Get ready to embark on a new era of financial repression

Tariffs are not the only flashpoint globally; there is another economic policy war shaping up.

- Martin Sandbu

The trade war unleashed by US President Donald Trump may be just the precursor to much larger turmoil in the global economy. Whatever tariffs look like when the dust settles, deficits, surpluses and trade patterns will still be shaped by financial flows. It is only a matter of time before another economic policy war flares up—indeed, it has already begun. Welcome to the new age of financial repression.

Financial repression refers to policies designed to steer capital to fund government priorities, rather than where it would flow in unregulated markets. In the post-war decades, Western countries used regulation, tax design and prohibitions to both limit capital flows across borders and direct domestic flows into favoured uses, like government bonds or house building.

The US then spearheaded the decades of financial deregulation and globalisation that led up to (and led to) the global financial crisis. The US has now made abundantly clear that it rejects its traditional role in dismantling financial walls between countries and anchoring the global financial order.