America’s “trade tariffs war,” universally denounced by mainstream media, is a simpler version of provisions in the IMF’s original charter imposing symmetric obligations on deficit and surplus countries to adjust their external trade accounts.

In the early years of IMF’s operation (1944-45), such trade rules were necessary to establish and run an international monetary system based on fixed (but adjustable) exchange rates. Surplus countries – self-proclaimed virtuous economic managers refusing to balance their external accounts -- were even subject to sanctions according to a “scarce currency clause.”

Subsequent amendments to IMF’s Articles of Agreement threw out that symmetry as surplus countries put the onus of adjustment on deficit countries to stabilize their currencies with restrictive monetary and fiscal policies leading to growth recessions and rising unemployment.

That created an increasingly unstable system which came to an end on August 5, 1971, when the U.S. stopped redeeming foreign dollar holdings into gold and ushered in a system of free for all floating exchange rates. And that in fact was the first U.S.-led world “Liberation Day.”

The dollar remained the linchpin of international finance and continued to serve as a global unit of account, the world’s main transactions currency and a store of value as a reserve asset.

Structural changes of U.S. economy

The international demand for dollar-denominated instruments continued unabated, and, partly because of that, the U.S. began running trade deficits since 1975.

A new process was set in motion that would lead to profound structural changes of the U.S. economy and the international financial system. As foreign countries were eager to exchange their real assets for dollars, the U.S. manufacturing sector continued to decline and offshore its operations on a large scale.

The most recent data show that manufacturing accounts for only 10% of U.S. economy, and some companies, such as Apple, reportedly make more than 80% of their products overseas (mainly in China).

Europeans complained about America’s “deficits without tears,” but those deficits required corresponding imports of foreign savings to balance U.S. current and capital accounts.

Predictably, the increasing foreign debt led to a huge deterioration of Washington’s international investment position. At the end of the first quarter of this year, America’s net international liabilities stood at $24.6 trillion, an increase of $2.6 trillion from the same period of last year.

This year's trade also got off to a bad start. During the first quarter, the U.S. account on current overseas transactions showed a $450.2 billion deficit, a 72.5% increase from the year earlier.

And a merchandise trade deficit of $693.1 billion in the first half of this year -- a 26% increase from the same period of 2024 – is a clear signal that balancing America's external accounts will require a large influx in foreign borrowing.

Tariffs will lead to major trade adjustments

These numbers – rather than alleged political whims or penchant for chaos -- explain Washington’s sense of urgency to stop, and reverse, decades of excessive trade deficits.

The main task here is to narrow U.S. trade gaps with its North American neighbors – Canada and Mexico – China and the E.U.

Based on merchandize trade statistics for the first half of this year, those three economic systems accounted for 55% of America’s total foreign trade and for 55% of its total goods trade deficit.

Over that period, China made the largest progress in reducing its U.S. trade surplus. A 12% decline of the U.S. trade gap also triggered a 17% drop in the U.S.-China trade.

A closer look at China trades also shows that Beijing cut much more its purchases of U.S. goods than its sales to the U.S. That left China’s exports to the U.S. three times larger than its imports from America. There is a strong political hint here the U.S. will have to watch in the months ahead.

By contrast, the U.S. trade with the E.U. got much worse. Europeans apparently rushed with their U.S. trade transactions in anticipation of higher import duties. In the process, they ran up a 34% jump in their surplus on a 15% increase in their U.S. trades. Ireland and Netherlands recorded their largest U.S. trade surpluses.

But traditional surplus runners, like Germany and Japan, seem to have got the message. Germany’s surplus on U.S. trades went down 9%, and Japan’s surplus was virtually unchanged from the first half of last year. Both countries now understand that they will have to serve U.S. markets from their American factories.

After decades of benign neglect of its huge and growing trade deficits, the U.S. has served notice that it will use trade tariffs to prevent systematic and excessive trade imbalances. At the same time, the U.S. is offering a policy of open and free markets to foreign suppliers who wish to maintain and expand their market shares through U.S.-based production facilities.