This post is opinion only. See full disclaimer below.
There is a lot of confusion in the markets about Trump’s foreign policy. Those who are not versed in more complex foreign policy concepts and even a few specialists are perplexed and attribute incoherence to it. Markets, which have always failed to understand how important a part politics plays in the valuation of assets, are particularly confused. Now this is a “Weberian” site analytically so we are for the purpose of this discussion (but not in our private life) totally neutral about whether this “new” politics is good or bad. You may completely embrace his politics or completely hate it—but market participants need to understand the approach being pursued at such a key macro-political inflection point.
First, a little crucial background and I’m going to for the sake of argument paint with very large brush strokes. Its up to you to figure out and look up the references and fill in the details, if you don’t already know them. Prior to the break up of the Soviet Union over 30 some odd years ago the world was a bipolar world divided into two monolithic power blocs. Real-politique ruled the world and every smaller country had to be either in the US or Russian camp. And whoa to anyone who pretended otherwise. There were exceptions, of course, but not many, and it was a hard world indeed in which to be an independent and not an aligned nation . This was a brutal world but it was also, under the sway of mutually assured destruction believe it or not remarkably stable over a long period. Again exceptions, excepted.
The West of course emphasized its democratic values in that battle and free enterprise. But there was nothing free about the international system for the less powerful countries and while free enterprise in a general way reigned in the US huge levels of government intervention were actually the rule in terms of the military-industrial complex and key strategic industries. Free trade also ruled ideologically in the West as a whole, but not really given the might of the US—it was a always highly qualified in practice in terms of the needs of the power bloc–which meant to a great extent the interests of the US power wise. All through the Cold War the West still traded with the Soviet Union with its oil reserves and that was ultimately a severe problem for Russia when the US purposefully and somewhat unexpectedly at a key point tanked the oil price and they couldn’t get enough dollars any more to pay their debts. Historians argue about how big a factor that was in the fall of the Soviet Union, but that weaponized trade was not without significance at that moment, nor was the Saudi trade of oil with the US and recycling those dollars back in Treasury purchases in exchange for US protection insignificant in the world either. There are countless other examples of such trade relationships where power was crucial. My point is trade was always seen in those days as a key weapon.
What happened though is that after the Soviet Union fell that system broke down and the US moved to an outsourcing globalist system where the main idea was that of Frances Fukyama’s (Kojevian) end of history theory which was all the rage in Washington at the time. Basically it said that the victory of democracies like the US was inevitable. The new model was a small elite ruling the masses everywhere across the globe. But the broader population were given universal rights to do whatever they wanted so to speak as long as they were civil about it. A cynic might say the elite while outsourcing the jobs for a fast buck to newly opened areas and selling the cheaper products back to the affluent First world consumers needed to keep the illusion of freedom safe while actual power of these masses was radically diminished over time, but that might or might not be the case. However, in this new globalist system ultimately every worker the world over was to eventually become exchangeable with every other worker. However, I’ll leave up to you how you interpret all this including to what extent you believe the new global elite saw the masses as best just opiated in the new system which is something implied in Fukyama’s theory.
The problem was this new model had an expiration date. While the US was for a while the undisputed hegemon why longer term in such a system would the less powerful countries go along with such rule when there was no longer an enforcement mechanism like during the Cold War? Also the idea of an end of history inevitably being a certain kind of universalist democratic regime meant that in wars the US resorted to nation building and utopian illusions about how much countries could redefine their own internal power relations. Or some might argue these were just giant grifting schemes as endless wars required endless money flows. Either way wars like those in Afghanistan and Iraq failed in establishing the regimes that the perspective predicted by Hegel’s Owl of Minerva of universal democracy required. The rise of China as a power threat was ignored as in this Millennial view they too must inevitably in the new theory eventually become democracies. The US’s own allies often acted on self interest against the US while hiding behind sympathetic elites and the reigning ideology that as long as you embraced the democratic worldview you could do no wrong. On the other hand if you were an undemocratic regime even if you wanted to play ball in this framework you were excluded at least politically. Reject the ideology of universal democracy and the US would never be an ally even if you controlled important arenas of power (exceptions, excepted for the most powerful countries) and were to remain so to speak persona non grata.
The more the facts on the ground suggested that the theory wasn’t working the more the illusion of universal individual freedom was expanded. Any questioning of the ideology either on the leftist grounds that it was exploitive of the populace and a smokescreen and not real or the rightist claim that it was naive about power and put the US at risk and was utopian was seen as heresy and political incorrectness.
Now at last we come to Trump’s, like it or not, highly coherent foreign policy so often misunderstood
He totally rejects Fukymama and all those who bought into that model. He sees wokeness in its various forms as an illusion trying to maintain an approach that doesn’t work by fooling the masses.The rise of populism is the proof that the model does not work as far as he’s concerned He has gone fully back to the earlier Cold War model. In this earlier model there are powerful countries–the US, China, Russia each with their own power bloc and who are part of the nuclear weapons club and less powerful counties that either are not part of the club or not powerful enough on their own and are able to truly defend themselves only because they have the protection of the more powerful. The fact that you are democratic like in the Cold War is ultimately while a positive still secondary to the power equation and whether you are part of the US bloc or not. No nation building. No Owl of Minerva. No universal worker and definitely no end to the nation state.
Now again let me be clear I’ m neutral here. You can believe this rejection of this globalist and universalist view is the worst thing in the world or the best—I just want you to understand it’s extremely coherent and will effect markets accordingly. It is most definitely not some patchwork of incoherent and arbitrary decisions.
If you are a weaker country and you challenge the US in this new model you discover quickly how powerful the US is economically and militarily and should for your own security and economic interests get in line–fast. The US will close its markets to you with tariffs or simply attack you militarily if you are too opposed to the regime. If you are Iran and don’t shutdown your nuclear program the US will give you a couple of chances and shut it down for you. No way you are going to be invited to join the nuclear weapons club. If you come to power in a rough space but are a clear ally of the US good for you. As long as you are an ally we don’t care about your internal politics past a certain point unless you really step out of line. If you are Maduro in Venezuela you are about to have a very bad day. If you are Maduro’s successor and can maintain order and change your tune and work with the US that’s good enough. Down the road if you won the Nobel Peace prize and can get a power base, great, the US still prefers democracies but shorter term we just care you are on the side of the US in practice if not always narrative. If you are Lula in Brazil and you need to keep your power by being a radical–even that’s okay, but you better show you want to play ball and are guileful enough to know what’s up and not push too far and you should be eager to meet to “discuss” things. If you are Denmark but have a key power asset then don’t think the democratic narrative stuff that used to be all the rage will protect you. The US is the powerful country and you are not. It’s classic Thucydides and classic real–politique and right back to the Cold War and an established order. The US may push back hard against China and Russia in ways unthinkable in the globalist model but if you are Trump you are still respectful of their power. Behind the scenes Putin and XI have seen this movie before and they may even prefer this more predictable and orderly power defined system dating from the Cold War over the more anarchistic and unpredictable globalist model. The media may claim Trump’s unpredictable but in macro power terms he most assuredly isn’t beyond just the usual covert maneuverings and tactical changes that are meant to keep his enemies guessing.
As for the economy, its a key tool of real-politique and don’t get in the way of it. The border is closed unless new immigrants contribute directly to the nation’s power and if you are crime’d up you aren’t coming in at all. If you are a drug cartel in Trumps view you are to him like a less powerful country seriously acting up and opposing the US’s interests and he will make a point of trying to destroy you even with direct military force. Again I’m not saying any of all this is good or bad. If you are an international organization or NGO guy or gal or part of the EU elite who believed history ultimately would put you on top of a new Universalist order you will think all this is a huge mistake. If you are Denmark or the E.U. control of Greenland may even be for you an extreme battle of globalist values versus Trumpian realism. If you are an “America firster” you will wonder what on earth Trump is doing if you don’t understand this. And if you heavily follow the Owl of Minerva ideology and are woke Trump is no doubt in your view squashing your universal liberty. All I’m saying here is that whatever you believe, whether you agree or not, this policy by Trump, Rubio, Bessent, etc is incredibly coherent and follows a very definite set of classic power principles. It only appears to be unintelligible to those who don’t understand how the world was set up during the Cold War and think the last 30 years is the only way the world can be. Its definitely something 30 somethings are going to have a hard time comprehending. Its not fascism on the run. Its definitely not the least bit random or incoherent. Its classic Cold War real-politique but now reconfigured for a more complex post Soviet world. For or against it at least understand what you are dealing with.
As for the tariffs they are a powerful effort to return trade to what it was during the Cold War, a weaponized asset. And yes the government will like it did in the Cold War intervene in markets a lot–build out AI as a power advantage, fight for control of space and the Arctic. The post Soviet globalist view of trade is rejected and it’s back fully to the power bloc view.
One more important aside on all this. If you follow this logic out to its likely conclusions the aircraft carrier streaming to the Gulf is likely about to be part of an attack on Iran. Nothing is inevitable but in real-politique fashion Trump gave the leaders of Iran an off ramp to accept a new power equation and the security services a chance to switch sides. By all accounts they did not. Likely outcome: Trump projects American power here through force. But if the regime changes, odds are it takes the Venezuela model and the Shah’s not coming back soon. A new order will simply result that accepts US hegemony and then down the road who can say. Trumps not doing regime change or nation building per se or occupying countries he’s doing hegemonic power.
Now there are those who argue not incorrectly that the paint is already on the canvas and that you simply can’t like Trump is trying to do repaint the picture like its a tabula rosa. He’s trying to change too much to succeed. In this view he will lose the mid-terms, all this is simply a passing phase, the Supreme Court will strike down tariffs, etc. Perhaps that will indeed be the case or perhaps that is a globalist illusion. The future is unwritten. All I would in Weberian terms point out is that below the globalist paint is actually a much thicker, older Cold War paint that Trump is going back to—-so things aren’t quite that simple.
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