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Trump's Vision of America's Financial Power at Risk

Trump's "Make America Great Again" campaign isn't just about policies related to trade; it extends beyond that. Recently, Trump has aimed to reduce the US's involvement in various international organizations and treaties. He's made moves to withdraw from the World Health Organization and has frequently hinted at leaving NATO. However, the most significant potential mistake involves the US's financial influence on the world.

Project 2025: A Roadmap for Trump’s Future

The Heritage Foundation introduced Project 2025, essentially a roadmap for the Trump administration's next phase, which might become a reality in the next four years. In February, Trump signed an executive order to review US participation and funding in international organizations, including the IMF and World Bank. While this aligns with his "America First" mantra, it's important to consider how this could weaken US influence on a global scale.

Three Pillars of US Power: Military, Economy, and Trade

The US's power is supported by three key pillars: military strength, economic stability, and global trade. The latter would suffer if the US disengaged from the IMF and the World Bank. Although Trump's rhetoric about spending on international organizations seems to make sense, a deeper look shows the US gains considerably from these institutions.

NATO: A Lucrative Business for the US

Take NATO as an example: The US contributes 68% of the total defense spending among NATO countries, though it isn't a direct funding source for NATO itself. Leaving NATO might save the US money, but it would also lose out on significant benefits. For instance, the US benefits from selling weapons to NATO members, with Europe being the largest customer. In 2024, US arms exports hit $320 billion, with NATO members accounting for 64% of those sales. This creates a lucrative business opportunity for the US, and withdrawing from NATO would jeopardize this advantage.

The IMF and World Bank: Global Financial Leverage

Similarly, the IMF and World Bank, as global financial institutions, also provide the US with leverage. The World Bank lends to developing nations seeking to build their economies, while the IMF steps in when a country's economy is in crisis. By being involved with these organizations, the US gains power over struggling countries. For example, Argentina, which owes over $30 billion to the IMF, has been drifting closer to the US, with the US playing a pivotal role in stabilizing these nations.

The Risks of Disengagement

In conclusion, while Trump's stance may seem focused on reducing costs, disengaging from these global institutions could have negative long-term consequences for the US's financial power and global influence.

US Risks Major Loss by Leaving Global Institutions

Trump knew he had to align with the new US president to secure a loan extension from the IMF. Within the IMF, the US holds significant power, contributing over $150 billion, making it the largest voting block in the organization. The US controls 16.5% of the votes, which gives it considerable influence, effectively granting veto power on crucial decisions. Most often, these decisions involve which countries receive loans and the size of those loans. This gives the US the leverage to guide economies in crisis.

The US's IMF Influence vs. China's Role

In contrast, China contributes only 6.4% of the IMF’s total funding, and its voting power is limited to 6%. This highlights why staying in the IMF and similar international organizations is more beneficial for the US, not only as an economic tool but also for geopolitical strategy. The US can use its position to shape global policies, enforce sanctions, and most importantly, promote the continued dominance of the dollar as the world’s reserve currency. Leaving these institutions would weaken the US dollar and decrease its role in dollar-denominated debt.

The Strategic Importance of Multilateral Banks

Loans from global financial institutions are nearly always given in dollars, so the US has a vested interest in maintaining its presence in multilateral banks worldwide. By being involved in many global development banks, from Asia to Africa, the US secures a significant footprint in financial affairs. Developing countries seeking loans need to be on good terms with the US. This gives the US the upper hand in shaping the financial landscape. However, Trump's push to maintain the dollar's reserve status while pulling back from international support is a contradiction.

The Risk of Disengagement from the IMF and World Bank

Trump has already distanced the US from many UN organizations, and withdrawing from the IMF or the World Bank wouldn’t be surprising. His administration has taken steps to pull out of bodies like the UN Human Rights Council, UNRWA (a refugee organization), and even reviewed involvement in UNESCO, citing anti-American bias. His executive orders have focused on limiting US contributions to these organizations, reflecting his belief that the US is unfairly burdened by the financial contributions compared to other countries. However, disengaging from these global institutions could ultimately harm the US’s influence and its economic and geopolitical power.

The Real Winner of US Withdrawal from the IMF and World Bank: China

When discussing the US leaving the IMF and the World Bank, it's crucial to consider who stands to benefit the most. As America retreats further into isolation, it opens the door for another country to expand its influence: China. Trump's policies could directly hand more power to Beijing. In 2022, China was a major lender to countries around the world, especially in developing regions. When the US chooses not to extend loans to these countries, China steps in and provides the financing. Many countries have borrowed heavily from China, sometimes up to 10-15% of their national GDP, which gives China significant leverage and influence.

China's Strategic Economic Influence

This growing economic influence allows China to build infrastructure in these nations, further boosting their exports to these countries. What’s more, many of these regions are rich in natural resources, particularly critical minerals. China’s lending isn't just about offering help—it’s also about gaining access to these resources. From Africa to Latin America and Central Asia, China has strategically positioned itself to secure access to rare Earth materials, giving it a significant advantage as the US pulls back from global engagement.

China's Control Over Critical Supply Chains

China Dominates Europe's Critical Material Supply Chain

Take China's dominance over the global cobalt supply as an example. While Chinese companies don't directly mine the resource, by 2030, China will control 46% of the world’s cobalt supply. The majority of this comes from Congo, and China is building the necessary infrastructure, including mines worth $7 billion over the next decade. This model is one that the US has yet to fully grasp—securing supply chains is more important than worrying about loan defaults. If the IMF or World Bank loses US funding, China can step in with private loans, further strengthening its hold on critical industries, including electric vehicles (EVs), solar energy, and semiconductors.

China’s Weaponization of Supply Chains

While the US focuses on imposing tariffs, China has chosen to weaponize its supply chains. By restricting exports to countries, especially Europe, China exerts significant economic pressure. Europe, for example, is highly reliant on Chinese resources, with 100% of its rare earth supply for batteries coming from China. Over 60% of its semiconductor inputs also originate in China. This dependency leaves Europe vulnerable, making Trump's inward-facing policies seem poorly timed. While it may seem appealing to pull away from the IMF and World Bank, doing so would only leave the door wide open for China to step in.

The Dollarization of the World: China's Growing Influence

The economic battle isn't just being fought through tariffs; there’s a much larger strategic shift happening behind the scenes. As the US scales back its lending, China has been moving quickly to dollarize the world with its own currency. In 2024, China had signed currency swap agreements with over 40 countries, allowing it to lend out over $600 billion in its local currency, the renminbi (RMB). This means countries no longer need to rely on the US dollar for loans, reducing their incentives to acquire dollars or trade with the US.

The Global Shift: A Worrying Trend for the US

This shift in currency usage has major consequences. Since 2021, global central banks have increasingly relied on Chinese swap lines. The usage of the yuan in these agreements has grown from over 30 billion yuan a quarter to over 100 billion yuan in just three years, and this trend is expected to continue. By pulling out of multilateral institutions like the IMF and World Bank, the US is inadvertently accelerating the process of de-dollarization, leading to a drop in demand for the US dollar globally.

The Long-Term Consequences for the US

Trump may feel that US involvement in global affairs is costly, and in many ways, that is true. However, if we look deeper, it's clear that the US gains a lot from its participation in these organizations. While leaving the IMF and World Bank may seem like a win for Trump, the real beneficiary would be China. This would allow Beijing to expand its influence, dominate critical global supply chains, and further solidify the position of the renminbi in international finance.

A Strategic Shift Worth Watching

As we watch this unfold, it's important to consider the long-term consequences of the US’s decisions. An exit from global financial institutions may seem like a victory, but the biggest winner in this scenario won't be the US— it will be China. Let me know what you think in the comments below.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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