Q&A: How has Trump changed the world order?

Donald Trump’s policy agenda has sent shockwaves across the globe. The US President has cleaved his country from Europe on issues from geopolitics to defence. Repeated threats to annex Greenland and Canada have tested the goodwill between allies. And his tariffs have ricocheted through international markets. 

Alan Beattie, writer of the Trade Secrets newsletter and column, joined the FT’s US markets editor Kate Duguid and chief foreign affairs commentator Gideon Rachman for a live Q&A.

The Q&A is now closed but here are the highlights:

FT reader, Little Britain: Will the consequences of Trump’s ‘tariff shock’ be as long-lasting and profound as those of the ‘Nixon shock’ in 1971 (taking the US off the gold standard) and the ‘Volcker shock’ in 1979 (sustained high interest rates to bring down inflation)?

Alan Beattie: Really interesting question. I’d say more so than the Volcker shock - not necessarily economically, as Trump might possibly retreat from a lot of the tariffs over the coming months without plunging the world into recession. But in political economy terms I think it marks a moment where the US has decided to give up being a responsible actor in the global economy, whereas the Volcker shock was really just an attempt to squeeze inflation out of the system, more purely economic in that sense. The Nixon shock is perhaps a closer comparison as that was also a global economic regime shift.

FT reader, Max_Connerie: Catastrophism is easy at times of deep instability, but do Trump’s first 87 days truly represent terminal US decline or might a new administration or a less lopsided Congress not restore some stability? Do other countries and international partners genuinely now ‘mistrust’ the US forever, as some have claimed, or is the US regime more stable? For example Paul Krugman and Nathan Tankus say it’s a Lehman moment, suggesting that the dollar and Treasuries are no longer safe havens -- but I wonder. Yes, yields spiked and the dollar declined, but they’ve since inched back to some semblance of normality. Stocks, too have partly recovered. International trade will suffer severe ructions but many commentators think it might reorganise along less US-dependent lines. Might Trump be in a weaker position than he supposes?

Kate Duguid: This is a great question. There are a lot of good reasons why this might represent a terminal US decline, but one of the primary reasons that might not be true is that there are few good alternatives to replace the dollar. The world has for a long time had a single reserve asset (dollar, gold, etc) and even under the Trump administration, the dollar and the US Treasury market are the largest and most stable in the world. It’s unclear where all the cash currently invested in the US -- including that held by foreign central banks -- would go. There’s some capacity in the euro and the yen. In terms of assets, German bunds have been benefiting. There’s cash that could go to China, but all of that represents a multi-polar world rather than a single replacement for the dollar. It is certainly possible that the dollar weakens, but that may be a separate question from whether or not the greenback loses its status as the world’s reserve currency.

FT reader, No knowledge is useless: Considering that Trump and Xi both need to project strength, how likely is it, that the tariff war between the US and China will eventually progress into a real war during the Trump presidency?

Gideon Rachman: Always possible. Once antagonisms set in and national pride comes into play, things can get out of hand quite quickly. There is also a camp around Trump - Waltz, Rubio, Colby (in certain moods) - that really want to stick it to China. And Xi may see American disarray as an opportunity to attack Taiwan. On the other hand, Trump is very war-averse and has never repeated Biden’s pledge that the US would fight to defend Taiwan.

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