Donald Trump’s inauguration marks a global inflection point: He takes office at a moment when many analysts see a transition to a new economic and political order — one where the risks for the United States and its allies are likely to increase.
Trump’s promise to “make America great again” resonated with many disaffected voters at home. But abroad, it created fear that the United States’ global power is receding, with China and Russia moving to fill the vacuum. Analysts forecast a new era in which the U.S.-led, post-1945 global order, which brought unparalleled economic growth, will be replaced by a structure whose rules and rewards aren’t yet clear.
Financial markets have so far been surprisingly steady, given the rising uncertainty and risk levels. But outgoing Treasury Secretary Jack Lew cautioned in a recent interview: “In an economy where confidence is one of the factors that leads to investment, and uncertainty and political instability undermine confidence, there is a real risk that the cumulative amount of political instability in the world slows down investment.”
Trump has embraced the breakup of the old order. He has criticized NATO as “obsolete” and predicted the European Union’s demise — challenging two crucial allies in America’s network of power. He has talked of imposing tariffs on imports not just from China, but from Germany, too, raising fears of a global trade war. He has promised a revival of U.S. manufacturing jobs that many economists argue can’t be restored without disrupting other parts of the economy.
“Wait and see” is always a good rule on Inauguration Day, but we’ve never had a president quite like Trump, with so many disruptive ideas and so little experience. Change is his political brand. If he carries through on what he has talked and tweeted about, he will reshape the framework of global economic and security relationships — for the worse, I fear.
Trump was elected with a minority of the popular vote, and his behavior since Election Day has lowered his popularity. But with Republican control of the House and Senate, he’ll probably be able to enact major changes quickly. He has proposed big infrastructure spending but also large tax cuts. The result could produce a sharp increase in the deficit similar to what happened during the early Ronald Reagan years.
Lew cautions about the financial consequences of such populist economics: “We know from history that decisions that are made to pursue a less disciplined path can sometimes take place very quickly, but they tend to have very long tails.” Restoring discipline requires a bipartisan cooperation in Congress that was present during Reagan’s tenure but has now disappeared.
Trump’s vision that the old order is cracking is shared by many leading foreign policy analysts. But they’re less sanguine about its consequences. The revolt against economic globalization has boosted right-wing nationalist politicians in the United States and Europe. The real beneficiaries may be Russia and China, which seek to replace the U.S.-led system.
This theme of risky transition was explored in “Global Trends,” a report published this month by the National Intelligence Council. “The next five years will see rising tensions within and between countries. . . . An era of American dominance following the Cold War [is ending]. So, too, perhaps, is the rules-based international order that emerged after World War II. It will be much harder to cooperate internationally and govern in ways publics expect.”
A similar grim assessment was offered this month by the Rand Corp. In a study titled “Strategic Choices for a Turbulent World,” Rand described a global tipping point: “The post-Cold War period is over. While historians may argue about the timing, it has become clear to most foreign-policy practitioners that the world has entered a new era, a complex age of turbulence and opportunity.”
A “Come Home America” strategy similar to what Trump proposes would narrow U.S. goals and influence “in exchange for limiting U.S. exposure to a more unstable world,” the Rand report argued. Russia and China would seek to benefit, and although Russia has long-term economic troubles, “declining powers can sometimes be the most dangerous.”
Trump has a big vision of deals with Russia, China and Europe that could redraw the terms of trade and rebalance an unstable world, to America’s benefit. And he’s the leader, now, of a worldwide movement against a globalization that disproportionately benefited elites in the United States and Europe. But as Lew says, this “anti-expert, anti-elite mood . . . doesn’t change classical economics.”
Trump now owns responsibility for shaping a world in turmoil. And the United States owns the stark reality that Trump is president.
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