Reality proving worse than imaginings. Is the US heading towards “competitive authoritarianism’? With tariffs and inflation risks, investors less gung-ho on US exceptionalism. A disintegrating international system. Negotiations over Ukraine’s future – without Ukraine or Europe. An AI arms race where winning trumps everything else. Good fallout from DOGE?

  • FAR WORSE THAN IMAGINED. The Davos crowd (a good proxy of global sentiments) was enthusiastic about Donald Trump, but the fallout from his 75+ executive orders in just over three weeks looks set to be far worse than imagined. Some examples, in no particular order: (1) starting a political and constitutional crisis by launching several attempts to “effectuate radical constitutional change” (as two former government lawyers one Democrat, one Republican, put it) ); (2) trashing decades of US soft power (with the dismantling USAID and withdrawal from WHO), (3) plans to force Gazans from their territory while the US occupies the Gaza strip to create “the Riviera of the Middle East” (the proposal changes daily); (4) pardoning Jan. 6 rioters and purging their prosecutors and other ‘deep state’ targets (notably within the CIA and FBI). None of this bodes well for the US and the rest of the world, nor for the global economy and financial markets. The fundamental objection to Trump’s actions is the radical uncertainty and inconsistency they create.
  • “COMPETITIVE AUTHORITARIANISM”. A full, classic authoritarian dynamics is now at play, with Donald Trump’s “inner sanctum” – a mix of family members and crony oligarchs – making policy, possibly even working with foreign powers, while the federal bureaucracy is being purged (not streamlined, as claimed/hoped). The result: a US heading towards “competitive authoritarianism”, comparable to countries like Hungary, India, and Turkey (the incumbent can sometimes lose, as in Malaysia in 2018 and Poland in 2023). This is not dictatorship, but a system in which the incumbent abuses power by, among other things, politicizing and weaponizing state institutions and the government bureaucracy.
  • TARIFFS. There are certain conditions under which the imposition of tariffs can make sense, but none of them applies to Canada and Mexico, or to the imposition of 25% tariffs on all US imports of steel and aluminium. Implementing the latter would wreak economic havoc – raising inflation without fostering domestic production (it didn’t work in similar circumstances in 2018 and won’t work in 2025). Will Donald Trump change course? Is this leverage creation for future negotiations? Nobody knows yet and second-guessing the US President is a thankless task.
  • INFLATION: “NOT QUITE THERE YET”: As Powell, the Fed chair, just put it. One of the greatest threats to the global economic outlook is that inflation becomes persistent. Recent US data points to such a possibility. Inflation expectations are high, headline and core inflation are up (respectively 0.5 and 0.4% in January, m-o-m), and key policy levers of the administration (like tariffs, tax cuts and the crackdown on immigration) are all inflationary. Accordingly, the bullish market reaction to Trump’s election is starting to wane, with fear mounting that global inflation will be higher (than the 2% target) and global growth slower.
  • INVESTOR SENTIMENTS TURNING. As they can’t anticipate anything by making reliable assumptions about what’s coming (“What will Trump do next?”), direct investors are in a “wait and see” attitude, holding off on long-term investment decisions, which will hit economic growth. Financial investors are also circumspect. They are reconsidering the pertinence of the Trump trades, taking new positions in safe-haven assets (with gold hovering around record-high levels), and often holding a bit of ‘everything’ (growth, cyclical and defensive stocks). There is tentative and rising evidence of shorting ‘US exceptionalism’.
  • THE COLLAPSING INTERNATIONAL SYSTEM. In Donald Trumps’ world, “the strong do what they can and the weak suffer what they must” (as Thucydides put it in the fifth century BC). Even if he succeeded in carving up the world with China and Russia (a monumental ‘if’), his neo-imperialist proclivity of territorial expansion (Greenland, Canada, Panama Canal, where else?) would end up generating more instability, and possibly conflicts (former attempts ended in world and cold wars). In such a world, unity is strength. For countries being small now equates to being weak and running the risk of falling foul to bullying. Iceland’s interest in restarting negotiations to join the EU is proof of that.
  • GEOPOLITICS: A TASTE OF WHAT’S TO COME. It’s still very early days, but it seems that Europe and Ukraine will be locked out of the US-Russia peace negotiations on Ukraine. In short, Europe will have to enforce and fund an agreement it won’t have negotiated. This is the US President doing Putin’s bidding – an ominous sign of the chaos and powerlessness that his policies will bring, in Europe and elsewhere. The US is now seen as an unreliable ally that can no longer be trusted.
  • THE GEOPOLITICS OF AI. The recent Summit in Paris shows that AI is in the midst of an arms race, with the US and China vying for dominance while Europe strives to find its place. In his speech, JD Vance made it clear that the US will do whatever it takes to achieve supremacy in the context of intense geopolitical rivalry. Therefore, anything that prevents US tech from forging ahead (like regulatory measures) will become a collateral victim of this effort to be ‘first’ in the race. Multilateral AI governance (or any AI governance at all) is deadin the starting blocks. Watch your back!
  • SIMPLIFYING AND DE-BUREAUCRATISING. All over the world, most people are in favour of reforming creaking bureaucracies to make them both more user-friendly and more efficient. in the US, this resembles a power grab by the executive branch. Elsewhere, emulating DOGE (Department of Government Efficiency) efforts could spur policies that improve government efficiency without sacrificing the rule of law and vandalizing the complex machinery of government. The EU ‘omnibus’ package destined to simplify regulation is proof of that. So is Poland’s appointment of a “deregulation tzar” and creation of a new economic council to tackle complaints from business about excessive red tape. As Jean Monnet, the founding father of the EU, said: “Men accept change only when it is necessary, and they see necessity only in crisis.” Facing an existential crisis on multiple fronts may be what the EU requires to get its acts together and forge ahead.
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