Global Economic Chaos: Multilateralism VS Unilateralism and their Consequences
Wednesday June 4, 2025
By Dr. Rodrigue Tremblay, Emeritus professor of economics, Université de Montréal
"After all, an overvalued dollar gives us the ability to buy foreign goods at lower prices. And the existing volume of exports brings more yen and euros than they would if the dollar were more competitive." Martin Feldstein (1939-2019), American economist.
"The power of taxation by currency depreciation is one which has been inherent in the State since Rome discovered it. The creation of legal-tender has been and is a government's ultimate reserve; and no state or government is likely to decree its own bankruptcy or its own downfall, so long as this instrument still lies at hand unused." John Maynard Keynes (1883-1946), British economist.
"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens...There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." John Maynard Keynes (1883-1946), British economist.
Leaders of major countries can approach international economic relations from two main perspectives. Firstly, they can adopt a multilateral economic cooperation format or the multilateralist way, in order to reach a large and stable consensus about international solutions to problems and to resolve issues. Secondly, they could opt instead to rely on a more expedite and more risky way, the go-it-alone or the unilateralist way, which runs the risk of being conflictual and chaotic.
Since World War II, both approaches have been tried, in 1944, 1971, 1985 and 2025.
1- The 1944 Bretton Woods system
In July 1944, under the leadership of the Democratic Franklin D. Roosevelt administration (1933-1945), forty-four nations were convened for a conference in Bretton Woods, in the US state of New Hampshire, with the purpose of establishing a post-war international monetary and financial system, later known as the Bretton Woods system.
It was based on the US dollar being tied to gold, while the latter could be sold to and bought from other governments at the agreed price of $35 per once. Other convertible currencies were being pegged to the US dollar through stable exchange rates to be altered only in cases of "fundamental disequilibrium", under the supervision of the International Monetary Fund (IMF).
2- The making of the US dollar fiat currency
The Bretton Woods monetary system lasted 27 years, until the Republican Richard D. Nixon administration (1969-1974) decided, on its own, to modify it substantially.
Indeed, on August 15, 1971, the US Nixon administration unilaterally announced that the US dollar was no longer convertible into gold. That meant that the dollar was no longer backed by gold and had become a fiat currency, under the control of the American Federal banking system.
Other countries reacted to the unilateral American decision by adopting floating exchange rates for their own currencies. Countries that were oil exporters and members of the Organization of the Petroleum Exporting Countries (OPEC) caused a quadrupling of the international oil price, an energy crisis and a rise of inflation worldwide. This was the main cause of the severe and global 1973-1975 recession. It also meant the end of the post-WWII economic boom.
The entire1970 decade was a period of rampant inflation, high unemployment and of slow economic growth, a situation of stagflation. Indeed, when the oil price doubled in 1979, this was followed by two successive economic recessions in 1980 and 1981-1982.
3- The Plaza Accord of New York City in 1985
In the aftermath of the severe 1981-1982 economic recession, the Republican Ronald Reagan administration (1981-1989) feared the US dollar was overvalued, especially relative to the Japanese yen and the German Deutschmark, under the pressure of international demand for dollar assets.
In order to avoid the pitfalls of the 1971 Nixon's unilateral approach, the Reagan administration convened the G-5 countries of France, West Germany, Japan, the United Kingdom and the United States. The purpose was to relieve the pressure on the US dollar and to weaken the dollar in order to reduce the mounting U.S. trade deficit.
The result was the joint agreement of the Plaza Accord, which was signed on September 22, 1985, at the Plaza Hotel in New York City. It called for allowing the US dollar to depreciate through a coordinated intervention in currency markets. It lasted until the Louvre Accord ended it, in February 1987.
4- There is an international loss of confidence in the Trump administration 2.0 and its economic policies
Before President Donald Trump's inauguration on January 20, 2025, the US economy, by most economic indicators, had been the most prosperous among most if not all Western economies; its rate of real economic growth (2.8%) in 2024, was higher than other advanced economies; its unemployment rate was at a virtual full employment level (4,0%), and its inflation rate was still stable and under control (2.9%).
Nevertheless, President Trump has been wreaking havoc on the American economy and is disrupting the international trading system with his inflammatory statements. Some of them are truly confusing and incoherent.
Indeed, the flip-flopping uncertainty surrounding the imposition of unilateral tariffs on imports from various countries, as well as the insults, threats, and even ultimatums issued against these countries, are severely harming business investment, employment and business decisions in general. In addition, it slows down multilateral international trade, shakes financial markets, and undermines the United States' reputation around the world.
Similarly, the Trump administration is pursuing conflicting and even contradictory economic goals, such as wishing to depreciate the US dollar in order to improve the US trade balance, while at the same time wishing to preserve the international reserve status of the dollar and threatening other countries who seek to abandon the dollar in their international transactions with more American financial sanctions and additional punitive tariffs.
A large public budget deficit, financed in part by foreign borrowings, tends to create an external trade deficit.
However, for years, the U.S. federal government has been accumulating budgetary deficits upon deficits. (The last year there was a surplus was 2000.) In which case, the sale of Treasury bonds to foreign investors appreciates the dollar, and this encourages imports and harms exports, resulting in a chronic trade deficit in the U.S. balance of payments. —If the Trump 2.0 administration wants to reduce the U.S. trade deficit, it should balance the federal budget.
Currently, some foreign creditors holding dollar assets, especially those from China and Japan, are increasingly losing confidence in the Trump administration. They have begun to offload some of their dollar-denominated securities and will be reluctant to purchase new U.S. debt. The result will be a rise in 10-year and longer-term interest rates, which will be a major threat to US economic growth, especially in the US housing market.
5- The high risks of resorting to unilateral provocative trade policies and threats
The Trump administration 2.0 has chosen to impose unilateral tariffs on imports of foreign goods from many countries by presidential decrees (using the pretext of a situation of national security). The implied purpose is to raise public revenues, presumably in order to cover the fiscal cost of renewing the large tax cuts for corporations and for richer Americans, enacted in 2017.
As it should have been expected, such a unilateral approach incited other nations to retaliate and to raise reciprocal tariffs against American exports. Such a dangerous trade war could easily lead to a lose-lose economic proposition for all countries of the world, as international trade contracts and economies also contract.
President Trump's tariffs are bound to push domestic prices up and any net outflow of capital from the U.S. would depreciate the dollar. These are two causes of inflation. However, because the trade war will hurt American exports and slow down economic growth, the net result would likely be a situation of stagflation. That is why an OECD report predicts that not only would most countries be losers in Trump's trade war, but that the United States will suffer the most.
Indeed, considering the high levels of public indebtedness coupled with high unfunded public obligations (unfunded future pensions and other expenditures, etc.) the next decade could force many governments to rely on inflation and to a debasement of their fiat currencies, to lower the real burden of their public debts and obligations.
It seems that there still is some costly confusion about Trump's global trade war and about who can levy tariffs in the United States. An important federal court recently ruled that Donald Trump's sweeping tariffs based on an obscure federal emergency powers law is an abuse of power, since the US Constitution reserves the right to impose taxes to the House of Representatives. Indeed, on May 28, the U.S. Court of International Trade suspended most of the tariffs imposed through executive orders and stated that President D. Trump has exceeded his constitutional powers.
Another court, on Thursday May 29, also blocked the Trump administration from levying any tariffs on imported goods under the so-called April 2 "Liberation Day" orders. (But the chaos continues, since a federal appeals court has temporarily reinstated Trump's tariffs for now!)
Conclusion
To end the current global economic chaos, a return to a multilateral approach to international economic relations would be needed.
If this is not done, the unilateral and irresponsible approach of the current US administration in its international economic relations could lead to the collapse of the multilateral system of international trade and finance. Indeed, since its inauguration, the Trump administration has acted as if it wanted to erect a Tariff Curtain around the United States.
Since 1945, no other American administration has been so intent on isolating the United States from the rest of the world economically, while adopting inward looking policies.
As the disastrous experience of the 1930's clearly demonstrates, if the Trump administration persists in relying religiously on a policy of unilateral and punitive tariffs against other nations, and as other nations retaliate, this is likely to trigger a global financial and economic slowdown, which would benefit no country. As a consequence, the next decade could also be a repeat of the 1970's economically, but also possibly even worse.
Indeed, any unilateral attempt to reshape the global trading and financial system to benefit only the United States is a pipe dream, which is likely to hurt the entire world economy and especially the United States.
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International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and of his recent book, in French, "La régression tranquille du Québec, 1980-2018".
He holds a Ph.D. in international finance from Stanford University.