When America sneezes, the whole world catches cold. Three times in history, the US has unleashed a shock that has rocked the entire planet.

First there was the Wall Street CrashA major stock market crash in the United States which began in late October 1929. of 1929, which ushered in the Great Depression and helped catapult the Nazis into power. Then the Nixon shockEconomic actions taken by President Richard Nixon in 1971 that eventually led to the collapse of the Bretton Woods economic system. of 1971, when the US cancelled the gold standardThe system, abandoned in the Depression of the 1930s, by which the value of a currency was defined in terms of gold. and let loose waves of inflation on Europe.¹ Then the financial crisis of 2008.

Now we are witnessing a fourth global shockwave: what Donald Trump calls Liberation day.

Yesterday, the US president announced that the US will impose reciprocal tariffsA form of tax on imports. on other countries around the world, which amounts to a sweeping hike in taxes on all imports.

Depending on where you stand, this is either a moment of extraordinary, self-destructive madness, or the boldest gambitAn act or remark that is calculated to gain an advantage. by any world leader in living memory.

The former argument goes something like this. The whole world economy has been organised for the convenience of the US financial sector.

This is because the dollar is treated as a global reserve currencyA foreign currency that is held in significant quantities by central banks or other monetary authorities as part of their foreign exchange reserves., meaning other countries all have to keep a stash of dollars on standby. To do this, they have to buy them from US financial institutions.

This keeps massive flows of wealth constantly circulating through Wall StreetA street in New York City's financial district. The term "Wall Street" is now used to discuss US financial markets as a whole. , which in turn makes the US financial sector the most attractive place for global investmentWhen you put money into a project or idea in the hope it will be successful in the future. . This is one of the most important engines of the US economy.²

Trump's tariffs threaten to blow this system to smithereens. Tariffs will likely make the dollar more expensive. Investment in Wall Street will drop. Worried about US capriciousnessThe quality of being characterised by or liable to sudden, unpredictable changes in attitude or behaviour., other countries will look for different trading partners, and they will find an eager one in China.³

Trump, this group says, is calling time on a century of US global economic leadership and ceding the ground to its biggest rival.

The pro-tariff argument actually begins from the same place. The global system may boost Wall Street, they argue, but it has done little for the wider US economy.

US manufacturing, once the envy of the world, has crumbled, devastating large areas of the US that used to rely on it for jobs. And to keep money flowing into Wall Street, the US has run massive budget and trade deficitsThe amount by which something, especially a sum of money, is too small., racking up eye-watering debt and flooding their own consumers with cheap imports, which further harms manufacturing.

But Wall Street does not care about ordinary Americans' jobs. They have squashed any effort to restore manufacturing through tariffs or subsidiesMoney given by the state or another body to help keep prices low. , fearing that this will reduce their own profits. The financial tail, this group argues, is wagging the US dog.

So Trump's plan, they suggest, should be seen as a revolution by manufacturing America against financial America.

He knows the tariffs will cause some economic pain, but he thinks it is worth it if in the longer term it means that the US starts making and exporting things again.

As for the rest of the world, Trump believes fealtyA feudal tenant's sworn loyalty to a lord. to financial interests has prevented the US from making full use of its economic clout. Now his tariffs will form the basis of a new global deal.

He wants to use them to force other countries to raise the value of their own currencies to make US exports cheaper, and wring investments out of key manufacturing rivals, like Germany and China. Countries that comply will get an exemption from the tariffs. A smooth global system will be replaced with brute economic force.

Will 'Liberation day' transform the world?

Yes: This move promises to upend a global economic system that has been in place for more than 50 years. We are entering a world that will be unrecognisable for most of us.

No: This will probably end up being a damp squib. The economy will adapt, and if it does not, Trump will be forced to walk back on his tariffs to avoid losing the midterm elections.

Or... It will take a few years for a new order to develop, but the long-term result could be positive: a global economy that is more decentralised and less dependent on the US financial giant.

Wall Street Crash - A major stock market crash in the United States which began in late October 1929.

Nixon Shock - Economic actions taken by President Richard Nixon in 1971 that eventually led to the collapse of the Bretton Woods economic system.

Gold Standard - The system, abandoned in the Depression of the 1930s, by which the value of a currency was defined in terms of gold.

Tariffs - A form of tax on imports.

Gambit - An act or remark that is calculated to gain an advantage.

Global Reserve Currency - A foreign currency that is held in significant quantities by central banks or other monetary authorities as part of their foreign exchange reserves.

Wall Street - A street in New York City's financial district. The term "Wall Street" is now used to discuss US financial markets as a whole.

Investment - When you put money into a project or idea in the hope it will be successful in the future.

Capriciousness - The quality of being characterised by or liable to sudden, unpredictable changes in attitude or behaviour.

Deficits - The amount by which something, especially a sum of money, is too small.

Subsidies - Money given by the state or another body to help keep prices low.

Fealty - A feudal tenant's sworn loyalty to a lord.