At the end of World War II, the United States accounted for more than half the world’s economic output and gold reserves. The United Kingdom was effectively bankrupt, with the remnants of the sterling area bound together by capital and trade controls. Once the British pound became convertible in July 1947, owing to US insistence, it succumbed to overwhelming selling pressure. The dollar, which was pegged to gold at $35 an ounce, was buoyed by America’s privileged position within the newly formed International Monetary Fund and quickly established itself as the bedrock of global trade and finance.

Five years into a once-unthinkable trade war with China, US Treasury Secretary Janet Yellen chose her words carefully on April 20. In a wide-ranging speech, she reversed the terms of US engagement with China, prioritizing national-security concerns over economic considerations. That formally ended a 40-year emphasis on economics and trade as the anchor to the world’s most important bilateral relationship. Yellen’s stance on security was almost confrontational: “We will not compromise on these concerns, even when they force trade-offs with our economic interests.”

Financial markets are grounded in trust. When trust falters, dislocation follows. Panic in short-term financing markets in the United States could ignite a larger crisis in the overall economy, creating a vicious circle that undermines growth.

The year 2023 represents a turning point. If economic realities guide global prospects, it will be a positive turnaround. If geopolitics will continue to penalize economic prospects, a negative inflection point is more likely.

We are living in a very different world. Shifting macroeconomic trends including diversification and second sourcing because of de-globalization and de-coupling have significant implications for the global economy. The strategic competition between the United States and China and other major geopolitical developments will fundamentally shape the world we live in.

The American economy will inevitably experience a Volcker-style contraction — think early 1980s — and it will have a global impact. Today’s inflation is stubborn and structural, and it will be virtually impossible to bring it down to 2 percent without tipping the economy into recession.

Doing the math, we find that Chinese GDP looks better and the United States looks worse for last year than has been reported in some quarters. The U.S. is paying a steep price with its bloated money supply. Now it’s facing interest rate hikes to control inflation.

Recently, the IMF downgraded global growth prospects, due to projected slowdowns in the U.S. and China. Negative prospects could be overcome with the right policies, such as trade cooperation. The current ones support stagflation.

Some things were expected; others were not. Smooth and orderly growth next year will depend on the Biden administration’s coordination of fiscal and monetary policies. The administration will have limited room to maneuver next year. The U.S. economy will grow at a modest rate, but volatility will remain.

With its internal contradictions, the “Biden Doctrine” is fostering Trump-style China wars, while its military overreach is paving the way to debt crises.