Domestic politics is becoming more polarised.
International politics is moving from a unipolar to a multipolar world. The transatlantic security alliance is under threat. The weaponisation of tariffs is leading to deglobalisation. How to make sense of this increasingly fragile world? We explore some of the key themes of this new world dis-order. Stock market, tariffs and the new world dis-order
Politicians and diplomats have long feared a Trump-linked rupture in the transatlantic relationship. Few expected to watch it on live TV. The first tremor was hearing Trump pontificate on incorporating Canada, Greenland and the Panama Canal into the USA, and renaming the Gulf of Mexico the ‘Gulf of America’. For Trump’s America First vision, ensuring that the immediate vicinity of the US is 100% aligned to its interests in security, resources and the Arctic is a natural starting point. And opening negotiations with an outrageous claim is classic Trump style. The second tremor was watching Vice President JD Vance’s criticism of European priorities at the Munich Security Conference, where he argued that the greatest threat to Europe was not from China or Russia, but from within: mass migration (Germany), erosion of freedom of speech (UK), and legislators’ rejection of unsatisfactory voting results (Romania). There is a visible gulf between the Trump administration’s ethos and Europe’s leaders who are used to the traditional rules-based international order, underpinned by American hard power. But as Vance said, “there’s a new sheriff in town.” The full-blown earthquake came watching Trump and Vance aggressively put down Zelensky in the Oval Office. A diplomatic row that went from behind closed doors to playing out in full, live in front of the press. For Western viewers, so used to seeing the lionisation of the Ukrainian president, the episode was an unpleasant sign of how US priorities and preferences have changed. The reactions and positions of US and UK/European governments could not be more different. UK/European leaders have leapt to Zelensky’s defence. These events show a political shift that goes deeper than Trump’s reawakening of trade frictions. These political shocks mark the beginnings of a new world (dis)order. So how to make sense of this fragmenting new world? Unfortunately, it’s personal
Zelensky had enjoyed the support not only of Europe but also the Biden administration. Unfortunately, the Trump administration is so vitriolically anti-Biden that they cannot forgive Zelensky’s campaign support for Biden’s re-election.
In this New World Order, personal relationships and “clan-based” politics are as or more important than official diplomacy. A change in “clan” in the US has resulted in a complete change in US policy. For the UK, Trump’s respect for the Royal Family makes them a valuable soft power asset when it comes to getting his ear, perhaps helping him to overlook Labour party activists’ support for the Biden re-election campaign. Where personality is so important perhaps the UK will follow the US example of appointing non-Foreign Office outsiders as Ambassadors: Mandelson for example. In this New World Order, personalities may matter more than due process when it comes to diplomatic relations. Follow the money
The masks are off – the negotiations with Ukraine were about money: a share in mineral rights – specifically rare earths – for the US to recoup grant money made to Ukraine and to create a vested US interest in Ukraine that could deter the Russians. By contrast, Zelensky wanted the certainty of US security guarantees before considering a ceasefire. While Europe stands appalled, France is also quietly trying to secure access to the same rare earths, which are so crucial to defence manufacturing. There has always been a less prominent financial incentive angle to past conflicts (whether seizing Iraqi oilfields, Syrian oilfields, or securing reconstruction or development contracts in Iraq and Afghanistan). It may be more obvious this time.
In this New World Order, we can expect Governments (particularly the US Government) to act transactionally, negotiating aggressively to secure their interests. It’s a return to a mercantile past. Challenging the narrative
Trump and Musk’s emphasis on freedom of speech and unmoderated content helps them challenge Democrat-era narratives. What were once dismissed as conspiracy theories or “alt right” narratives are being rehabilitated as facts. For example, the claim that Covid was a lab leak was dismissed as conspiracy theory but is now the Trump administration’s central view. By contrast, the claim that Russia interfered in the US elections is now dismissed as fabrication. By destabilising narratives, and making truth more malleable, a climate of mounting distrust makes voters more reliant on the echo-chamber of the information space they inhabit.
In this New World Order, we can expect fewer constraints on extreme views from all parts of the political spectrum leading to greater fragmentation and more support for new “challenger” political forces such as AfD in Germany and Reform in the UK. The peace dividend is over
The peace dividend that came with the end of the Cold War in 1991 is over. During the Cold War, the UK spent approximately 5% of GDP on defence. In line with NATO spending commitments, this has dropped to 2% since the end of the Cold War. In a new era of military insecurity, and with the US looking to take a smaller role in European defence, defence spending will have to increase as greater military investment is required by Western governments, industry and society.
In this New World Order, we can expect a rapid increase in defence spending in order to try and contain Russia’s ambitions in Ukraine in light of the reduced role adopted by the US. Polarisation within countries
Polarisation of domestic politics is a trend in many countries. Social media echo chambers have extenuated this. Echo chambers exist where users only tend to see a greater amount of content they like and concur with, thereby embedding confirmation bias. This narrows the spectrum of viewpoints that someone is exposed to making their own views seem like the majority view, and anything else “extreme”. Polarisation has also happened when electorates have faced decisions that are positioned as binary outcomes of two extremes. For example, Brexit in the UK. Or Trump/Harris in the US. Increased polarisation creates space for alternative political parties to gain traction – Reform in the UK, AfD in Germany, Freedom Party in Holland the National Front in France.
In this New World Order, polarised political views are more divisive and more militant, verging on extremist. Deglobalisation
Trump claims that “tariffs” is his fourth favourite word (after God, Love and Religion). As with the first term, Trump is using the threat of tariffs against those wishing to access the world’s largest economy as a negotiating tactic to extract concessions.
If globalisation is about reducing trade frictions and offshoring manufacturing supply chains to the lowest-cost manufacturing bases, deglobalisation is about increasing trade frictions and reshoring manufacturing to the domestic market. These trends reinforce nation-state politics, reinforce a stickier inflation environment, but also help resuscitate MAGA’s rust belt heartlands that form such a large part of Trump’s support base and popularity. In this New World Order, we can expect more country-to-country trade frictions in the near-term, rather than ever-larger free-trade blocs. Remapping energy supply chains
Before the war, European industry and power generators could pipe Russian gas “on tap” directly from production fields via Soviet-era land-based pipelines and also new sea-based Nord Stream pipelines (since destroyed). This ensured price stability, and cheap energy for European manufacturers and utilities.
We expect the sanctions regime against Russia to remain in place for a long time after any end to the war (for Serbia it lasted over 10 years). The era of cheap and immediate Russian energy is over. Europe will continue to import Russian oil and related products via India. Europe will continue to buy growing volumes of US LNG and be required to build more LNG terminals. For any reduction in Net Zero targets, Europe will need to invest further in low-cost wind, solar and nuclear energy. The renewable energy objective competes with the desire to reduce dependency on China which dominates renewable energy manufacturing. In this New World Order, we can expect energy costs to be stickier and Net Zero targets to be pushed out or watered down. Higher energy costs could slow the recovery of heavy industry in Europe. Eventually there could be an incentive for oil majors to start North Sea drilling once again. How best to position investments for the New World (dis)Order?
We think there are three priorities to consider when reviewing investments for this new world (dis)order:
While it is reasonable to expect volatility ahead, this also creates potential opportunity so it is important to stay invested to weather it, but to be selective to ensure portfolio resilience. Henry Cobbe Director and Head of Research Elston Consulting Comments are closed.
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