The world’s major growth engines are about to run in reverse. The policies and uncertainties of US President Donald Trump’s second administration have hit a sluggish global economy with a transformational exogenous shock. Risks are especially worrisome in both the United States and China, which have collectively accounted for a little more than 40 per cent of cumulative global gross domestic product growth since 2010.
America is now the problem, not the solution. Long the anchor of the rules-based international order, the US has
turned protectionist, posing major risks to an already-fragile global trade cycle. At the same time, Trump’s
“Make America Great Again” movement has driven a powerful wedge between the
US and Europe and divided North America, with
Canada’s very independence in Trump’s crosshairs. The central role of the US in sustaining post-World War II geostrategic stability has been shattered.
The US will be unable to put the genie back in the bottle. Trump’s shocking actions have
eroded the trust that has underpinned America’s global leadership, and the damage will be evident long after Trump has left the scene. Having once abdicated its moral authority as the anchor of the free world, who is to say it can’t happen again?
This breakdown in trust will cast a long and lasting shadow over economic performance, not least in the US itself, where it is affecting business decision-making, especially the costly long-term commitments associated with hiring and capital spending.
Businesses need to scale their future operations relative to confident expectations of future growth trajectories – now an increasingly uncertain proposition. Asset values and consumer confidence, too,
have been shaken. Uncertainty, the enemy of decision-making, is likely to freeze the most dynamic segments of the US economy.
For China, state-directed policy guidance might temper the initial blow of a Trump policy shock. But the pressures of Trump’s
tariff escalation will undermine China’s export-led growth model, which is especially problematic for economic growth, given the lingering weakness of
China’s domestic demand.
