This article is based on Richard Koo’s keynote speech given at the LBMA/LPPM Global Precious Metals Conference, Kyoto 2025.
I want to talk about what I call the three Ts: Trump, tariffs, and trade. This is not a typical subject for an economist working in global markets, but trade wars are not theoretical to me. I lived through one of the most intense trade conflicts of the modern era – the U.S.–Japan trade war of the late 1980s and early 1990s – and the lessons from that period are directly relevant to where we are today.
Back then, Japan accounted for roughly 65% of the U.S. trade deficit – far more than China ever did later. The political atmosphere became toxic. Trade friction turned emotional, nationalistic, and, at times, openly hostile on both sides. I found myself unexpectedly representing U.S. trade positions on Japanese television, explaining to millions of viewers why trade imbalances mattered and why ignoring them would eventually backfire.
What I told Japanese audiences then turned out to be exactly right: if trade imbalances were left unresolved, the currency would adjust violently, industries would hollow out, and the economic model would break. By 1995, the yen had surged to 80 to the dollar, Japanese manufacturers began moving offshore, and Japan was forced to open its economy. That painful adjustment reshaped the country.
That experience shaped how I see today’s trade tensions – and why I believe we are repeating many of the same mistakes.
The Hidden Crisis Behind "Strong" Economic Numbers
When Donald Trump won his second term, many people were surprised. After all, headline economic indicators looked solid: unemployment was low, equity markets were at record highs, consumption and investment were strong. In financial markets – including precious metals – we watch these indicators obsessively.
But those numbers masked a deeper problem.
From 1980 to 2023, U.S. equity prices rose roughly 5,000%. Over the same period, median real wages rose only about 15%. That is not a typo. Housing prices, meanwhile, rose nearly 95% in real terms. This disconnect created a massive population of people who did not benefit from globalisation, asset inflation, or financialisation.
These Americans are not visible in Manhattan or London or Tokyo. They live in manufacturing regions, logistics hubs, and former industrial centres. For decades, both political parties told them free trade was good for the country – even as their wages stagnated and their jobs disappeared.
When Trump started talking about protectionism in 2015, something profound happened. Millions of blue-collar workers felt, for the first time, that someone was speaking directly to their experience. That support shocked both Republicans and Democrats, who had assumed these voters had nowhere else to go.
This was not about personality. It was about economics – and about trade.
Why Persistent Trade Deficits Matter More Than We Admit
One of the most damaging misconceptions in modern economics is that trade deficits are benign. In reality, trade deficits reduce GDP dollar for dollar. A $1 increase in the trade deficit subtracts $1 from GDP. Over time, that leakage becomes enormous.
From 1980 through to today, the United States has lost the equivalent of 160% of GDP, roughly $46 trillion, through persistent trade deficits. That loss was not evenly distributed. Financial markets, academia, and service industries benefited from a strong dollar. Import-competing industries did not.
Economists often explain trade deficits as a “savings problem” – Americans supposedly consume too much and save too little. But that story collapses when you look at what actually happened. If domestic demand exceeded productive capacity, U.S. manufacturers should have thrived. Instead, they collapsed. Entire industries disappeared.
The real culprit was an overvalued dollar.
When capital flows were liberalised in the early 1980s, money flooded into the United States, driving the dollar sharply higher. By 1985, the dollar was crushing U.S. manufacturing. Protectionist pressure became so intense that even Ronald Reagan – an ardent believer in free markets – was forced into coordinated currency action. The Plaza Accord cut the dollar nearly in half in two years, and trade balances improved.
That episode proved something critical: exchange rates can destroy free trade just as effectively as tariffs.
Tariffs Are the Wrong Solution
Trump correctly identified the problem: massive trade imbalances hollowing out the U.S. economy. Where I disagree with him is the solution.
Tariffs protect uncompetitive production. If firms need tariffs to survive, they are not globally competitive by definition. Over time, protection breeds inefficiency. That
is not the dynamic, innovative economy anyone wants.
Exchange rate adjustment works differently. If the dollar falls, investment flows toward productive activity that is internationally competitive. Manufacturing returns not because it is protected, but because it makes economic sense. That is how sustainable reindustrialisation happens.
Many argue governments cannot influence exchange rates. That is simply wrong. Central banks may look small relative to global FX markets, but they have something private investors do not: the ability to operate without profit constraints and, in deficit countries, effectively unlimited funding capacity.
The Plaza Accord worked not because central banks outspent the market, but because investors stepped aside rather than fight coordinated policy action. We are seeing echoes of that today. Trump’s constant focus on trade deficits has made investors wary of being long dollars. The result: the dollar has softened instead of strengthening.
Why This Matters for Precious Metals Markets
For professionals in the precious metals space, this entire debate matters enormously. Exchange rate policy, not tariffs, will determine the long-term trajectory of the dollar – and therefore the structural backdrop for gold and silver.
Persistent trade deficits, political backlash, and pressure for currency adjustment all point toward a world where dollar strength can no longer be taken for granted. If policymakers rediscover the lessons of Plaza – whether intentionally or by accident – the implications for real assets are profound.
Trump identified the disease correctly. The tragedy is that the lessons required to cure it have largely been forgotten.
Unless we relearn them, trade conflict will intensify, growth will slow, and global dynamism will suffer. That is not just a political risk – it is a market risk. And it is one the precious metals market should be watching very closely.
Nicky Shiels (MKS PAMP SA) interviewed Richard Koo backstage at the Conference for LBMA. You can watch the video on LinkedIn: https://tinyurl.com/ycxpf29d
