Explicit access to the U.S. security umbrella. An umbrella that might shrink meaningfully if this plan fails and the U.S. turns isolationist.

B) Continued access to USD swap lines provided by the Fed but which can (under an “emergency”) be withheld by Bessent. And is likely to be weaponized going forward.

This is often an under-appreciated perk by most non-finance types which most governments have also come to take for granted even as crushing dollar-denominated debt loads make this a make-or-break channel of liquidity.

Remember Liz Truss?

C) Access to American technology & pharmaceuticals

D) But for most countries non of the above matters, all they really care about is if they have to choose between two distinct economic blocks… which is bigger and is growing faster

And the answer if it is just between the U.S. vs China is almost always going to be China.

So you cheat.

This is where the game theory comes into play.

First you use your non-economic leverage to coerce countries that really have no choice in the matter to join your block.

Israel, Japan, South Korea, Philippines, Saudi, UAE, Argentina, Poland

Then you incentivize the countries that you have economic leverage with who also have proximity to you or are scared of China.

India, Brazil, Panama, Mexico, Indonesia, Thailand… maybe Vietnam

Now you’ve formed a cohesive block economically.

It’s big but a bunch of countries are still holding out. They’re still pissed. They still think this is all a fever dream. They are telling them stories about how they can just wait till midterms and it’ll all go back to normal.

Wrong.

This is the point where you exert leverage. Hard. All at once.

Defund NATO. Abandon Ukraine. Withdraw swap lines. Cut all trade between not just the U.S. but also all the early signs ups. You embargo access to the latest AI models. You embargo access to GPUs. You withdraw or defund from the IMF, WTO, World Bank.

Burn it down all at once.

And you say… “choose, you have 120 days”.

And we are only going to accept 7 of you 10 European holdouts. Last three are with China.

And you wink at Belgium, France and Spain for good measure 😉

2/n to be continued below…

Three objectives three time frames: A) short-term [6mo to 1yr] - control yield curve, bring fiscal situation under control B) near-term [1yr to 2yr]- decouple supply chains from China, ensure resiliency of military to provide credible deterrence against a TW invasion. This can include friendshoring only if the underpinning supply is in fact located in the ally’s boarders. A “china skin” i.e. Vietnam where the bulk of value-add is imported is not acceptable because that can still be weaponized by Xi. C) medium-term [3yr to 5yr] resuscitate domestic manufacturing, have sufficient infrastructure to maintain relevance in a robotics-driven world.

Constraints: Rates, legislation, mid-term elections, FX moves, credit spreads, talent shortage, Boomers retiring, energy, capex supply (including transformers from China), AI progress, capital market reaction…. And most importantly…. Xi’s reaction function.

Smooth sailing folks 🫡 Example of what reads like MAGA fan fiction except this is verbatim the reported convo:

https://twitter.com/tmtlongshort/status/1908296878371876895