The Great Rebalancing: Why Everything Feels Like It's Breaking—and Why That's the Point - Nicola Calicchio (X)

 “The Great Rebalancing: Why Everything Feels Like It's Breaking—and Why That's the Point.”

Nicola Calicchio

The Long View, on X

"You can ignore reality, but you cannot ignore the consequences of ignoring reality." Ayn Rand

This isn’t collapse. It’s correction. The post-Cold War model—cheap labor, endless credit, hollowed industry, low defense, and high-margin illusions—was always brittle. It’s only now being recognized as unsustainable.

The system buckled under its own contradictions: surging debt, industrial decline, military neglect, energy dependence, unchecked migration, domestic fragmentation, and deep reliance on geopolitical adversaries. These aren’t isolated crises—they’re the recoil from a design that optimized for efficiency and ignored resilience.

This recalibration touches nearly every domain: supply chains hardened against disruption, defense commitments finally honored, energy dependencies unwound, migration pressures finally acknowledged, and a domestic reckoning with inequality long ignored. These are not isolated crises; they are symptoms of the same system aging out of its illusions.

The Great Rebalancing is not a return to nationalism or the end of globalization. It is its maturation—an effort to align values with resilience and strategy with sustainability. What comes next may be messier and slower, but it will be more honest. And it may, in time, prove more stable.

I. From Cheap Goods to Expensive Truth

For thirty years, Western leaders sold a singular narrative: globalization was inevitable, growth was constant, and efficiency was the highest good. When jobs moved overseas, they pointed to lower prices. When manufacturing vanished, they promised retraining. When debt ballooned, they called it investment.

And for a time, the illusion held. The fall of the Soviet Union and the economic liberalization of China created a one-time shock to the global labor market. Hundreds of millions of workers—previously outside the capitalist system—entered the global supply chain almost overnight. When China joined the WTO in 2001, it turbocharged a race to the bottom in wages and labor standards. Western consumers got cheaper goods; Western workers got pink slips. It was a bargain few voted for, and even fewer understood at the time. China’s WTO accession, cheap energy from Russia, and a demographic dividend kept the gears turning. But it was borrowed momentum—and now the momentum has run out.

A $20 trillion debt binge in the U.S., capped by $5 trillion in COVID stimulus, kept the illusion alive a bit longer. Markets soared. Wages stagnated. The disconnect between headline prosperity and lived experience grew so vast that when the correction began, many mistook it for collapse. In truth, it was reality finally catching up.

II. The Six Cracks in the Foundation

1. Trade, Debt, and the Hollow Middle

"We overdid globalization. We assumed markets could solve every strategic problem." Larry Summers, former Treasury Secretary (2022)

The U.S. economy evolved toward consumption, importing goods and exporting debt. Trade deficits averaged 4–5% of GDP for two decades. Fiscal deficits ballooned. Meanwhile, the middle class—once the ballast of the system—began to unravel.

Real wages flatlined. Manufacturing employment dropped from 19 million in 1980 to under 13 million by 2020. The wealthiest 10% now own more than two-thirds of all household net worth, while half of Americans can’t cover a $500 emergency.

Inequality doesn’t just erode trust—it weakens demand, depresses productivity, and destabilizes democracies. A consumption-based economy cannot thrive when the middle class is living month to month. Economic inequality is not a byproduct.

What made this erosion even more galling for many Americans wasn’t just offshoring. It was being told to accept it with gratitude—only to then face layoffs, stagnation, and, in the final insult, be passed over in their own country by less qualified candidates in the name of Diversity, Equity, and Inclusion. Losing a job to someone overseas willing to work for pennies was a tough pill. Being told you weren’t the right demographic for a job you were qualified for felt like betrayal. For many, DEI wasn’t just policy—it was the final straw. It is the system’s most enduring feature—and failure.

2. Defense and Strategic Dependence

"We must reduce our dependencies—not just on energy, but on all strategic materials. Europe must recover sovereignty." Emmanuel Macron, French President (2023)

Europe enjoyed a peace dividend while the U.S. bore the cost of NATO. By 2014, only three countries met the 2% defense spending target. Then came Crimea. Then came Ukraine. Germany, long allergic to military spending, reversed course—first with a €100 billion rearmament fund, then with a sweeping €1 trillion modernization plan.

What pundits called diplomatic failure—a contentious Trump-Zelensky press conference—delivered what decades of quiet diplomacy did not: European burden-sharing. The optics were ugly. The outcome was exactly what Trump wanted.

3. Energy: Naivety Meets Necessity

Germany’s decision to shutter its nuclear plants and deepen reliance on Russian gas was a masterclass in contradiction. By 2020, over half of its gas came from Russia. Then came war, and with it, crisis. Prices soared. Factories faltered. The scramble to LNG, reconsideration of nuclear, and pivot to renewables exposed a dangerous truth: Europe’s energy policy had confused aspiration for strategy.

The climate transition remains vital, but it must be built on geopolitical realism. No serious decarbonization effort can afford to be this brittle.

4. Supply Chains and the China Reckoning

"We've been naïve. China is weaponizing economic interdependence." Gina Raimondo, U.S. Commerce Secretary under President Biden (2023)

The pandemic was not just a public health emergency—it was an X-ray of systemic fragility. Essential goods vanished. Just-in-time became just-too-late. The world rediscovered that efficiency without slack is fragility by design.

But the weaknesses in global supply chains weren’t just economic—they were geopolitical. At the center of the world’s production model sat China, a state increasingly willing to use its economic power as leverage. China engaged in massive intellectual property theft, forced technology transfers, cyberattacks on U.S. infrastructure, and aggressive surveillance programs. It embedded spy chips in American hardware, launched surveillance balloons over U.S. territory, and expanded its naval footprint across the South China Sea.

These weren’t isolated incidents. They were systemic signals. And for decades, U.S. policy largely overlooked them—treating the relationship with China as a matter of market access rather than national resilience. By the 2020s, that illusion had collapsed.

Now, reshoring and friend-shoring define corporate strategy. Governments are backing domestic production in semiconductors, medicine, rare earths, and defense inputs. What began as cost optimization is ending in strategic reconstitution—driven not only by efficiency but by the recognition that national security and industrial autonomy are inseparable.

5. Migration Pressures and Cultural Strain

Mass migration defined the 21st century’s opening decades—driven by war, economics, and demographic imbalances. The U.S. saw over 20 million new arrivals between 2000 and 2024. Europe absorbed more than 30 million migrants over the same span.

In places like Sweden, foreign-born populations now exceed 20%. In the U.S., the foreign-born share is near a century-high. Initial optimism has given way to strain: on housing, integration systems, and public trust. Migration, once framed in purely economic terms, has become a litmus test for national identity and democratic stability.

6. DEI and the Turn Inward

"Equity used to mean fairness. Now it means 'we discriminate the other way.'" Bill Maher (2022)

If globalization outsourced jobs abroad, Diversity, Equity, and Inclusion (DEI) reframed competition at home. For many workers, especially those displaced by trade or automation, DEI policies felt like a second wave of dispossession—this time not by corporations chasing cheap labor, but by institutions prioritizing identity over merit.

Programs that had once focused on opportunity morphed into mandates that many viewed as arbitrary quotas. Layoffs were followed by workshops. Training sessions replaced raises. People already struggling to stay afloat were told that their experience was less relevant than their demographic profile.

The backlash was not merely political—it was personal. A system that had already asked them to accept industrial decline and wage stagnation was now telling them they were privileged and expendable. For many, this shift did not feel like progress. It felt like erasure.

What DEI revealed, in stark terms, was how deeply fractured the social compact had become—not just between classes or regions, but within workplaces, schools, and communities themselves. It marked a transition from outsourcing to internal conflict—from global dilution to domestic fragmentation.

7. The Interest Reckoning

“The first step toward wisdom is calling things by their proper names.”

 —Confucius

The U.S. national debt has surpassed $34 trillion (125% of GDP). Annual interest payments alone now exceed $1 trillion—more than the entire defense budget. And with current rates above 4%, those costs are only accelerating. This isn’t a temporary spike. It’s the compounding result of decades of fiscal neglect and politically expedient promises.

Unfunded liabilities—Social Security, Medicare, and Medicaid—add another layer of instability, with long-term obligations estimated at over $100 trillion. These programs, once sustainable, are now demographic time bombs. The math doesn’t work, and everyone knows it.

Even if interest rates fall from current levels, the damage is already baked in. The average interest rate on existing federal debt remains below 3%, meaning that as older bonds roll off, interest expenses will climb further—even in a declining rate environment. This path is now locked in. What comes next is either discipline—or crisis.

III. When the Wrong Man Got It Right

"The people have not revolted. They’ve been ignored." Peggy Noonan

For decades, Western leaders told their populations what they needed—more openness, more trade, more tolerance for disruption—while ignoring what people were actually saying: that jobs were disappearing, communities were unraveling, futures were growing less secure. The numbers looked good. The reality didn’t. When voters pushed back, they were told they didn’t understand economics. When they said they didn't recognize their communities anymore, they were called xenophobic, or worse, racist.

Trump was their response. Not because he listened carefully—he didn’t—but because he at least acknowledged the grievances others had dismissed. He wasn’t subtle, and he wasn’t surgical, but he aimed squarely at the broken parts of the system. And whether through jokes, provocation, or sheer force of will, he moved things that had long refused to budge.

Critics called it chaos. But step back, and the pattern emerges: Trump, in his bombastic and often polarizing way, pushed directly on each fault line.

“There are decades where nothing happens, and weeks where decades happen.”

Vladimir Lenin

The speed of disruption caught many off guard. Popular media has misinterpreted much of it—because they were still trying to fit new outcomes into old frameworks. There is a lot to discuss. Popular media has largely misinterpreted a good bit of what has happened.

On defense, the infamous Trump-Zelensky press conference was cast as a diplomatic disaster. Yet within weeks, Germany passed a €1 trillion defense and infrastructure package—the most significant military investment in Europe in generations and precisely the kind of burden-sharing Trump had demanded for years.

On migration, Trump took executive action, deployed over 10,000 troops to the border, and effectively slowed illegal entry to the lowest level in years. He also negotiated directly with Mexico, leveraging tariff threats to secure unprecedented cooperation. Within days, Mexico deployed over 15,000 troops to its southern border and agreed to hold asylum seekers under the 'Remain in Mexico' policy—a significant shift in regional enforcement that helped blunt cross-border flows. By contrast, the Biden administration oversaw more than 2 million border encounters annually and, in some cases, flew in over 300,000 migrants via parole programs, bypassing traditional immigration channels.

On great power competition, Trump aimed to decouple from China economically while preventing a full strategic alliance between Beijing and Moscow. Under Biden, that separation collapsed—culminating in a growing axis between China and Russia (though he did keep pressure on China banning everything from chips to TikTok). While Trump's overtures to Russia drew criticism, they reflected a clear strategic priority: keep America’s top adversaries from forming a unified bloc.

Critics often missed the point on Chinese tariffs. This wasn’t about trade policy. Trump saw China not just as a competitor but as a geopolitical adversary. The tariffs, export controls, and industrial reshoring weren’t separate efforts; they were part of a broader strategy to reduce leverage and reassert autonomy. They were not economic tweaks—they were political signals, designed to realign strategic relationships and re-anchor national sovereignty.

On tariffs broadly, the goal isn’t just protection—it’s revenue. As Scott Bessent has noted, a well-structured tariff regime could generate $300–600 billion annually—roughly 1–2% of GDP. That alone wouldn’t close a 6% deficit, but it would be a meaningful down payment. It’s unconventional, yes. But in a system addicted to debt and allergic to discipline, it may be worth the experiment—especially if paired with broader spending restraint and tax reform. Achieving that kind of revenue would likely require an average tariff of 10–20% on total imports—lower for allies like Mexico and Canada, moderate for most trading partners, and sharply higher for strategic rivals like China.

Some of Trump’s most unconventional gestures—talks of buying Greenland, pressuring Panama over the Canal, and renaming the Gulf of Mexico—were mocked as absurd. But each pointed to a larger strategic message: the U.S. must reassert control over its hemisphere. Melting Arctic routes will become vital shipping lanes. China’s presence in Panama is a geopolitical liability. And the Americas, in Trump’s view, should remain a U.S. sphere of influence—not an open field for rivals.

On trade and industrial policy, Trump was mocked for demanding the return of American manufacturing—but that’s exactly what Biden’s Inflation Reduction Act and CHIPS Act have attempted to deliver. Tariffs that were initially derided as economic folly generated billions in revenue and signaled that American industrial decline was not a law of nature. What began as populist disruption has become bipartisan industrial strategy: both parties now converge on the idea that globalization’s costs need to be managed, not ignored. The rhetoric differs. The policy outcomes, less so.

On DEI and cultural fragmentation, Trump moved beyond rhetoric. He ended Obama-era diversity training programs in federal agencies, barred transgender individuals from military service, and slashed USAID funding for international gender and identity initiatives. His administration promoted merit-based hiring and reframed federal policy around neutrality over identity. While critics saw these as regressive, they resonated with voters who felt sidelined by institutional overcorrection. It wasn’t just culture war. It was policy.

This wasn’t 4D chess. But people forget—Trump is playing a game, and he has a plan. His delivery is intentionally provocative because it forces engagement. No one is reading a 40-page CFR white paper. But an inflammatory tweet? That dominates the national conversation for days. In a fractured media ecosystem, disruption is the message.

And so the question becomes: can disruption yield direction?

IV. Where Do We Go From Here

“No society ever thrives because it had a visionary plan. It thrives because it corrected its mistakes.”

 —David Brooks

Trump’s economic agenda isn't just about tariffs. It emphasized energy independence, domestic manufacturing, deregulation, meritocracy, and tax reform—all aimed at reshaping the underlying conditions that hollowed out the middle class. While critics debated his delivery, the through-line was unmistakable: put the western world on a more sustainable path.

The Great Rebalancing is not reactionary. It is corrective. It is what happens when the scaffolding of denial collapses. Debt has limits. Dependence has costs. A system built on abstraction must eventually account for the physical, social, and strategic realities it ignored.

This is not a rejection of global integration. It is a shift toward global realism. Supply chains will still stretch across borders—but they will be shorter, more redundant, and politically aligned. Alliances will persist—but the costs will be shared. Economies will still pursue growth—but not at the expense of durability or legitimacy.

If the 1990s promised a frictionless world, the 2020s are delivering its reckoning. What comes next will be slower, more complicated, and demand harder choices. People won’t like it. And politicians will likely delay—because the very actions required to fix the system are the ones that lose elections.

Ultimately, this isn’t collapse. It’s correction. And we’re only just getting started.