INTRODUCTION

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The third quarter of 2025 unfolded under the shadow of what we call the Kindleberger Trap – a dynamic first identified by economic historian Charles Kindleberger in his seminal work on the Great Depression. His warning was clear: when the global economic hegemon retreats and rising powers are either unwilling or unable to assume leadership, the world drifts toward fragmentation, liquidity shortages, and self-reinforcing crises.

Today, that trap looms large once again. The established economic order is fracturing as protectionism spreads, trade flows recede, and fiscal orthodoxy gives way to policy improvisation. What begins as tariff retaliation and industrial subsidy quickly morphs into capital scarcity, shrinking liquidity, and ultimately, a loss of global coordination. In this sense, Q3 marks another step along the path from inflationary anxiety to deflationary vulnerability.

In this letter, we explore three dimensions of this transition:

On Politics and Policy:
The global economy is entering a new age of mercantilist rivalry. Tariffs, subsidies and industrial policy have become the main instruments of power. Yet fiscal capacity is eroding — especially in the U.S., U.K., and Europe as debt-servicing costs climb and elections heighten political uncertainty. The outcome: a world of higher political risk premiums and greater reliance on fiscal activism to sustain growth.

On Inflation:
Beneath the surface of “sticky inflation,” the deflationary undertow is growing stronger. The first-round effects of tariffs may lift prices, but retaliation and contracting trade volumes are inherently disinflationary. We argue that the global system is edging toward a Kindleberger-style feedback loop — falling trade, falling liquidity, falling demand — the very conditions that deepened the 1930s downturn. Financial repression, in this context, is not a policy choice but an inevitability.

On Economic Growth:
Global growth remains modest at 2–3%, but fragility is rising. The U.S. still looks resilient, yet cracks are spreading through the labour market, and downgrades are accumulating. Meanwhile, opportunity is emerging where few expect it: in Europe, where rising defence spending could spark a long-overdue innovation cycle, and in China, where targeted support for private-sector technology and entrepreneurship is quietly reshaping sentiment.

Taken together, these themes form a coherent narrative: the world is shifting from an era of abundance and integration toward one of fragmentation and scarcity — not of capital, but of confidence. For investors, the message is to prepare for a regime defined by policy-driven markets, asymmetric risks, and selective opportunity.

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