Disruption as tectonic plates shift

Those observers who believed that Donald Trump in his second term as US President would be as constrained as in his first have had a rude shock. His cabinet are all true believers in the MAGA (Make America Great Again) ideology and his first 50 days have included a flurry of announcements, all firmly within the MAGA approach of moving towards isolationism and protectionism.Trump sees politics primarily as a matter of doing deals, using threats and inducements, not diplomacy or building alliances. He sees global trade in terms of winners and losers, not inter-dependencies. The extent to which he has been hostile to erstwhile allies of the US – Canada, Mexico, Ukraine and European nations – has not only shocked leaders of those nations and many observers, but upended several decades of relative unity in western countries. Some have observed that, rather than Making America Great Again, President Trump is Making Europe Great Again. His policy of all-but ending the western alliance has prompted moves towards greater co-operation on pooling of debt, defence spending and common security policies across Europe. The close collaboration extends to Turkey and the UK, which are not EU members. On March 2, the UK Prime Minister Sir Keir Starmer hosted a pan-European security conference, attended by ministers from 18 countries, focused on support for Ukraine.The most significant change has been in the policy of Germany. Its approach to borrowing, public spending, defence spending and security has changed more in the past month than in the previous 80 years (treating West Germany pre-1990 and post-unification Germany as one, in terms of policy continuity). In early March the incoming Christian Democrat Chancellor Friedrich Merz and the Social Democrat party agreed to end the debt brake which limits public borrowing, in order to boost infrastructure and defence spending.European nations have high expertise in defence manufacture and technology and, if they co-operate effectively, will be able to build significant scale. But they are currently heavily reliant on the US, not only for equipment and armed personnel, but also for intelligence, surveillance and reconnaissance. For Europe to become fully independent from the US for defence capabilities would take years, not months, according to defence experts.On the economy, whether the policy of tariffs helps rebuild US manufacturing, and in turn the US economy, is not certain. There will be some relief for US producers of steel, for example, although manufacturers of refined products are likely to have more expensive supply chains, and not everything can be sourced in the US. The US is better equipped than a small nation to cope with trade wars; it is a large territory with vast natural resources. It is a common misconception to suppose that it has always been a free market nation. It imposed high import tariffs in the late 19th century and in the 1930s, for example. The Washington Consensus, the 1980s doctrine emphasising free trade and fiscal discipline, would seem to have been just a phase.A complication in this case is that President Trump uses tariffs, or the threat of tariffs, as a tactic in negotiations on non-economic issues. Moreover, he has made frequent U-turns, which make planning for businesses problematic.The long-term impact of reduced soft power of the US is impossible to predict. President Trump cannot get his way on everything, and there are always unexpected consequences of major policy shifts, and weakened trust from bully-and-bribe approaches to international relations.Countries affected by US tariffs will likely develop workarounds. Trump wants to return to fossil fuels, but the rest of the world may simply buy Chinese EVs powered by electricity generated with renewables. To an extent, this is already happening in the Middle East and some European countries.As the tectonic plates of geopolitics shift, an interesting development has been the relative stability and neutrality of the Gulf states, which have hosted peace talks on both Israel-Gaza and Russia-Ukraine. One of the advertised attractions of western nations traditionally has been relative political stability and certainty. That notion has been shaken this year.Is Trumpism here to stay? Beneath the surface, there continue to be close relationships between many US politicians, including Republicans, and their European counterparts, and some indications that Trump is being reined in from time to time. So the MAGA policies may turn out to be temporary. Even if they are, the rest of the world is moving on and a future US president may find that it’s harder to build alliances than to break them.The author is a Qatari banker, with many years of experience in the banking sector in senior positions.