For how long can we manage to combine a resilient economy with chaotic politics? Can the answer really be “forever”? If not, will it end with the triumph of resilience over chaos, or the reverse? These are the questions raised by today’s combination of a robust economy with a politics that could be deemed farcical, were it not so serious.
At the beginning of last week, Donald Trump warned Iran that if the Strait of Hormuz were not reopened, “The entire country can be taken out in one night, and that night might be tomorrow night”. Two days later, we were informed that the US and Iran had agreed to a two-week ceasefire that would open the Strait. Then, as the ceasefire turned out not to be a ceasefire and the Strait stayed closed, US vice-president JD Vance went to Islamabad to negotiate a peace deal. That failed. Thereupon, Trump wrote on Truth Social that “Effective immediately, the United States Navy . . . will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz”. Subsequently, the US explained that its blockade would cover “the entirety of the Iranian coastline” including ports and oil terminals, and apply to all ships “regardless of flag”.
What can we make of all this? One point is that confusion is a feature, not a bug, in the Trumpian playbook. Yet unpredictability has consequences. The IMF’s latest World Economic Outlook starts with a discussion of uncertainty. The current war in the Middle East is a big source of such uncertainty. The ups and downs of US trade policy under Trump are another, not to mention the war in Ukraine and the ruptures in the western alliance. Not surprisingly, various measures of political and economic uncertainty are elevated. (See charts.)