The founder of the Soviet Union Vladimir Lenin, maybe while he was taking a break from slaughtering or incarcerating his fellow Russians, made a comment that resonates with current events: “There are decades where nothing happens; and there are weeks where decades happen.”
We are living through such a period. Since US president Donald Trump was inaugurated on January 20, global geoeconomics and geopolitics have been turned on their head. Centuries-old links between the United States and Europe have been all but severed, the enmity between Russia and America, which dominated the twentieth century, is being eased and the world is set to be shaped by the three superpowers: America, China and Russia.
The so called American “unipolar moment” seems over, to be replaced by three or more spheres of influence. Trump has targeted the Panama Canal, Greenland and even parts of Canada because they are part of the Western hemisphere he wishes to have dominion over. Exactly what that means for Australia is far from clear but there should be great cause for concern given that we, like Europe, have simply assumed there will be endless US military support. That is becoming a questionable assumption. Australia’s defence spending is about two per cent of GDP, which Trump has argued with NATO countries is too low.
Trying to read what Trump’s intentions are from what he says is a fool’s errand. He is surely one of the oddest people ever to hold political office and the most unconcerned about criticism. He is both exceptionally honest, uttering what he is thinking in a sort of stream of consciousness reflection, and deeply deceptive, constantly manipulating or provoking different audiences, as he searches out weaknesses in his opponents. He is honest and not honest at the same time. The rock he stands on is money, which is probably not a bad thing because so many of the problems facing the non-communist world are financial in nature.
If one starts by thinking of him as a business person it becomes possible to read what is happening. We are witnessing the governmental equivalent of a corporate takeover. Sack half the staff before they get a chance to know what hit them. Restructure everything to streamline things. Drive your senior people relentlessly. Demand total loyalty. Repeat over and over: 'Let’s cut costs and make this thing profitable, now'.
Trump has been helped by two things. First, the waste and fraud in the US government runs into the trillions of dollars. To paraphrase a quip allegedly made by former US senator Everett Dirkson: ‘a trillion here, and trillion there and pretty soon you are talking about real money.’
The amounts being exposed are mind blowing, suggesting that the task of balancing the Federal budget, saving about $US1.3 trillion a year, could be easier than thought. Indeed, America’s finances, despite the apparently out-of-control debt, may be easier to fix than it appeared, which is arguably good news for the global economy.
'The so-called American ‘unipolar moment’ seems over, to be replaced by three or more spheres of influence. Trump has targeted the Panama Canal, Greenland, and even parts of Canada because they are part of the Western hemisphere he wishes to have dominion over.'
The second thing is the blistering technical performance of the Department of Government Efficiency (DOGE) which points to an entirely new level of digital accountability. Musk’s team of 19-year-olds mapped 60 years of the Treasury department accounts in six hours. It was done overnight, so when the head of the Treasury came in the next morning and refused to give them the passwords, it was already all over. Hiding nefarious practices is going to be a lot harder in the future.
Another way that Trump has turned the world on its head is his preference for tariffs. This will certainly harm European trade, but its effect on Australia is harder to read. For one thing we don’t have many tariff barriers. Protectionism was never very severe in Australia (despite claims to the contrary) and what was there was mostly dismantled by the Hawke-Keating governments in the 1980s.
The US also has a trade surplus with Australia so the nation is unlikely to become a target. But Canberra economists, who tend to slavishly follow US thinking, will have to start rethinking their arrogant and aggressive pronouncements that anyone who is in favour of tariffs is economically illiterate. At the very least it will be amusing to watch.
A world of more tariffs will greatly affect globalisation, the practice of companies spreading their operations around the world. A substantial portion of what is called trade is actually shipments inside the same company, which only works if there is a low transfer cost. Many corporations may decide to bring their operations back into their home country.
Another massive change is Trump’s attitude to war. For the last 70 years or so, the US has essentially been a military industrial complex with a tax base attached, scouring the world for places to incite conflicts.
US presidents have facilitated that, but Trump appears to be different. He seems to have a sincere horror at the human cost of war – he keeps saying that – but, more importantly, from his perspective, he understands that war is bad economics. He rightly prefers commerce to violence. As he suggests, it is just common sense, but for many decades such common sense has been conspicuously lacking.
There is another dynamic, below the surface, occurring in the financial markets. For approximately 150 years, London has manipulated the US through shadowy means, using financial power. The world’s biggest money centre is the City of London, and until recently the London Interbank Offer Rate (LIBOR) dominated banking and the bond markets.
James Carville, a former president Clinton adviser said: “If there was reincarnation, I wanted to come back as the president or the Pope or as a 400-baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."
Trump started to weaken London’s power in his first term by establishing the Secured Overnight Financing Rate (SOFR), which competes with LIBOR by setting US interest rates within the US, usually at a lower rate. When the US Federal Reserve started to raise rates in 2022 it coincided with SOFR coming into its own. Those rate rises hurt Europe and the UK far more than America.
Since Trump was elected, it is clear that this strategy of splitting off from London’s power is gaining pace. Such financial nationalism from America is new, and Australia will have to think carefully about where it sits in the emerging matrix. It is not just the evolving military situation, or the increased use of tariffs, that ought to be keeping our leaders up at night as they try to understand what is happening.
David James is the managing editor of personalsuperinvestor.com.au. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.