It’s tempting to point a finger toward President Trump, and he’s certainly part of the story: His escalating trade war with China, his use of tariffs against both friends and foes, his withdrawal from the Iran nuclear deal and even his hot-and-cold re-engagement with North Korea have help push global politics off its axis.
But the world’s troubles are more complicated than any one American president could create. Trump isn’t the reason the United Kingdom voted in 2016 to leave the European Union, or why the British now face a constitutional crisis. Trump isn’t the reason that more than 70 million people around the world are refugees, asylum seekers or are otherwise displaced; that Germany’s establishment parties are at their weakest in the Postwar Era; that Italy struggles to keep governments together; or that populists on the left and right are winning support in the world’s advanced industrial democracies.
The old American-led world order is unwinding. Trump isn’t the cause. He’s merely its most visible symptom.
We think of recessions in terms of economic indicators, and we assume that companies do, too. We expect them to calibrate their decisions about equipment purchases, hiring and supply chains to the movements of market forces, currency fluctuations and political predictability. And, of course, they do. But there’s something now going on that transcends Trump’s miscalculation on tariffs or the weak stimulus of his 2017 tax cuts.
“When leaders make choices that foster certainty, businesses have the confidence to invest, hire, grow and, in turn, drive the economy,” wrote Thomas J. Donohue, chief executive of the U.S. Chamber of Commerce, arguing in a Washington Post op-ed late last month for an end to Trump’s tariffs. Predictability is in short supply, at home and abroad, these days. Trump is contributing to that. The rest of the world now contends with an American president who wants to govern unilaterally in a global system that wasn’t designed for that.
But whenever Trump leaves office, the world won’t snap back to a moment of seeming post-Cold War clarity, when U.S. power gave Washington a dominant global influence. The United States will not reemerge, post-Trump, as the world’s policeman, trade architect or cheerleader for small-“L” liberal values again. Nor will the United States again blaze the path for a free trade agenda that many Americans blame for the loss of manufacturing jobs or write the standards that govern use of the world’s emerging technologies. The American-led world order has been fracturing for a generation, and business decision-makers have begun to take notice.
In recent weeks, the word “recession” has once again appeared in print and echoed across the airwaves. Analysts, reporters and politicians still use the term to mean that familiar phenomenon that comes and goes and comes again, a dip in the business cycle as natural and expected as a change in phases of the moon. The trouble is that they’re talking about a textbook recession: a temporary decline in economic growth. Today’s true worry is a geopolitical recession, a storm forming for nearly a decade. The Pax Americana phase of history, when many assumed the United States would indefinitely stand astride the narrow world like a colossus, has given way to a G-Zero world, one where the old Group of Seven table no longer defines the world’s balance of political or economic power, and one in which economic benefits don’t flow as readily toward America.
The postwar Bretton Woods international economic system, championed by Washington, was designed in part to help the world rebuild from a devastating war, and later to offer newly independent states a path toward prosperity not dependent on indefinite support from former colonial powers. It was also created to grease the skids for American business by giving U.S. policymakers a big say in ensuring that economic systems in these countries were cast in an American image and open to U.S. trade and investment. American aid and the promise of access to American consumers gave Washington enormous international clout.
Yet the world’s balance of force is no longer nearly so clear. Voters in the United States and Europe are preoccupied with local and national, not international, worries. China has grown from poverty to power, and it now offers the world alternative models of trade, investment and politics. Global governance is now at its least coherent point since World War II, and individual governments are much less equipped to deal with international crises.
Businesses have ignored this emerging reality in recent years, but now this lack of direction and confusion about the future have become unavoidably obvious. Trump’s erratic policy swings have brought these realities into the open and, yes, exacerbated their effects, but suspicion of trade and an America First attitude have champions in both parties. (It was Sen. Bernie Sanders (I-Vt.), not Trump, who pushed 2016 Democratic presidential nominee Hillary Clinton into retreat on her pro-trade campaign agenda.)
It isn’t Trump electing so many outsiders to positions of power around the world these days. The sources of angst vary from country to country, but at root is inequality — of wealth, resources and opportunity. Both within individual countries and among them, there is suspicion that some have more than others for reasons neither natural nor fair. This reality has given rise to politicians willing to use bitter divisions for political gain. These are serious, structural problems that won’t soon be resolved. They will be exacerbated when climate change and access to new technologies further widen wealth and opportunity divides. And now global economic growth is slowing, compounding these tensions.
Who can blame companies reluctant to invest in this environment? Risk-taking is daunting even in predictable times. But to illustrate the reality that Trump’s eventual exit won’t quickly prompt an investment boom, look to the biggest driver of near-term uncertainty in today’s global economy: The U.S.-China trade war has destabilized the world’s most important bilateral economic relationship.
But China’s current administration, which is likely to last far longer than Trump’s, has done more to bring the two governments to this moment of confrontation than anyone in Washington has. After decades of unfair trade and investment practices, highlighted by U.S. presidents of both parties, and by European governments, as well, Chinese President Xi Jinping has consolidated power in ways that have made it more difficult for foreign companies to do business in China.
As Xi promotes a more assertive China, across and beyond Asia, he has proven increasingly willing to use economic power to coerce countries and companies to publicly accept the Chinese government’s view of China and its place in the world. Earlier this year, in response to pressure on Chinese tech giant Huawei, China restricted imports of canola oil from Canada and coal from Australia. To quell pro-democracy protests in Hong Kong, China’s government has threatened airline Cathay Pacific for allowing its employees to join demonstrations.
In August, the Financial Times reported that the E.U. chamber of commerce recently warned European businesses that they would be subject to a corporate version of the “social credit system,” Beijing’s latest effort to combine technology with social control, creating a pervasive monitoring regime that rewards and punishes businesses for everything from environmental regulations to the behavior of their managers and potentially political criteria such as “endangering national security.” These controls will outlast whatever trade war is currently being waged with the United States.
Trump has worked to weaponize trade as a tool of foreign policy, but China has been doing it longer and much more effectively, in part because Xi, unlike Trump, has little fear that voters, opposition lawmakers or an independent judiciary will stand in his way.
There are other trade battles generating uncertainty for business investment. In some of them, Trump is a critical player, notably regarding his threats to impose auto tariffs on the E.U. Others have nothing to do with him. Brazilian President Jair Bolsonaro’s pushback against international pressure to stop large-scale fires in the Amazon region could scuttle the E.U.-Mercosur trade deal, as French president Emmanuel Macron has warned. Japan and South Korea remain locked in a trade fight. In today’s world, there is no single government or alliance of like-minded governments willing and able to referee such problems.
A geopolitical recession makes crises more likely. What if cyberattacks between Russia and the United States escalate into damage to each country’s critical infrastructure? What if an accident in the Persian Gulf or the South China Sea sends local powers stumbling into a shooting war? What if Venezuela’s regime collapses? Sound far-fetched? So did the Arab Spring uprisings, Syria’s civil war, Russia’s lunge into Ukraine, the Brexit vote, and election surprises in the United States, France, Italy, Mexico and Brazil.
This uncertainty is now fueling fears of an economic recession in the United States. The reluctance to invest can, of course, make anxiety over possible recession a self-fulfilling prophecy, and the prospect of contraction in the world’s largest economy then stokes fear of a global slowdown. Trump isn’t helping, but this will remain a challenge for the next president, whomever that may be and whenever that person arrives.