Trump is destroying the post-1945 economic and geopolitical order that the US created and led. What comes next?
My first book, on globalisation, was titled Open World. That was a good description of the state of the world when it was published back in 2002. It was a time of economic and political optimism (albeit tarnished by 9/11), when markets were largely open, international institutions were in their prime, US power was its height, Vladimir Putin’s Russia was ostensibly an ally of the West, China had just joined the World Trade Organisation (WTO), the EU’s prospects seemed bright and the UK was debating whether to join the euro.
But now a more appropriate description of the new global disorder would be Broken World. This essay sketches the outlines of this new era, some of the big shifts it involves, and their likely economic, financial and geopolitical consequences.
The Open World era – the era of rules-based, Western-led liberal globalisation that prevailed from the end of the Cold War in the early 1990s until recently – was based on four pillars:
- Western economic dominance;
- US geopolitical hegemony;
- A widely shared belief in open markets; and
- US willingness to support a system of liberal international rules and institutions, and be bound by them much of the time.
But by last year all four of those pillars had crumbled:
- The West had declined, and the Rest – above all, China – had risen. Previously 60:40, the split of global output between the West and the Rest is now 40:60.
- US geopolitical hegemony had given way to an increasingly multipolar world characterised by geopolitical conflict between a still-dominant US and a rising China.
- Commitments to open markets were increasingly usurped by national security and industrial policy priorities, in both the West and China.
- Neither the US nor China were willing to accept significant international constraints on their economic policymaking.
That was the state of play during the Biden administration. But now President Trump is going much further.
He is blowing up what remains of the Open World era, with his erratic moves to launch trade wars not just against China but against the whole world, including economies closely integrated with the US, notably Canada and Mexico, and longstanding European allies.
And he is also demolishing the post-1945 geopolitical order, in which the US contained Russian and Chinese power by underpinning the security of its allies in Europe and Asia, fostered the economic and political integration of Europe for geopolitical reasons, promoted open markets, liberal democracy and the rule of law more broadly (albeit imperfectly), and projected soft power, the ability to influence other countries through attraction rather than coercion.
The contours of this new Broken World era are only just emerging. Big changes are happening almost daily. Which are likely to endure, and which may be reversed, is often unclear. How this chaotic rupture will ultimately play out is up for grabs. With those big provisos, some early conclusions can already be drawn.
Four big shifts
Amid all the confusion, noise and policy reversals, four big shifts stand out:
- Trump’s trashing of the old US-led order,
- his endorsement of strongman geopolitics,
- his rehabilitation of Russia as a “great” power, and
- the death of the West.
The first big shift is that Trump’s America does not believe in – and is actively undermining – the positive-sum international rules, institutions, norms, alliances and partnerships, both economic and geopolitical, that the US itself largely fostered and sustained over the past 80 years.
For all their flaws, liberal international rules, institutions and norms tend to promote stable, predictable and peaceful international relations: a win-win. Since the prevailing global ones were shaped by the US, they also tend to advance American interests and values. Yet they are now viewed as unnecessary and indeed harmful constraints on the exercise of US – that is, Trump’s – power.
In trade, for instance, WTO rules are now routinely ignored, while even the USMCA – the preferential trade agreement between the US, Mexico and Canada that Trump negotiated as a replacement for NAFTA during his first term – is honoured mainly in the breach.
Alliances and partnerships through which the US has projected power globally are also now treated as a burden. But Trump’s actions go well beyond demands for fairer burden sharing with NATO allies and Japan. Erstwhile allies are now treated as vassals whose dependency on the US can be exploited for short-term gain, while the security guarantees that the US once provided have become unreliable.
In essence, then, Trump’s worldview is zero-sum, power-centred and revolutionary, since he seeks to upend the existing US-led order.
Second, Trump is instead seeking a return to 19th-century-style great-power politics, led by strongmen (as he perceives himself to be) who act on the basis that “might makes right” and strike deals that serve their interests alone.
In Trump’s global pecking order, the US comes first, other great powers such as China, Russia and perhaps India come second, and everyone else is a distant third. The strong are predators, and the weak are prey.
Thus, the sovereignty and territorial integrity of lesser powers – a cornerstone of the post-1945 order – are now seen as contingent. Ukraine “doesn’t have any cards”, so it can be carved up by Washington and Moscow: mineral rights for Trump and territorial gains for Putin. Greenland has mineral resources and an Arctic presence that Trump covets, so the US ought to take it from NATO ally Denmark, by force if necessary. Canada is weak, so it is fair game too.
It remains to be seen whether Trump would actually use force to seize Greenland, let alone Canada. But his statements do more than just set a precedent for other great powers with territorial ambitions; they make it plausible that he would accept such moves if sufficiently rewarded.
Crucially, Taiwan may now be up for grabs, unless Trump can be convinced that the potential value to him of its cutting-edge semiconductor fabs – say a 50% US ownership stake, like the Ukraine mineral deal – is greater than what he might be able to extract from China for acquiescing to its takeover.
Third, for reasons that remain unclear, Trump is rehabilitating Putin’s Russia as a great power.
For sure, Russia has plenty of nukes and Putin is ruthless at exercising hard power, the only kind that Trump seems to understand and respect. But it is also an economically puny and declining power whose military shortcomings have been exposed in Ukraine. A supposedly strongman America First president surely ought to be capitalising on an exceptional opportunity to cut Putin down to size, not puffing him up.
Trump truly is a useful idiot if he is naïve enough to believe that Putin is trustworthy, let alone his “friend”, still less that personal amity ought to matter to a supposedly power-focused president.
Even if Trump is at best indifferent to the fate of Europe – except for his golf courses in Scotland and Ireland, of course – it does not follow that surrendering at least part of it to a Russian sphere of influence advances an America First agenda. Surely Trump can see the value of instead extracting support, resources and regulatory concessions from a wealthy economic area such as Europe? For instance, it would readily be possible to combine the Ukraine minerals deal with a US military backstop to a European reassurance force – and make European governments foot the full bill for the US support.
It could be argued that stoking fear of Russia is necessary to force Europeans to rearm, thereby alleviating the US’s NATO security burden. There is some truth to that. But Trump has gone much further, undermining trust in the US wholesale. The upshot is that instead of spending tens (or even hundreds) of billions of dollars on new military equipment from the US to keep Trump engaged in Europe, many European governments are instead rushing to source European alternatives that cannot be used as leverage against them. How does that advance an America First agenda?
Is there a method behind Trump’s apparent madness? One plausible explanation is that he is a Russian asset; for what it’s worth, Elon Musk’s Grok AI model rates the probability of this as high. Trump may also simply admire Putin’s tough-man style and dictatorial powers.
Others posit that Trump has a sophisticated strategic agenda: that US overtures to Putin are designed to entice him to the negotiating table over Ukraine, or more boldly to peel him away from his alliance with China, in a “reverse-Kissinger” manoeuvre.
But there is little evidence that this is true, still less that any such strategy would succeed. So far, Trump has made huge concessions to Putin without demanding anything in return. Now those cards have been played, to use Trump’s favourite analogy, they can no longer be used as leverage. Contrary to claims that Trump is a master strategist, his previous dealmaking record over Afghanistan is abysmal.
Insofar as Trump is trying to weaken Putin’s alliance with Xi Jinping, this is unlikely to succeed. While Russia is the junior partner in their relationship, their economies are a good fit – China wants Russian energy and minerals, Russia wants Chinese goods and technologies – as are their politics: Putin and Xi are both autocrats who want to overturn the US-led global order.
In contrast, Russia and the US are a poor fit. For all the bluster about huge business opportunities, Russia has little to offer economically to the US, a rival energy and arms exporter. While there could be scope for a short-term geopolitical deal – sanctions relief in exchange for Russia’s help with containing Iran’s nuclear ambitions, for instance – they would scarcely make comfortable bedfellows longer term. Putin is rabidly anti-American, and while he doubtless thinks he can manipulate Trump to his advantage, any deals they strike would most likely be undone by Trump’s successors, so it would make no sense to alienate Xi for them.
Besides the fact that any such complex strategic agenda would be unlikely to succeed, it is implausible that such an impulsively chaotic president who lacks expertise and interest in geopolitics beyond personal aggrandisement and headline-grabbing deals is truly even pursuing it in a calculated way.
Fourth, the upshot is that the West – the community of shared values and interests that has long united North America, Europe and Australasia, and by extension US allies in Asia such as Japan and South Korea too – is all but dead.
Whereas Trump is pro-Putin and anti-Ukraine, the rest of the West is vehemently anti-Putin and pro-Ukraine. Trump doesn’t believe in free trade, liberal democracy and the rule of the law; the rest of the West still does. Indeed, a recent analysis by John Burn-Murdoch in the FT found that MAGA Republicans’ authoritarian nationalist values are closer to those of Russians than to those of the liberal democratic West.
Worse, the Trump administration is openly supporting Europe’s true “enemy within” – pro-Putin, far-right nationalist populist parties, such as Germany’s AfD – against European governments led by mainstream parties. And it is actively trying to undermine the EU, whose status as a supranational regulator with global reach, not least over US technology companies, is particularly resented.
In short, Trump’s America is no longer Europe’s ally, it is an adversary.
Constraints on Trump’s power
Those four big shifts are driven by Trump. And since the US president is the most powerful person on earth, especially since he refuses to be bound by prevailing rules, institutions and norms, his impact is huge. But while Trump may style himself as a king domestically and act as if America holds “all the cards” internationally, there are still significant constraints on his power.
Domestically, the Federal Reserve remains independent for now. Despite pressure from Trump to continue cutting interest rates, the Fed has paused doing so for now – unsurprisingly, given the uncertainty about the inflationary potential of Trump’s huge tariff threats.
While Trump can appoint a more pliable Fed chair when Jay Powell’s term ends in May 2026, existing central-bank governors would still be able to outvote Trump’s appointee if he or she became too compliant.
Were Trump to seek to further compromise the Fed’s independence, Treasury markets would doubtless react poorly. And at a time when the US is running a $2 trillion budget deficit and also has vast debt refinancing needs, they have clout.
The harmful economic impact of Trump’s policies also has a political cost that may constrain him. The uncertainty created by his wild trade-war threats are already undermining consumer, business and investor confidence. Stagflation and a stockmarket crash would surely erode his popularity ratings, which he does seem to care about, even though he cannot legally stand for election again.
Economic pain would also hurt the re-election chances of congressional Republicans, who have so far been cowed into submission by Elon Musk and the MAGA mob. While Trump may not care about them, some could eventually rebel. Only four Republican senators and three members of the House of Representatives would need to align with the Democrats for Congress to be able to stand up to Trump.
Looking forward, the Republicans could also lose their majority in the House in the 2026 mid-term elections. The Supreme Court could also seek to curb Trump’s unconstitutional excesses.
Globally, the unipolar moment of US hegemony has long passed. The Iraq war and Afghanistan debacle exposed the limits of US military power. Economically, while the US remains the largest export market for the rest of the world, its $4.1 trillion of imports amount to less than 5% of the rest of the world’s GDP and only a seventh of its exports. US financial clout is much greater; even so, the Biden administration’s sanctions on Russia have hurt, but not crippled Putin’s war economy – not least thanks to China’s support. China is well-placed to resist Trump; even the Biden administration’s more calculated moves to stymie the Middle Kingdom’s technological development seem to have backfired: witness the efficiency of DeepSeek’s AI model, and how Huawei is still thriving.
Four big consequences
All this upheaval will have huge consequences, many of which will become clearer over time. For now, four stand out:
- much greater uncertainty and instability,
- America’s global decline,
- a big boost to China, and
- huge challenges (and some opportunities) for Europe.
The immediate consequence of all this policy turmoil is much greater economic, financial and geopolitical uncertainty and instability.
Uncertainty has ratcheted up because the range of plausible economic and geopolitical outcomes is now much wider, less predictable and to some extent even unknowable. Instability has soared because Trump’s erratic policy shifts, especially on trade, keep altering both current conditions and everyone’s expectations of the future.
Businesses, consumers, investors and governments are all now highly unsure about how events will unfold and how best to react. Witness how US markets initially seemed to focus on the positive potential of Trump’s tax and deregulation agenda and discount his tariff threats, but now have trade and business uncertainty front of mind.
Uncertainty and instability seem set to continue, for several reasons. Trump seems to view behaving unpredictably as a means of unsettling opponents and better achieving his ends. But while acting like a “madman” can be effective geopolitically, it is harmful economically, not least because it makes it difficult for businesses to make sound investment decisions.
Moreover, a transactional approach to international relations with no fixed parameters is inherently more unstable and unpredictable than a rules-based one, since nothing is settled and everything is forever up for grabs.
Imagine a rosy scenario in which the US and the EU agreed a deal that averted a trade war, upped European defence spending and maintained US security guarantees. Who could be sure that it would endure?
Also, what would happen if there was another financial crisis? Could the Fed and the US Treasury be counted on to cooperate with their international counterparts to sustain the global system as they did in 2008? If so, what might they demand in exchange?
Or consider how the undermining of US security guarantees gives former allies an incentive to seek their own nuclear weapons, as Poland’s Donald Tusk recently suggested. Abiding by the nuclear non-proliferation treaty is unsustainable, especially when Israel, India, Pakistan and North Korea have all acquired nuclear weapons with seeming impunity. But what makes sense for any individual country’s defence also increases the collective risks of catastrophic miscalculation and conflict.
Last but not last, systemic ruptures inevitably cause uncertainty and instability until a new order emerges and eventually settles down. This may take years or even decades, and involve huge dislocation: witness the hugely unstable era between the First and Second World Wars, when the British Empire was no longer able to act as a global hegemon and the US was unwilling to, and a rising Germany eventually went to war to seek global dominance.
Second, far from making America great again, Trump is likely to accelerate its global decline.
Economically, the short-term gains from Trump’s many and ever-changing threats are likely to be limited. For sure, the US could potentially use its huge clout to screw targeted concessions out of friends and foes alike. To avert a trade war, European countries would be willing to buy more liquefied natural gas (LNG) and military equipment from the US, and to lower their tariffs on US cars. Canada and Mexico would doubtless be willing to renegotiate their trade deal with the US, again. Japan and South Korea would agree to invest more in the US to continue enjoying its security guarantees. The threat of tariffs could spur some manufacturing, notably car factories, to relocate to the US, just as Biden’s subsidies attracted increased foreign investment. And so on.
But with Trump in the White House any such short-term gains are likely to be scant. Some will succeed in buying him off with cosmetic, unenforceable promises – witness the non-existent gains of his first-term deals with China and North Korea.
Others will be reluctant to make concessions because they can’t trust him to stick to any deals and fear he will just come back with still greater demands. Witness how Canada, which is most exposed to the US market, is nonetheless retaliating against Trump’s tariffs. Because of that logic, a global trade war looms.
Where the demands are absurd – Canada should become the US’s 51st state – compromise is impossible. And if the likes of Canada successfully stand up to Trump’s bullying, his other threats will lose credibility too.
Over time, moreover, all countries will have an incentive to reduce their dependency on the US, making it poorer and less powerful.
As a huge, technologically advanced, energy-producing and largely closed economy – imports of goods and services are 14% of GDP, while exports are 11% – the US is better placed than most to cope with a protectionist lurch. But higher import costs, reduced competition and increased supply-chain disruption would all still be harmful, as would loss of access to foreign markets.
If Trump imposes arbitrarily defined “reciprocal” tariffs on all the US’s trading partners, as he is planning to do on April 2nd, the US will tend to suffer more than others – even in the absence of foreign retaliation – because almost all its imports will be hit, whereas for other countries only their exports to the US will be harmed.
Trump’s simplistic beliefs about trade – that exports are good, imports bad, and trade deficits akin to theft by foreigners – are economically illiterate. Since technology, not trade, is the main culler of US manufacturing jobs, protectionism won’t bring them back. Moreover, US technological superiority depends on foreign brainpower: more than half of the people with computer science PhDs in the US were born abroad; and even if the door remains open to them, Trump’s hostility to immigrants will doubtless repel some. As for his tariff flip-flops, even a hardened mercantilist would struggle to find any merit to them.
More broadly, while judicious deregulation and tax cuts may juice economic growth, the trashing of US institutions – including slashing funding for scientific research, the huge conflicts of interest of Musk’s quasi-governmental role, the appointment of ill-qualified, incompetent loyalists to senior government roles, and the assault on the independence of the judiciary – is likely to undermine medium-term prosperity. America risks becoming more like Argentina has long been: a fiscally wanton and protectionist extractive state mismanaged by a corrupt oligarchy.
Geopolitically, it is implausible that any short-term gains from closer relations with Putin’s Russia could outweigh the medium-term loss of influence from turning European allies into autonomous adversaries, and the undermining of the reliability of US alliances in Asia.
More broadly, smaller powers will have a strong incentive to at least hedge against US abandonment or aggression, and more actively to seek closer relations with other great powers, notably China.
Perhaps the biggest threat to the US’s geopolitical might is that Trump will ultimately undermine its financial superpower: the dominance of the dollar in the global financial system. This “exorbitant privilege” lowers US borrowing costs, gives US policymakers huge policy freedom, and provides them with a weapon much more powerful than tariffs: the ability to deny foreigners access to the dollar system.
While the depth, breadth and openness of US capital markets have entrenched the dollar’s global role, a combination of factors – including political dysfunction, fiscal mismanagement, the development of payment alternatives such as central bank digital currencies (CBDCs), the shift of international reserves towards gold and other dollar alternatives, and the weaponisation of financial sanctions – could eventually reach a tipping point at which alternatives displace the US dollar.
How might such a tail risk materialise? Potentially if an assault on the Fed was combined with a move to impose a putative “Mar-a-Lago accord”. This policy proposal by Stephen Miran, the chair of Trump’s Council of Economic Advisers, would use tariff threats to try to force foreigners to accept, in effect, a restructuring of US government debt by swapping short-dated Treasuries for perpetual bonds, and then a weaker dollar.
In short, then, Trump’s agenda is myopic. It focuses on seeking likely disappointing short-term economic gains at the expense of an irretrievable loss of long-term geopolitical capital. America First is likely to end up with America Alone.
Third, the biggest winner from all this upheaval is likely to be China.
China’s biggest economic vulnerability is its reliance on export-led growth since its property bubble burst; its trade surplus soared to $1 trillion last year.
But China is much less exposed to the US that it was in Trump’s first term, both by choice and as a consequence of the Biden administration’s export controls, import tariffs and other measures. Tech sanctions have forced China to innovate and develop its own local supply chains. Beijing’s holdings of US Treasuries have declined from $1.3 trillion in 2013 to $760 billion last year (although it also owns US agency bonds). Exports to the US now account for less than 3% of China’s GDP – a lower direct exposure than Germany – and less than 15% of its total exports. In the face of US tariffs, China could continue to diversify its exports, and also boost domestic demand to take up the slack.
While China has been a huge beneficiary of the Open World era economically, its government has long resented how the US-led order entrenches American power. The US has a decisive role at the International Monetary Fund (IMF) and the World Bank. Its alliances and partnerships in Asia constrain Chinese power. And the dollar’s global role is resented and feared.
But now, Chinese officials can scarcely believe their luck: Trump is doing the demolition work for them. While China’s more aggressive international stance has alienated many governments in recent years, Trump’s actions make it seem like a much more responsible global stakeholder, notably on climate, trade and development issues. Unlike the US, it didn’t boycott the recent G-20 summit in South Africa. For erstwhile US allies and partners, it now seems a more stable and predictable counterpart than previously, and in some cases an alternative market. And if US-led multilateral institutions collapse, the appeal of Chinese-led alternatives, such as the Belt and Road Initiative, will only increase.
More broadly, while many governments resented US strictures about liberal democracy and the rule of law, the appeal of the US system to many people around the world was also a huge asset for America. The trashing of US soft power is thus a massive gift to China.
Many countries in Latin America, Africa and the Middle East that once looked to Washington are now more likely to turn to Beijing.
In the case of Europe, though, there are limits to how far any rapprochement with China can go. Their political differences, clashing views on Putin’s Russia, increasing economic competition and shared reliance on export-led growth are all obstacles.
But such is China’s economic and military dominance in Asia that an undermining of US security guarantees would force erstwhile allies to accept that Asia is a Chinese sphere of influence (while the likes of Japan, South Korea and Australia would probably also acquire nuclear weapons).
Indeed, while Trump’s ostensible geopolitical priority is containing China, he also expresses friendship and admiration for Xi, with whom he is keen to strike a deal. Given Trump’s geopolitical ineptitude, such a deal could end up gifting Asia to China on a plate in exchange perhaps for pledges to buy more US products.
Fourth, Europe is at huge risk now, but may ultimately emerge stronger.
Europe is ill-prepared for this new Broken World era. Trump’s rapprochement with Putin and undermining of NATO pose an existential threat to the security of Ukraine and the rest of Europe. Germany’s export-led growth model and the EU’s trade surplus with the US are further points of vulnerability.
As an institution that embodies the liberal, rules-based order, the EU is particularly threatened by a return to great power politics. While acting together through the EU gives its members clout, it also makes them less nimble. Since the EU itself lacks hard power, it cannot readily coordinate between all aspects of economic and security policy. Last but not least, far-right populists – not least Hungary’s Viktor Orban – seek to undermine the EU from within.
It is conceivable that these many weaknesses will overwhelm Europe. Europeans may not be able to support Ukraine’s war effort without the US. They may not rearm fast enough to prevent Putin invading a NATO country such as Estonia. A victory for Marine Le Pen, who was previously funded by the Kremlin, in France’s presidential election in 2027 could be catastrophic. Europe may ultimately be carved up by Trump and Putin.
But more optimistic futures are also possible. Europeans may be able to do enough to sustain Ukraine’s war effort until it can negotiate a peace agreement with Russia from a position of strength. They have finally been jolted out of their complacency about defence. Germany is now pledging to borrow “whatever it takes” to defend peace and freedom in Europe, while France is considering extending its nuclear umbrella to the rest of Europe, potentially part-funded by other Europeans.
While Europeans are often divided, crises can bring them together. Britain and the EU are already cooperating more closely. The external threats of Trump and Putin may lead them to endorse closer EU integration, notably more collective borrowing, starting with defence. EU leaders can find ways to bypass Orban’s vetoes.
The efforts of the Trump administration and its chief propagandist Elon Musk to bolster the far right may fall on deaf ears; neither are typically popular with far-right voters in Europe, who are more economically interventionist than MAGA Republicans and won’t take kindly to a trade war with the US. For obvious reasons, nationalists typically struggle to cooperate internationally.
With Germany planning to borrow a further €500 billion to invest in infrastructure and climate measures over the next decade, Europe’s largest economy could see higher growth which is less reliant on exports and which spills over to the rest of Europe. The EU may finally embrace growth-enhancing structural reforms, like the capital markets union.
It could also seek new export markets. The deal with Mercosur, the Latin American trade grouping, may finally be approved. Trade ties with post-Brexit Britain could be deepened. A tie-up with the pan-Pacific CP-TPP may be envisaged.
More ambitiously, countries that continue to believe in a liberal world order – including Canada, Japan, South Korea, Australia and New Zealand, as well as European countries – could deepen their cooperation and try to preserve some of it.
Conclusion
Trump has been back in power for only two months, yet he is already among the most consequential US presidents – and perhaps the most catastrophically inept recent one.
But there is little point in pining for a lost world order; everyone must adapt to the emerging Broken World era. The threats are huge, but there are also opportunities. Interesting times, indeed.