Blain’s Morning Porridge April 13^th, 2026: No-See-Um Risk as Trump declares a Global Trade War. Good Grief!

“Don’t send your sons to win wars that politicians started.”

That was an interesting weekend. Trump announces a blockade that will impact the whole Global Economy – and South East Asia and China in particular. At least Europe got some good news from Hungary. More instability forecast before Trump inevitably TACO’s again. Markets are getting bored of it – which means the consequences could be even more volatile! That could double up No-See-Um Risks.

LINK TO PODCAST

Let the picture tell the story …. Trump lapping up the crowd’s adulation presiding over the gladiatorial Ultimate Cage-Fighting blood-fest in Miami, even as JD Vance was struggling to be rebuild American diplomatic credibility in Islamabad. Interesting times ahead.

Where will markets go from the weekend just past….? This morning stocks are crashing and oil is soaring. When you are digging yourself into a hole, you need someone to tell when it’s time to stop. Trump…. well, he just keeps on digging.

Last month I wrote half-joking: “My fear is someone might tell Donald Trump he’s missing a trick here. China takes nearly 40% of Gulf Oil – which we know is largely discounted as much of it is Iranian! What if Trump makes the connection and triggers an even deeper trade war? (Which past experience over rare earths reminds us he can’t possibly win.)”

On Sunday, Trump decided to escalate the war and extend an American embargo on any ships coming out of Hormuz. While a blockade will impact Iran financially, it means more economic pain for Asia which takes the bulk of the freight. Trump just declared a trade war on Asia…  which will push up prices for everyone. I can just imagine how China will react – stop rare earth deliveries, or maybe even a blockade of Taiwan – which would create a Western economic bust on Chip shortages. Why not? Trump has decided international law only applies to lesser nations.

War planners have warned Emperor Xi of China will have been watching the war carefully. On one hand he’ll have noted the prowess of the superbly trained US aviation assets (and be fearful China may not perform so well), but also that US war stocks are run down, the US Navy is now overcommitted to the Gulf, and take a view that some sabre rattling to destabilise the USA ahead of midterms and the successful visit of a Kuomintang leader to Beijing, makes action an option. But I expect Xi won’t go too far – he doesn’t need to; “never interrupt Trump as he makes mistakes.” 

Trump’s blockade will also end any likelihood of European support for the Iran war.

Why would Europe support this US blockade when it is so obviously not in their interest to do so? South East Asian economies are the fastest growing on the planet and home to billions of people who are becoming more prosperous. The bulk of the World’s middle classes now reside there. That is a market Europe needs to be engaged with – not imposing an oil recession upon! (That said the UK is sending back minesweepers to the Gulf.)

The upside over the weekend was the democratic quietus of Victor Orban by the Hungarian electorate. Orban’s kleptocracy ransacked Hungary while doing Putin’s bidding. He did more than anyone to divide and diminish the potential of an aligned European polity than anyone. Now he’s gone Europe can move forward to fund and support Ukraine. The challenge remains to overcome Europe’s factionalism, inherent bureaucracy and regulation, and move towards becoming effective union of aligned nations – sounds simple, but the tribes haven’t agreed on much over the last 1000 years.

Was anyone particularly surprised Iran and the USA failed to find common ground over the weekend? Is anyone surprised Trump is lashing out at any all, and making noise about Greenland again? It’s all noise. There is no point fashing about the rising tumult. Worry about the consequences, how the waves will break on markets and reverberate around the global economy. It’s always about consequences – the ones we foresee, but especially the ones that catch us unaware.

• There is the clear risk the market mood shifts away from buy-the-dip /AI boom time narratives towards long-term dislocation roiling inflation and interest rate expectations. (On the other hand, traders are getting bored by Trump’s chaos – and discounting the up and down of his actions.)
• A ceasefire that would leave the Iran regime in place, more empowered that it was before the war, making the region and thus oil markets less stable.
• A trade war on Asia raises all kinds of threats.
• The known unknowns of what happens next: supply chain dislocations, food inflation, increased social instability, geopolitical opportunism and global conflict risks.
• What will be the no-see-ums. Periods of shock always raise unforeseen consequences. While we watch Iran – what are we missing?

And somewhere between the known-unknowns and the no-see-ums are outcomes for America.

The big question is how will Trump extract himself from this unwinnable war? The only way out – without the unpalatable option of “boots on the ground” – is the hope of a ceasefire compromise and that the Iranian people then rise up and overthrow the theocracy and IRGC. However, probability markets show very low likelihood that happens: < 1% in the near future, rising to 13% in the medium term.

Trump promised a laudable goal – removing Iran as a threat – but execution is everything. This morning it looks a right mess. What will it mean for politics and the looming mid-term elections? What will it mean for the currency, the treasury market, US stock exceptionalism? Trump has dressed up his war in high-intentions, but it has cost America strategic alliances and soft-power. When confidence in a nation’s political competency starts to unravel… that’s when it’s time to be wondering who might be shorting its bonds.

There are three legs to a nation’s “Virtuous Sovereign Trinity”. VST is a very simple model to think about in global markets – if any of the three legs goes wobbly, the whole stool tends to fall over.

1. The first leg is currency stability. The dollar’s “exorbitant privilege” and status as the defacto global medium of exchange was a critical driver of US success during the American Century.
2. The second is a sustainable bond markets – does the nation have unfettered access to global markets? That’s a concern when the annual financing need is $14 trillion plus, and there are rising concerns of a global T-Bond buyer strike.
3. The third is political competency… and that’s why the US is increasingly under the microscope.

Why do empires rise and fall every 2K (120 year) cycle? Some nations bankrupt themselves (like France and Spain), some end in corruption (Rome), some are exhausted (The UK), some price themselves out through their success. In the case of the USA, it’s been a remarkable American century. The American age made the whole world richer. But offshoring, globalisation, trade liberalisation and the WTO have enabled the rise of rivals, most notably China, while domestic corporate success has widened economic and wealth inequality – as we are clearly seeing now in the USA. These are costs of success.

The question is could America retain its position as leading economic power and global hegemon? From an investment perspective that could be through continued Tech leadership and innovation – which requires attracting the best minds into the USA and US firms – to maintain the thread of American exceptionalism in areas like AI, Quantum, Energy and Space.

The argument for political weakness is not about Democrats vs Republicans. It’s about undeliverable populism which promises to restore American success by punishing the rest of the World. The thesis is very simple – Trump has increased the likelihood of American failure thru the policies and choices he has chosen. Ultimately, his style of government has negatively impacted the confidence of global investors in the US – setting up for a clear wobble on the VST Political Competency Leg. Trump is not the cause of 2k instability or economic evolution – but he is a symptom of the process. He is a populist who rose to power promising those “left behind” he can reverse widening wealth and opportunity inequality – but who has made things dramatically worse.

Trump isn’t to blame from the USA’s lack of supply chain resilience, the collapse of domestic shipbuilding, or how China has “used” Western tech to raise itself up by becoming the manufacturer of everything. But the tone of his leadership is raising doubts. His policies and the way he executes them is the crisis – and making it much easier to bet against America.

I am sorry to be blunt – but I suspect the bets against Trump will continue to mount:

• The USA’s $39 trillion deficit requires $12 trln annual refinancing, plus an increasing amount for the rising deficit ($2trln this year). Such a hefty debt load was more sustainable in a world where the “dollar exorbitant privilege” meant the pool of global dollars financing every global trade was invested into US T-Bills and Bonds. That is no longer case. China pays for its raw materials in RMB. And the US deficit is set to soar – $1.5 trln on defence is a 50% increase.
• Whatever happened to DOGE?
• Before he was dispatched to be the scapegoat for the failed Pakistan talks, JD Vance was in Hungry – interfering in domestic elections of a foreign nation to ensure the election of Victor Orban – a self-confessed enemy of Europe. Next to Putin, Orban has done more to destabilise Europe than anyone as a blocker. De facto, the Trump administration pursues a political policy deliberately aimed at creating disruption in Europe. Explain?
• Tariffs were a terrible idea – they hurt US consumers and exporters and made the rest of the world angry.
• The threat to central bank independence is another own Goal – discouraging global investors by raising doubts.
• The naked graft we’ve seen front running announcements, and across govt contracts, bodes badly for the USA. The Rule of Law is rule 1 of successful capitalism. Look at Russia to see how well state kleptocracies fare.
• Europe is profoundly negative on Trump. That has implications for US tech. Look how regulation is becoming protectionist vs US firms.
• China has a great trade hand – controlling rare earth supply and processing, and with an even greater control over the south China seas now that 25% of US war stocks have been expended in the Gulf.

Is the Trump edifice about to crack? He has stirred the Hornet’s Nest – thinking his dealmaking and strength is a virtue. But the consequences he’s triggered on a rapidly changing geopolitical picture, roiling the global and domestic economy, and further polarising US politics are coming back to bite him.

What happens if/when Trump is hammered in November?

Remember, it’s the No-See-Ums that hurt the most.

Out of time….

Bill Blain

Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital

(My New Book – The Battle For Hamble – a tale of corporate greed, bad planning, economic illiteracy and plucky Hampshire villagers, It out now and available on Amazon. Please give it a read and post a review.)