Trump's Win in the Trade War & the AI Futures Project's AI 2027 Scenario
From global trade to the AI race
President Trump led the United States to successfully winning the trade war against China. The United States will maintain its leading superpower status for the time being. (Other factors like the AI race can change that status.) The world was at a pivot point as nations chose between the US and China. The next president will build on top of this new global trading system laid with the foundation of Trump’s tariffs.
Let’s call it the Global US Trading Order. I christen it GUSTO. (I should trademark it before Trump uses it.)
Welcome to Global US Trading Order
Build the Wall—the Tariff Wall
This past week, the White House is starting on deals with Japan and India. Each agreement will have ambiguous language to imply that each nation’s major trading partner is the United States, not China. In a statement issued Monday, the Chinese Commerce Ministry warned, “China is firmly opposed to any party striking a deal at the expense of the Chinese side.” (Politico article for more details)
Unfortunately for China, Vietnam and South Korea are cracking down on transshipping (Nikkei Asia). They are choosing the US over China. This move is clearly aligned to Trump’s views. Trump is opposed to transshipping to evade tariffs. (That’s why an island of penguins has a tariff, right?)
Japan, South Korea, Vietnam and India now form a tariff wall. Trump dropping that Liberation Day bomb gave him his desired outcome.
The attempt to create a global tariff wall around China would increase the pressure on China to reform its economic system, at the risk of significantly more global volatility as supply chains come under greater pressure to adjust. From America’s perspective, if other nations choose to keep their current policies vis China but accept the higher U.S. tariff, that’s not terrible—because then, in this framework, at least they’re paying revenue to Treasury, and limiting the security obligations of the United States. Joining a tariff wall with a security umbrella is a high-risk strategy, but if it works, it is also high reward.
Trump’s economic adviser Stephen Miran’s A User’s Guide to Restructuring the Global Trading System from November 2024
In the exclusive Time Magazine article Inside Trump’s First 100 Days, Trump says President Xi Jinping has called him and they are actively working on a deal. Beijing disputes this. Let’s take a moment to consider who is lying.
China’s exports to the United States and the current tariff wall (Japan, South Korea, Vietnam, & India) make up the larger portion of its exports. These four trading partners have incentive to choose the United States right now.
Japan and South Korea made a big show when they met with China. American TikTok creators were pushed into my feed saying Trump screwed up big time. (Nice soft power move, China?) When I checked rednote, the Chinese people say that Japan and South Korea are too closely tied to the US to be trusted. It’s hard to disagree with Chinese rednote users when considering where the US has military bases.
Vietnam ideally wants to not take a side. President Xi Jinping’s visit to Vietnam showed its ability to navigate between two world superpowers. Vietnam made some agreements with China in the spirit of cooperation. Underlying this visit, Vietnam still has disagreements with China over the South China Sea and Vietnam has to crack down on transshipping. Vietnam’s exports to the US make up about 30% of its GDP. The US is the bigger consumer. (Carnegie Endowment for International Peace article).
India is making a play to take over China’s role as the world’s manufacturer of cheap goods. The world loves Apple and its iPhones. Apple has to comply with the US (Reuters). JD Vance had a good visit, too. Usha Vance may be a fashion icon in India (India Today).
Perhaps, the tariff wall is fragile. It’s likely to be somewhere between what is considered the least favorable case and best case scenario described by Trump’s economic adviser Stephen Miran. Trump’s claim is more likely.
China’s loss within its walls
Chinese citizens are more worried about job losses and the economy than they ever have been since polls have been conducted by the bank Morgan Stanley. President Xi’s military purges are not over and could weaken combat effectiveness. Xi is seeking another term in 2027 (The Economist).
Who is lying about who reached out first? Trump? Beijing? Is that even the right question to ask?
Well, how do you assess a victory? Let’s ignore Trump’s narrative and look to a Daily Show TikTok clip for inspiration. Trump may have written The Art of The Deal but China has The Art of War. So let’s use a criteria based on The Art of War by Sun Tzu. (It’s taught at West Point so some Americans consider it worth studying this ancient text older than the Bible.) Chapters 2 and 3 define victory.
My selected quotes from Chapter 2: Waging War
v3 “Again, if the campaign is protracted, the resources of the State will not be equal to the strain.”
v11-12 “On the other hand, the proximity of an army causes prices to go up; and high prices cause the people’s substance to be drained away. When their substance is drained away, the peasantry will be afflicted by heavy exactions.”
v18 “This is called, using the conquered foe to augment one’s own strength.”
v20 “Thus it may be known that the leader of armies is the arbiter of the people’s fate, the man on whom it depends whether the nation shall be in peace or in peril.”
We can assess a victory by evaluating how long it takes, how much it costs the government, how much it costs their people, and how much is gained relative to the foe.
Less than a month isn’t too long. The government did not have to allocate any funds and consumers did not see the costs pass down from the “greedy corporations” and the “humble small businesses” paying the tariffs. For example, Apple did not raise iPhone prices. Did they? (I bought shares in Apple when I saw the huge demand for iPhones before prices would be raised.)
It technically remains to be seen how the United States is augmented by China in a deal. Treasury Secretary Scott Bessent sees an opportunity for a big deal. Taking inspiration from Bridgewater founder Ray Dalio, Bessent calls it a beautiful rebalancing. For the beautiful rebalancing, Ray Dalio points out the main goals for each country: balancing manufacturing and consumption (LinkedIn).
People know that Trump is the arbiter of people’s fate. That may be too much power for a president to have.
My selected quotes from Chapter 3: Attack by Stratagem
v2 “Hence to fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting.”
v3 “Thus the highest form of generalship is to balk the enemy’s plans; the next best is to prevent the junction of the enemy’s forces; the next in order is to attack the enemy’s army in the field; and the worst policy of all is to besiege walled cities.”
v17 “Thus we may know that there are five essentials for victory: (1) He will win who knows when to fight and when not to fight. (2) He will win who knows how to handle both superior and inferior forces. (3) He will win whose army is animated by the same spirit throughout all its ranks. (4) He will win who, prepared himself, waits to take the enemy unprepared. (5) He will win who has military capacity and is not interfered with by the sovereign.”
v18 “Hence the saying: If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
The Chapter 3 quotes dive into details. It concludes with the idea of whether or not Trump knows himself well and whether he knows China well. The CNN YouTube video from 2010 suggests to me that he understands how China’s manufacturing is destroying the US and how China’s loans to the US (i.e. US treasury bonds) are unsustainable. Trump balks China’s plans and prevents China from joining with other countries in an alliance.
Trump knows himself well and came prepared. He’s executing well on his plan—A User’s Guide to Restructuring the Global Trading System.
Friend, Foe, or Neutral Trading Partner?
There are some common consequences across all these possible scenarios, if the Administration pursues any of them. First, a much stronger demarcation between friend, foe and neutral trading partner. Friends are inside the security and economic umbrella, but there is more burden sharing. Based on the scope of that burden sharing, friends may experience more favorable trade or currency terms. Those outside the security umbrella will also find themselves outside friendly arrangements for international trade and easy access to the U.S. consumer. They will have more aggressive costs imposed on them via tariffs and other policies. There are obvious implications for asset prices.
Trump’s economic adviser Stephen Miran’s A User’s Guide to Restructuring the Global Trading System from November 2024
Trump is choosing a unilateral approach to all the countries reaching out to him about the tariffs. The president’s trade adviser Peter Navarro claims a goal of running 90 deals in 90 days. (Fox Business clip on X/Twitter) This asymmetric information in these deals plays well into maximizing leverage. It suits Trump’s approach.
The next president will have to know how to manage all these deals with each country. I can see the next president building on this and letting a country join the US as it progresses from the foe to friend trading buckets. Of course, Puerto Rico should have dibs as the 51st state.
This could make it easier for people affected by climate change to move. Countries may soon have to consider how climate refugees fit into immigration policy.
America First, not America Alone
Secretary Bessent delivered keynote remarks at the Institute of International Finance and spoke about mission creep knocking the International Monetary Fund (IMF) and World Bank off course. For instance, the IMF took upon itself to fight climate change. Secretary Bessent also called out the World Bank for treating China as a developing country. Secretary Bessent sees these global institutions as facilitating the raising of living standards around the world. America will lead these vital global institutions created after World War II.
How it fits into the AI 2027 scenario forecast
The Trump administration is accelerating the development of artificial intelligence. AI will have an even greater impact than the Industrial Revolution and improve living standards. During his signing of an executive order for AI education, Trump admits to not knowing whether AI is the way of the future or not (Executive Order signing YouTube clip). (According to me, Trump also does not have a good grasp on climate change, but the free market may take of climate change by itself. The COVID pandemic proves Trump has to rely on others for issues involving science and technology.) Fortunately, the AI Futures Project wrote a possible future scenario called AI 2027.
Personally, I find this timeline too aggressive. The timeline does not take into account the possibility of laid off software engineers deciding to run for Congress in major tech hubs. The Democratic party is rudderless.
Considering the political climate in the US, I’ll take the summary scenario and make my own predictions. Of course, this is all fictional.
2025
The fast pace of AI progress continues. There is continued hype, massive infrastructure investments, and the release of unreliable AI agents. For the first time, these AI agents are providing significant value. But there’s also continued skepticism from a large swath of academics, journalists, and policy makers that artificial general intelligence (AGI) could be built anytime soon.
2026
China knows they are falling behind in AI, in large part due to their lack of compute. In order to catch up to the US, all the new AI chips they manufacture or smuggle in from Taiwan go to a new mega-datacenter that we call their Centralized Development Zone (CDZ). The CDZ contains millions of GPUs, corresponding to 10% of the world's AI-relevant compute, similar to a single top US AI lab.
2027 inspired by the Scale AI CEO letter & Movies
Two politically moderate software engineers from two separate states (California, Washington, and/or New York) ran successful campaigns in Democratic primaries and join Congress in January 2027. Fully prepared, they successfully begin a public-private partnership with American companies. As long as they do so without subsidies similar to Biden’s CHIPS Act, President Trump allows them to take the lead because he wants to beat China in the AI race and raise living standards for all Americans. Trump will take all the credit to generate more support for running for a third term.
The engineers in Congress use AI agents to strategize and find ways to decrease spending so that Trump can meet his goals of balancing the budget. They win more political favor by not caring if Trump takes all the credit.
With that political favor, they work to pass legislation to enable more favorable immigration policies to keep talent with work visas in the US and slow down the brain drain. This enables further progress in chip design and algorithms.
They work with a tech company to organize federal government data so that companies can train their models.
The Democrats running for president rile up extreme leftists while Trump’s popularity grows in an America with more manufacturing jobs.
The progress begins reducing the manufacturing jobs as more work is automated and completed by robots. People start protesting against the auto industry.
A foreign adversary creates more division on social media and triggers extremist groups to attack data centers. The extremist groups send information about chips to China or Chinese talent designs chips as good as American companies. China catches up.
China looms in voters’ minds. A generational divide fractures the Democratic party more so. With favorable polls, a wealthy third-party candidate announces running against Trump and a secretly brainwashed far left Democratic candidate in the 2028 election…
Coming to a theater near you!
When Trump is no longer president…
The next president will be in completely new territory. The next one should build on the best accomplishments of the Trump administration and should implement real change to tyrant-proof the government. In comparison to President Franklin D. Roosevelt, Trump’s dictatorship has not yet reached FDR’s levels. To me, Trump is a benevolent dictator much like FDR just without the popular support. That divisiveness is incredibly dangerous for America. It makes the US more vulnerable to foreign adversaries. This divisiveness also stems from capitalism’s inability to divide the growth of the economy well. It’s setting America back.
Trump’s lack of knowledge about transformational technology like AI and acts of nature like pandemics and climate change could also set the US back. When considering his investments in AI, I am cautiously optimistic about Trump and hoping that he learned lessons from COVID.
Trump’s major strengths are setting up the US on a sustainable path financially. I respect the actual effort to balance the budget. I also respect the “Global US Trading Order” alongside the leadership in bringing the IMF and the World Bank back to their core missions. Let’s look forward to an exciting and eventful future.
It's true both chinese and American will feel the negative impact from the trade war. But I think the chinese government have more will power to fight a long and costly trade war. It seems like trump is much more willing to buckle against the pressure from Americans and lobbyists. China is experiencing a high level of patriotism from this episode and their political system will allows them to better handle dissent.