Virtually everyone (family possibly excepted) who has dealt with Donald Trump has lost money; what is worse, he sees them as suckers. Remarkably, over the decades, despite an abundance of such evidence, people get lured into his flimflam show, the final performance of which has just hit the stage, and the suckers, of course, will be the American people.
To be fair, Trump’s goal — to bring manufacturing (and high-paying manufacturing jobs) back to the US — is laudable, but the reality is that the US is a high-cost economy which, together with the huge additional risk of volatile government policy, makes it highly unlikely that there will be any serious investment in the US despite it being otherwise attractive.
The only way this can change is if the dollar weakens substantially to where it makes commercial sense for foreigners (or, indeed, domestic companies) to invest there. It has already started slipping a bit — the DXY is down about 3.5% from its recent highs at 110 — but it will need a further substantial drop — say, to well below 100 — before the US could possibly become an attractive manufacturing investment destination.
But even if the dollar were to decline, Trump’s policy prescriptions, to the extent they are implemented, are sure to affect both the US and the global economy badly. The tariff programme will definitively increase prices for American consumers and, in all likelihood, lead to a shortage of inputs for US industry. And, of course, the deporting of “large” numbers of immigrants will add to cost pressures as employers struggle to fill jobs.
More significantly, the push-me-pull-you tariffs will dramatically disengage global supply chains, which have become critical components of large-scale and high-end manufacturing, which will again result in higher prices and, worse, lower growth. Cutting the size of the government will also lead to slower growth (as a large number of well-paid employees will be out of jobs), and create considerable difficulty for a huge number of people who depend on government services. The cost savings will, in all probability, be modest, with much of it eaten away by the legal costs of enforcing these controversial measures.Thus, stagflation seems the obvious outcome for the US economy; bond yields will remain high and markets will get increasingly volatile — another warning to stay away.
Geopolitically, too, the American people, who have historically been the most generous when there are disasters anywhere in the world, are getting shafted. It appears that Trump’s strategic gambit is to draw Russia away from China, who he and his blinkered tech-bro advisers see as the only real threat to US tech (and general) hegemony into the future.
His “practical” perception is that Ukraine is never going to win the war, and so it is in its best interest to compromise and stop the fighting. And if that results in Russia owning large swathes of Ukraine and then breathing fire down Europe’s eastern border, so be it.This will certainly drive Europe to quickly build the capability to fight its own battles; it has already started to do just that — military spending in Europe grew by more than 10% in 2024. This forced change of life — however necessary — for Europe will increase anti-Americanism as a renewed era of “the ugly American” takes hold in the world.
Importantly, American arrogance is sure to push Europe towards a closer relationship with China. China is already the European Union’s largest trading partner and, with greater trade (more so with US tariffs kicking in), other areas of co-operation will certainly arise. At the same time, China will further increase its trade and influence with the Arab world, which is also looking for alternatives to the US, particularly with Trump’s shocking initiative in Gaza; China has the additional benefit in that unlike the US, it doesn’t need investment.
China also has strong trade links with various countries in Latin America and, of course, Asia; again, the BRICS grouping, which is becoming a base for the Global South, has enhanced China’s global footprint. In the face of America’s “my way or the highway” approach, China’s more amenable trade and investment approach will continue to eat away at US influence.
In other words, the US strategic play — to try to isolate China by buying up its “not just allies, but better than allies” relationship with Russia — will backfire and, in short order, China, already a strong influence in the world, will overtake the US, particularly given its continuing strides in technology and, of course, its huge stock of reserves.
The only US lackeys that will remain tied to Uncle Sam’s volatile apron strings will be Israel (of course), Japan (ageing and nervous) and, to no one’s surprise, India. Indeed, India is in a particularly tricky position as it needs to dance with both the belligerent US eagle and the Russian bear, both of whom would think nothing of stepping on our toes.It is time for India to find more and more ways to partner with the dragon.