We are living in the early stages of a revolution — the attempted conversion of the American republic into an arbitrary dictatorship. Whether Donald Trump will succeed in this attempt is, as yet, unclear. But what he wants to do seems self-evident. His way of governing — lawless, unpredictable, anti-intellectual, nationalist — will have the greatest impact on the US itself. But it is, inevitably, having a huge impact on the rest of the world, too, given the hegemonic role of the US since the second world war. No other country or group of countries can — or wants — to take its place. This revolution threatens chaos.
It is far too early to know what the full consequences will be. But it is not too early to make informed guesses on some aspects, notably the unpredictability and consequent loss of confidence being created by Trump’s tariff war. This loss of confidence was the theme of a podcast I did recently with Paul Krugman. Without predictable policies, a market economy cannot function well. If the uncertainty comes from the hegemon, the world economy as a whole will not function well either.
In its latest Global Economic Prospects, the World Bank has analysed just this. Its conclusions are inevitably provisional, but the direction of travel must be correct. It starts from the assumption that the tariffs in place in late May will remain over its forecast horizon. This might be too optimistic or too pessimistic. Nobody, perhaps not even Trump, knows. “In this context”, it judges, “global growth is projected to slow markedly to 2.3 per cent in 2025 [0.4 percentage points below the January 2025 forecast]— the slowest pace since 2008, aside from two years of outright global recession in 2009 and 2020. Over 2026-27, a pick-up in domestic demand is expected to lift global growth to a still subdued 2.5 per cent — far below the pre-pandemic decadal average of 3.1 per cent.”