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The New Depression

The business and political elite are flying blind. This is the mother of all economic crises. It has

We are living through a crisis which, from the collapse of Northern Rock and the first intimations of the credit crunch, nobody has been able to understand, let alone grasp its potential ramifications. Each attempt to deal with the crisis has rapidly been consumed by an irresistible and ever-worsening reality. So it was with Northern Rock. So it was with the attempt to recapitalise the banks. And so it will be with the latest gamut of measures. The British government – like every other government – is perpetually on the back foot, constantly running to catch up. There are two reasons. First, the underlying scale of the crisis is so great and so unfamiliar – and, furthermore, often concealed within the balance sheets of the banks and other financial institutions. Second, the crisis has undermined all the ideological assumptions that have underpinned government policy and political discourse over the past 30 years. As a result, the political and business elite are flying blind. This is the mother of all postwar crises, which has barely started and remains out of control. Its end – the timing and the complexion – is unknown.

Crises that change the course of history and transform political assumptions are rare events. The last came in the second half of the 1970s, triggered by the Opec oil price spike and a dramatic rise in inflation, which marked the end of the long postwar boom. Its political consequences were far-reaching: the closure of the social democratic era, the rise of neoliberalism, the discrediting of the state, the embrace of the market, the undermining of the public ethos and the espousal of rampant individualism. For the next 30 years, neoliberalism - the belief in the market rather then the state, the individual rather than the social - exercised a hegemonic influence over British politics, with the creation of New Labour signalling an abject surrender to the new orthodoxy.

The modalities of this present crisis are entirely different. Extreme as they may have appeared to be at the time, the economic travails of the 1970s were progressive rather than cataclysmic. The old system did not hit the wall, but became increasingly mired and ineffectual. What swept the social democratic era away was not the force de frappe of an irresistible crisis but that it was accompanied by the steady rise of a new ideology and political force in Thatcherism - and Reaganism in the United States - and its victory in the 1979 general election.

In contrast, the financial meltdown of 2007-2008 demolished the neoliberal era and its assumptions with a suddenness and irresistibility that was breathtaking. The political class, from New Labour to the Conservatives, is standing naked. They are still clinging to the wreckage of their old ideas while acknowledging in the next breath that these no longer work. The financial crisis is a matter of force majeure; political ideas and discourse change much more slowly, even when it is obvious that the old ways of thinking have become obsolete. Meanwhile, there is no political alternative waiting in the wings, refining its radical ideas in think tanks ready to storm the citadels of power as there was in the 1970s, notwithstanding the fact that think tanks are now far thicker on the ground. Instead, it has been the mainstream which senses that neoliberalism no longer works, fatally undermined by events and, ultimately, the author of its own downfall. This crisis will have the most profound and far-reaching political consequences and will in due course transform the political landscape, but it remains entirely unclear in what ways and when that might be.

In all these senses the financial meltdown has far more in common with the Great Depression than the Great Inflation. When the financial crisis consumed Wall Street in 1929 and proceeded to undermine the real economy, engulfing Europe in the process, it was not accompanied by a radical shift towards Keynesianism, but rather a reassertion of sound finance orthodoxy, followed in due course by the adoption of protectionism. The political mainstream as represented by Labour's Ramsay MacDonald and Philip Snowden and the Conservative Stanley Baldwin all sang from the same hymn sheet. Only Keynes and a faction of the Liberal Party enunciated a plausible alternative. Eventually a programme of fiscal deficits and public works was pursued by Franklin D Roosevelt in the United States, but in Britain Keynesianism was not properly embraced until rearmament and the approach of war. Indeed, it was not until 1945 that the combined legacy of war and the Depression belatedly resulted in a fundamental political realignment and the birth of the social democratic era.

The Grim Reaper has finally spoken:

a boom pumped up by credit steroids and a bust that takes us back to the 1930s

Since the financial meltdown dramatically intensified in September 2008, Gordon Brown has managed to ride the economic storm rather more successfully than the Conservatives, or, for that matter, than Tony Blair would have done. It is Vincent Cable, the Liberal Democrats' econo­mics spokesman, however, who has indubitably emerged as the political sage, unafraid of confronting neoliberalism's shibboleths, demonstrating a clarity of mind and the political courage to tell things as they are, in a way that has escaped all other prominent politicians. Although Brown was the economic architect of the past decade and was responsible, more than anyone else, for its excesses and was shaping up to be a rather disastrous Prime Minister, he displayed last autumn, at least initially, an agility of mind and nimbleness of foot that defied the expectations of those who believed he was capable of neither. He revelled in the sense of purpose and vision offered by the crisis, seemingly prepared to jettison the thinking that had imbued his previous decade as chancellor.

But Package Part I, widely hailed at the time and imitated elsewhere, proved woefully inadequate, and the financial system remains frozen. Meanwhile the waters are rising up the Good Ship UK, threatening to transform the banking crisis into a fiscal and currency crisis. It seems unlikely that, if that should happen, Brown will survive the next election.

Even if it does not happen, Brown faces a serious problem about his own past role, because Britain’s crisis has been greatly exacerbated by the soft-touch regulation, easy credit, runaway house inflation and overexpansion of financial services over which he presided and for which he is accountable. So far he has refused to admit or accept responsibility for his actions – he initially had the temerity (or foolhardiness) to argue that the UK was better placed than other countries to deal with the credit crunch, even though it has become abundantly clear since that the very opposite was the case. So while Brown remains in denial, the plausibility of his new turn, and his understanding of what is entailed, must be seriously doubted.

Indeed, after its initial boldness, the government now seems trapped by its past actions and its former ways of thinking. Brown's failure to accept the need to nationalise the banks suggests the limits of his new-found political courage, and his inability to embrace the logic and imperatives of the new situation. He is still a prisoner of his old timidity and his conversion to the neoliberal cause. It is his good fortune that the Cameron Conservatives have been hugely wanting in their response to the financial meltdown. Having spent his first years as leader of the opposition seeking to reassure the country of his centrist credentials, David Cameron, at the first whiff of gunfire, has turned on his heels, rejected Keynesianism and, at the very moment when events have shown Thatcherism to be deeply flawed and historically out of time, headed back to the Thatcherite womb of sound finance, arguing that a government must balance its books and that deficit financing, Keynesian-style, is reckless and irresponsible.

But all this, it must be said, is the small change of politics. The crisis threatens in time to sweep away the political world as we know it and those who fail to grasp its magnitude and meaning. Far more is at stake than the fortunes of a few leaders, be their name Brown or Cameron. Who knows where things will be this time next month, let alone next year or, indeed, in 2012? The financial meltdown now rapidly plunging the western world into what increasingly looks like a depression is the first great crisis of globalisation. There was plenty of warning. The Asian financial crisis of 1997-98 proved a salutary lesson about the dangers posed by huge capital movements that were subject to precious little regulatory control. Three economies capsized (South Korea, Thailand and Indonesia) and others stood on the brink.

There were other earlier warning signs, notably Mexico in 1995, when GDP fell by 9 per cent and industrial production by 15 per cent, following a run on the peso. These crises were blamed on the immaturity and fecklessness of national governments - in the case of east Asia on so-called crony capitalism (which, incidentally, prompts the question of how we should describe Anglo-American capitalism) - which the International Monetary Fund obliged to engage in swingeing cuts in public expenditure as a condition of their bailouts.

Yet what if such a crisis were to be no longer confined to the peripheries of global capitalism but instead struck at its heartlands? Now we know the answer. The crisis has enveloped the whole world like an uncontrollable virus, spreading from the US and within a handful of months assuming global proportions, at the same time mutating with frightening speed from a financial crisis into a fully fledged economic crisis. In so doing, it has undermined the foundations on which the present era of globalisation has been built, namely scant regulation, the free movement of capital, a bloated financial sector and immense reward for greed, thereby bringing into question the survival of globalisation as we now know it.

Enormous international flows of unregulated capital have capsized the international financial system - with disastrous consequences for the real economy - in a manner akin to the effect of a roll-on, roll-off ferry shipping too much water. We can now see the cost of free-market capitalism and light-touch regulation. Iceland may provide an extreme example of the consequences of the credit crunch but it also illustrates the dangers facing the more vulnerable economies, the UK included, in a deregulated world where the market rules: a small, open economy; a large, internationally exposed banking sector; an independent currency that is not a serious global reserve currency (of which there are only three); and limited fiscal strength. These propositions have constituted the core economic beliefs - from Thatcher and Lawson to Blair and Brown - that have informed policymaking over the past three decades and without which, it was claimed ad nauseam, an economy could not succeed. Heavy-handed regulation and an overbearing state would serve only to frighten off capital and condemn a country to slow growth, stagnation and global marginality. Now we know the fallaciousness of these claims and the consequences of "letting the market decide".

Like Iceland, albeit not as extremely, Britain has been living in a fool's paradise. A failure to regulate the banks and other financial institutions in any meaningful fashion allowed bankers to behave in a grossly irresponsible and avaricious fashion; a boom that was made possible only by a government-enabled credit binge in which people borrowed recklessly; a bloated financial sector that grew to represent over 8 per cent of the total economy and which was found to have been built on foundations of sand; an overvalued currency that made manufacturing exports uncompetitive and thereby resulted in an unnecessary and counterproductive contraction in the manufacturing sector which must now be reversed; an absurd belief that boom and bust had been banished for ever, allowing the banks to turn a blind eye to the inflating of various asset bubbles and display a profound ignorance of the history of capitalism; a persistently chronic current account deficit that can no longer be compensated for by inward capital flows; monstrous salaries for those at the top of the financial and corporate tree, which were justified in terms of a trickle-down effect that remained a chimera, and as the reward for risk which was, in fact, a reward for greed and failure; growing inequality, which was justified in the name of a more competitive economy accompanied by declining social mobility in the cause of an open and flexible labour market; and, finally, the mushrooming of what can only be described as systemic corruption on a mega-scale as the state ignored the gargantuan abuses of those who ran the banks and other financial institutions, while regulatory authorities willingly colluded in their excesses.

This is the sad story of the New Labour era.

The ultimate cost of this debacle as yet remains unknown. What began as a financial crisis is threatening, as the government seeks to bail out a bankrupt financial sector, to become a currency crisis, with foreign investors concerned about the effects this might have on the value of sterling, and perhaps even worse, ultimately a sovereign debt crisis, with growing doubts about the UK’s financial viability. Until there is some end in sight to the financial crisis, and a line can be drawn under the banks’ indebtedness, we will not know the answer to these questions. One thing is clear, however: whatever the limitations of the social democratic era, it was never responsible for such an all-enveloping and cataclysmic crisis as the one that the neoliberal era – and the Thatcherites and New Labour – have managed to produce. After all the boasting about the virtues of the Anglo-American model of capitalism, the Grim Reaper has finally spoken: a boom pumped up by credit steroids and a bust that takes us back to the 1930s.

There are two key aspects to this crisis: national and global, with the latter promising to be rather solutions are concerned, we are in uncharted territory, with close to zero interest rates, a Keynesian-style fiscal boost that may prove inadequate to the task and could well fail, a hugely indebted financial sector that threatens to leave us with an enormous future tax burden and a greatly expanded national debt. All of this, furthermore, must be addressed in the context of an open-market regime which is very different from those of previous eras, and which could render Keynesian-style national solutions ineffectual. What would greatly assist any national recovery is a co-ordinated global response to the crisis; in other words, global co-operation at the highest level. This cannot be ruled out, but it would be a brave person that would bet on it. It was exactly the lack of international co-operation that bedevilled recovery in the 1930s and eventually led to the Balkanisation of the world into regional currency and trading blocs.

The most important single question in this context is the relationship between the US and China. Will the Obama administration be able to resist the slippery slope of creeping protectionism? Will arguments over the revaluation of the Chinese renminbi be resolved amicably? If the answer is in the negative, then the global outlook will be very bleak indeed and so, also, as a result, will be the prognosis for national recoveries. Indeed, the prospects would look disturbingly like those of the 1930s, with growing international antagonism and friction and a continuingly intractable crisis at a national level, with only the very slowest of recoveries.

Around the world there is growing evidence by the week of a resort to national solutions at the expense of others: measures to subsidise industries that are in severe difficulties; the Buy American clause that was inserted by the House of Representatives into Barack Obama's latest package (though since weakened); the industrial action in Britain against foreign workers; the withdrawal of banks to their national homes; the attack by Timothy Geithner, the US treasury secretary, on China as a currency manipulator. No Rubicon has been crossed but the warning signs are clear. A retreat into protectionism and beggar-thy-neighbour policies will deliver the world into a second Great Depression.

So what will be the political effects of the financial meltdown? Some are already evident. Just as the Great Inflation of the 1970s played to the tunes and concerns of the right, with its invocation of the market, the New Depression suggests the opposite, the inherent limitations of the market and the indispensability of the state. Indeed, the speed with which the neoliberal refrains and invocations have unravelled has been breathtaking. The single most discredited aspect of the social democratic legacy was nationalisation, and yet the government, with the most extreme reluctance, has been obliged to nationalise Northern Rock and partially nationalise the Royal Bank of Scotland and the merged Lloyds TSB and HBOS. Who would have ever imagined, at any point during the past 30 years, that no less than the financial commanding heights of neoliberalism would have ended up in the hands of the state, with precious little opposition from anyone except a few disgruntled shareholders? Even now, however, the Labour government, still trapped in the ideological straitjacket of New Labour and displaying extreme timidity in the face of powerful vested interests, which has always been a New Labour characteristic, is running scared of the inevitable logic of the situation, namely that all the high-street banks should be taken into public hands until the mess is sorted out. Anything else leaves the public responsible for all the debts and risks, while the banks continue to be answerable to the very different interests of their shareholders. But such is the fury and depth of the crisis that this scenario is highly likely.

The state is experiencing an extraordinary revival. The credit crunch is the most catastrophic example of market failure since 1945. It became almost immediately obvious to wide sections of society that there was only one institution that could potentially sort out the mess: the state. Far from being a rational distributor of resources, the market had proved the opposite. Far from bankers and financial traders embodying the public interest, they have been exposed as irresponsible and dangerous risk-takers whose primary motivation was voracious greed. If trade unionists and the nationalised industries were the demons of the 1970s, bankers and the financial sector have assumed the mantle of public enemy number one in the late Noughties. In fact, the irresponsibility of bankers, and the damage they have inflicted on the economy, hugely exceeds anything that the unions could possibly be held responsible for in an earlier era. Meanwhile, the fallen heroes of the pre-Thatcher era, most notably Keynes, are duly being exhumed, restored to their rightful position, and pored over for their ability to throw light on the present impasse and what might be done; if the recession turns into a depression, Marx will once again become required reading.

This political shift is not just a British phenomenon, but a more general western one. The most striking feature of President Obama's inaugural speech was the way in which it embraced and legitimised African Americans for the first time in American history. But it also had another powerful theme, namely its invocation of the public interest and public service. After decades during which American political discourse has been dominated by the language of individualism and the market, it came as a shock to hear a US president articulate a very different kind of philosophy, renouncing private greed in favour of the public good. Obama's election can in part be seen as a response to the failure of the neoliberal era, as well as of Bush's neoconservative agenda; certainly his election represents a remarkable shift to the left in US politics, in contrast not just to Bush, but every recent US president, including Reagan, Bush Sr and Clinton. That Obama is the first African-American president also represents a remarkable redrawing of the political landscape. There is no more powerful - nor difficult - way of redefining society or to embrace a new form of representivity than to include a racial minority that has been excluded.

This brings us finally to what might be the longer-term global consequences of the crisis. Again, we are inevitably stumbling around in the dark because so much depends on whether the recession metamorphoses into a fully fledged depression and in what way and shape the world eventually emerges from the debacle. That said, two key points can be made. First, the credit crunch signals the demise of the Anglo-American, neoliberal model of capitalism, which has exercised a hegemonic influence over western capitalism and been the blueprint for globalisation since 1980. Because of its catastrophic failure there seems very little chance of its resurrection. The process of recovery - whenever that might be - will be accompanied by an overriding concern to ensure that the events of 2007-2009 are not repeated in the future, just as happened in the US in the 1930s with the strict regulatory framework that was introduced for the banks after their comprehensive failure in 1929. This will include the search for a new global regulatory framework that controls and constrains international movements of capital, as well as strict controls over the financial sector at a national level. A new set of political priorities - and with it a new political language - will be born.

Meanwhile, the influence and prestige that the US, and to a far lesser extent Britain, have enjoyed will vaporise in the same manner as their neoliberal model. Their 30-year project has failed and they will be obliged to pay the price in their reputation and the esteem in which they are held. The countries of the former Soviet Union and the casualties of the Asian financial crisis that were forced to swallow the neoliberal medicine will have good reason to feel aggrieved and resentful. The west has been forthright in accusing the non-western world of corruption. The financial meltdown suggests that the west has been guilty of huge hypocrisy. Systemic corruption has lain at the heart of the western financial system. An entirely disproportionate and extortionate level of bonuses has ensured the enormous enrichment of top executives in the financial sector, all in the name of reward for success, when in fact it was the reward for failure. In addition, we have had the collusion of the credit-ratings agencies; a regulatory system characterised by its failure to act as any kind of constraint; and governments that ensured the continuation of this web of relationships and applauded its achievements. The corruption was on a breathtaking scale as evidenced by the size of the bailouts required to rescue the banks. It will be difficult for western governments to make these kinds of accusations of others in the future. That Obama represents such a voice of hope will help to mitigate the inevitable ill-will towards the US, but this should not be exaggerated amid the euphoria surrounding developments in Washington.

The second point is more far-reaching. It is doubtful whether we can still describe ourselves as living in the American era or, indeed, the Age of the West. If not yet quite over, both are certainly drawing to a close, and it seems likely that the effect of the financial meltdown will be to accelerate the rise of China as a global power. The contrast between the situation in China and that in the US could hardly be greater, even though it has been partially obscured by the depressive effect of the western recession on Chinese exports and on China’s growth rate. While the US economy is contracting, China’s grew at roughly 9 per cent in 2008 and is projected to grow at about 6 per cent in 2009. Its banks, far from bankrupt like their US counterparts, are cash-rich. China enjoys a large current account surplus, the government’s finances are in good order and the national debt is small. This is a crisis that emanates from the US and whose impact on China has been essentially indirect, through the contraction of western markets. It is the American model that has failed, not the Chinese.

One of the factors that intensified the Great Depression, and indeed was part cause of it, was Britain's growing inability to continue in its role as the world's leading financial power, which culminated in the collapse of the gold standard in 1931. It was not until after the war, however, that the US became sufficiently dominant to replace Britain and act as the mainstay of a new financial system at the heart of which was the dollar. The same kind of problem is evident now: the US is no longer strong enough to act as the world's financial centre, but its obvious successor, namely China, is not yet ready to assume that mantle. This will undoubtedly make the search for a global solution to the present crisis more difficult and more protracted.

Martin Jacques's new column will be published fortnightly in the New Statesman. His book "When China Rules the World: the Rise of the Middle Kingdom and the End of the Western World" will be published in June (Allen Lane, £25)

the global downturn in numbers


    IMF prediction for global growth in 2009 - worst since WWII

    Up to 40 million

    Number of people who will lose their jobs this year, according to the International Labour Organisation


    Total pledged by the US alone towards solving the crisis


    Proportion of GDP pledged by the G7 and BRICs countries towards fixing the crisis (1.5% this year)


    Number of US properties that received a default notice or were repossessed in 2008. In the UK, 45,000 homes were repossessed - another 75,000 are expected to be taken in 2009


    Number of major global banks which collapsed, were sold or were nationalised during 2008


    Number of European companies expected to fail this year; an additional 62,000 are expected to fail in the United States. These figures represent record levels of insolvency


    Increase in UK company failures between late 2007 and late 2008


    Drop in level of Chinese exports during January


    Current UK interest rates (down from 5% in October 2008). In the US, rates have fallen to between 0 and 0.25%

How the crisis unfolded

13 September 2007 Run on Northern Rock begins when it is revealed that the bank has requested emergency support from the Bank of England

21 January 2008 FTSE suffers worst falls since 11 September 2001

February 2008 Northern Rock nationalised

17 March 2008 JP Morgan Chase takes over the US investment bank Bear Stearns

12 July Mortgage lender IndyMac collapses - second biggest US bank in history to fail

9 August 2007 European Central Bank pumps ?95bn into banking market

7 September Financial authorities step in to rescue Fannie Mae and Freddie Mac

9 September Bradford & Bingley becomes second British bank to be nationalised

15 September Lehman Brothers files for bankruptcy

16 September AIG, biggest insurance firm in the US, receives $85bn rescue package

3 October 2008 US government announces $700bn Troubled Assets Relief Programme

8 October UK launches its first bank bailout plan, making £50bn available

October 2008 Iceland's banks collapse. IMF extends £1.4bn ($2.1bn) loan a month later

24 November Alistair Darling announces a temporary cut in VAT from 17.5 to 15 per cent

23 January 2009 UK enters recession

28 January US Congress passes Barack Obama's $819bn stimulus package

5 February UK Monetary Policy Committee votes to cut interest rates to 1 per cent - the lowest in over three centuries

Michael Harvey

Martin Jacques is a journalist and academic. He is currently a visiting fellow at the London School of Economics Asia Research Centre and at the National University of Singapore. Jacques previously edited Marxism Today and co-founded the think-tank Demos in 1993. He writes the World Citizen column for the New Statesman. His new book on the rise of China, When China Rules the World, will be published in June.

This article first appeared in the 16 February 2009 issue of the New Statesman, The New Depression

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What would a Trump presidency mean for the rest of the world?

It would be wrong to hope that either domestic or international checks and balances will constrain Trump abroad. Geopolitically, the result would be unpredictable – at best.

The conventional wisdom about Donald Trump runs something like this. Trump is a buffoon. His solutions to world problems are not policies at all, but merely a set of contrarian reflexes. They will soon be ­exposed in the next televised presidential debate against his rival Hillary Clinton, who put in a strong performance during the first round. He is, critics say, a mere pied piper whose “deplorable” followers suffer from false consciousness about their true economic interest. Trump’s election would be a disaster, the argument runs, but his policies will soon prove impracticable.

The conventional view is wrong. Although his personal behaviour is often clownish or boorish, and he has shown astonishing ignorance of some important international issues, Trump has a perfectly coherent world-view and strategy which are rooted in certain established American traditions, even if these are now largely defunct. Most of his followers know exactly what they are voting for and they are right to believe that he will deliver, or at least attempt to do so. As for the idea that a Trump presidency would be a disaster, that is completely wide of the mark. It is actually much worse than most people think. President Trump has the potential to be an unmitigated catastrophe – if not for the United States, then certainly for the rest of the world.

Far from taking a leap in the dark, Trump supporters know that they will be voting for a clearly defined package of domestic and foreign-political measures. With Trump, in ways that are not really true of his predecessors, or of Hillary Clinton, the two spheres cannot be usefully separated. He stands for the protection of American jobs at home, and therefore for a restrictive trade policy abroad. He wants to get tough on terrorism by having recourse to torture, in both the United States and the rest of the world. He wants to increase military spending. He wants to “put America first” and increase investment in schools and infrastructure in the United States, and therefore eschews “nation-building” abroad.

We should not assume that this is just rhetoric. First, because Trump has been saying all this, or much of it, for years in his writings and in off-the cuff statements. He is no mere opportunist. Second, because we know from scholarly analysis of recent campaigns, such as the one carried out by the former White House adviser and political scientist Steven Schrage, that presidential policies often quite closely track those advanced during the campaign. Third, because Trump emerges from the confluence of two long-dormant but now resurgent American political traditions: the blunt, early-19th-century appeal of Andrew Jackson to the “common man” and the protectionist isolationism that produced the Smoot-Hawley tariffs and the Charles Lindbergh of the 1930s.

When contemplating Trump, critics often focus on his domestic consequences. They foresee an empowering of white supremacist discourses and a surge in hate crimes, especially against Muslims. These are reasonable fears, but the threat Trump poses to politics within the United States is probably overstated. There will certainly be an increase in racial tension and other forms of unpleasantness, but American society is resilient, diverse and fundamentally decent, even if some of it is currently trying to prove the opposite. The US is not seriously at risk of lapsing into the kind of populist authoritarianism we see in many other parts of the world. Moreover, the nature of the American constitution is such that Trump will be very constrained in what he can do at home: by Congress, by the courts and various other checks and balances.

There are far fewer impediments, however, to presidential power in foreign policy. As so much of Trump’s domestic programme depends on what he does abroad, the rest of the world will be much more exposed to a Trump presidency than the Americans themselves.

Trump’s impact on the world will initially be a matter of style. He has shown himself to be misogynistic, vindictive, xenophobic and unafraid to trample on the feelings of veterans or the bereaved. This would be neither here nor there – tastes differ, after all – were it not that Trump’s personality will translate internationally into an instinctive rapport with other “outspoken” leaders such as Vladimir Putin in Russia, Recep Tayyip Erdogan in Turkey or Rodrigo Duterte in the Philippines. In the event of disagreement between them and Trump, we might expect a degree of vituperation on both sides in ways that are not compatible with the long-established dignity of the presidency of the United States.

Style will soon become substance. At best, a Trump presidency will lead to the “Berlusconification” of international politics, which will become extended reality-TV events, at least in so far as they relate to the United States. More seriously, his antics will empower and encourage a coarsening of the discourse between states and about world problems. Here, the contrast with Presidents George W Bush and especially Barack Obama, whatever one thinks of their policies, could not be sharper.

Trump’s style will matter in international politics for another reason. First, despite all his rhetoric about deal-making, where his business experience is considerable – and he has sometimes shown a capacity to compromise – he seems to have a very limited and belligerent idea of what constitutes a successful diplomatic negotiation. Rejecting notions of “win-win”, Trump views a political “deal” as the imposition of his will on the other side. “In the end,” he writes of one successful transaction in his bestselling book The Art of the Deal, “we won by wearing everyone else down.” It is therefore no surprise that he cleaves to an essentially mercantilist view of world trade in which, say, Japan’s gain is America’s loss. Given his severe anger management issues, the great danger is that a clever adversary will get under his skin, provoke outbursts, and either make a laughing stock of the greatest power on Earth or precipitate a confrontation.

Second, Trump favours a particularly intuitive style of decision-making. He has gone on record as saying that people “are surprised by how quickly I make big decisions, but I’ve learned to trust my instincts and not to overthink things”. Of course, it is true that international politics often requires leaders to make speedy decisions, yet it is deeply worrying to think what Trump’s instincts will lead to when he has the proverbial finger on the button. This problem has already been commented on by a phalanx of Republican national security experts, none of whom thinks he should be entrusted with the nuclear codes.

No reliance should be placed here on the restraining force of his advisers, or of the bureaucracy in the US state and defence departments. Trump has already signalled that he will not listen. When asked a few months ago to identify those he consulted most often on foreign affairs, he replied: “I’m speaking with myself, number one, because I have a very good brain and I’ve said a lot of things.” The foreign policy “team” he has produced during the campaign is the weakest and most obscure that anybody has encountered in living memory.



The essence of Donald Trump’s vision for the world is the revival of American national greatness. He wants to “make America great again”. “Americanism, not globalism, will be our credo,” he says. His slogan “America First” is an unashamed borrowing from the isolationist platform of the 1920s and 1930s.

By contrast with every single Democratic and Republican president since the Second World War, including George Bush, Jr, Trump rejects the international liberal order. In office, this will be reflected in his opposition to global human rights initiatives, whether that be the banning of torture, or collective action to help Syrian refugees (whom he sees not as victims but as an Islamist national security threat). He will ride roughshod over human rights sensitivities when building his wall with Mexico. On the environment, Trump is likely to abrogate the Paris accord on greenhouse-gas emissions and to press ahead with work on the disputed Keystone oil pipeline between Canada and the US, as well as other projects.

He may well also play fast and loose with the national debt, having suggested that he may not repay it or the interest in full. “I’ve borrowed knowing that you can pay back with discounts,” he explains, adding that “I would borrow knowing that if the economy crashed you could make a deal”. But he may find that his ability to bounce back no fewer than four times from business bankruptcy may not be a transferable skill.

The other area in which Trump plans to tear up the international rulebook, and here the parallels with his opposition to gun control are evident, is the field of nuclear non-proliferation. He has repeatedly welcomed the idea of a Saudi, or South Korean, or Japanese nuclear bomb. The thinking is that this will achieve a balance of terror, which will keep the peace better than costly American intervention.

Cumulatively, all this will cause considerable disruption. It will unravel many of the webs of international society carefully woven over the past six decades or so. It may well make the Korean Peninsula or the Gulf even more unsafe. It will certainly make life unpleasant for Mexico. And it will lead to the end of the United States acting as the world’s policeman. The US will step up the number of global snatch-squads in the war on terror, certainly, but will cease to exercise a general superintendence over the defence of democracy and human rights. No Iraqs, perhaps, but also no interventions in Bosnia or Kosovo. The worst, however, is yet to come.

At the heart of Trump’s revolt against the liberal order, undoubtedly, is economics. Reviving the national economy is essential to his vision of making America great again. Central to that project is a revision of the terms of trade. Trump is convinced that the US is getting a raw deal, not only from its enemies, but also – and most importantly – from its friends. He might well overturn the North American Free Trade Agreement, will probably disavow the Trans-Pacific Partnership, and is most unlikely to go through with the Transatlantic Trade and Investment Partnership, assuming it is not killed off first on the other side of the Atlantic. He would not be above leaving the World Trade Organisation altogether. Above all, Trump will take on China, which he accuses – with considerable justice – of currency manipulation and sharp practices. At the very least, he will instruct the US ­department of commerce to take cases against China and he may well embark on a full-scale trade war.

If Trump’s grand strategy will begin with economics and trade, it will not end there. His measures will unleash their own, essentially geopolitical dynamic. At the moment, the Chinese are contemplating the prospect of a Trump presidency with remarkable insouciance. They seem to regard him as one of their own, a man who will not bother them with human rights sermons, and with whom they can do business. In some ways they are right: he is one of them. That, however, is the problem. Trump shares their ­zero-sum view of the world, and he explicitly intends to prevail at their expense.




Nobody has ever looked inside the “black box” of an all-out trade confrontation between China and the United States. Even if one thinks – as this author does – that some form of reckoning with China is necessary, Trump is surely the man temperamentally least suited to lead it. His strategy may revive American manufacturing, but modern supply chains are such that China is inextricably stitched into the US industrial ecosystem in ways that could defy safe unravelling. Yet one thing is clear: China, which holds a huge chunk of the US federal debt, will bitterly resist any attempt to repudiate it. Moreover, if unplugged from the US market, particularly at a time of falling European demand, China will face vast economic dislocation and consequent internal unrest. One way or the other, the reaction to any such measures by the Americans will be violent, with a countdown to conflict comparable only to the one triggered by Franklin D Roosevelt’s decision in 1941 to freeze all Japanese assets in the US and impose an oil embargo on Japan.

Another arena where Trump will give the kaleidoscope an almighty kick is Europe. His hostility to the European Union – the principal instrument of the continental order hitherto strongly supported by the United States – is well documented. This will add yet another problem to the long list already confronting Brussels and the national governments. As if that weren’t bad enough, Trump will encourage the European “deplorables”: Alternative für Deutschland in Germany, Jobbik in Hungary and the French Front National. His xenophobia and authoritarian personality will chime with them; his protectionism may even resonate on the European left. He will therefore be much less isolated in Europe than many like to think.

Worse still, the example of a wall with Mexico may well inspire similar endeavours in Europe – in the Balkans and the Mediterranean (where some barrier is necessary to defend the external boundary of the Schengen passportless travel zone), but also in central Europe and perhaps even within the core of the EU, thus destroying free movement of people on mainland Europe. The period from 1989 to 2016 may become known as “the interwall era”. The walls will go up across Europe and we may not see them brought down again in our lifetime.

But the deadliest threat to European security is Trump’s attitude to Nato. He has repeatedly questioned whether the United States should continue to protect Europe, most of which fails to pay its agreed contribution to the common defence. Here – unlike in the cases of South Korea and Japan, which largely pay their way on defence – he has a point. It is negated, however, by his undisguised admiration for Putin, the single greatest threat to the stability of the European order. One of Trump’s top military ­advisers, Michael T Flynn, a retired general, is a Russia enthusiast. One of his most trusted former confidants, Paul Manafort, served as a long-term political consultant to the disgraced ex-president of Ukraine and Russian stooge Viktor Yanukovych. One of his few named foreign policy advisers, Carter Page, also has close links to Russia.

Everything points to a President Trump lifting sanctions on Putin before time and recognising Russia’s annexation of Crimea. He is also highly likely to undermine the value of Nato’s Article 5 guarantee of collective defence, which will place the Baltic and Black Sea states and Poland in the firing line. Yet he seems oblivious to this danger, largely because he does not take Russia seriously in economic terms. It is one of the many failings of his foreign policy, and a surprising one, given his general belligerence, that he
does not take other factors, such as ideology or raw military power, much into account.

Geopolitically, the results of all this are entirely unpredictable and could lead to a different global strategic balance. In effect, Europe will be left on its own to stand against Russia and defend Western values worldwide. Putin may be emboldened to take risks, in Ukraine, in eastern and northern Europe, and elsewhere. On the other hand, he may prefer to explore a strategic partnership with Trump. That will surely begin with a joint effort to support the Assad regime in Syria, and probably develop into an alliance against China. In that case, we will be in a genuinely tripolar or even quadripolar world, in which the relationship between the Russo-American alliance, the British-European confederation and the other Eastern dictatorship, China, will be one of unstable equidistance.




Finally, it would be wrong to hope that either domestic or international checks and balances will constrain Trump abroad. The executive will be bound to obey most of his orders in theory and probably all of them in practice. It is true that the military, the CIA and law-enforcement officers might, as the former National Security Agency and CIA director Michael Hayden has suggested, refuse to follow an “illegal” order. It is also possible that Congress might hold up international trade measures in so far as they relate to treaties. The EU may even be so appalled that it rallies in the face of Trump.

Yet this is wishful thinking. Crucial questions, such as whether to deliver on a Nato Article 5 guarantee in Europe, are matters to be decided by the executive alone, and for good reason. Moreover, Trump will have much of the United States behind him in making his initial foreign policy moves. Demand that the Europeans “pay up” for their own defence? Why not? Beat up on China’s protectionism? What’s not to like? As for Isis, even Homeland’s Peter Quinn thinks that the solution is to “pound Raqqa into a parking lot”. It would take superhuman moral and political courage to stop Trump early on. And with Europe, the idea that it will show resolve in the face of an external threat is, sadly, a sign of the triumph of hope over experience. Many Europeans, in fact, will cheer him on. At home and abroad, Trump will the harvest low-hanging fruit first, and then invest the capital gained in riskier enterprises. When he does really overstep the mark, it will be too late.

There is a very thin silver lining in all of this, at least for Britain: Trump is a known enthusiast for the United Kingdom. He has come out strongly against Scottish independence. He will almost certainly favour London over Brussels in trade matters. Above all, with him in the White House, Theresa May will be the only grown-up left among the major military powers of the West. The EU will almost certainly try to compensate for the loss of an interlocutor in Washington by moving closer to London. Britain will probably also benefit from an outflow of American “creatives” after a Trump victory – at least, of those for whom Canada isn’t far away enough. Britain may well also attract talent from around the world that would otherwise have gone to Silicon Valley or other centres of innovation in the United States.

In short, President Trump is likely to deliver a severe shock to both the US and the rest of the world. Although at home there are clear limits to what he can achieve, there are far fewer constraints abroad. There is little doubt, therefore, that the Americans, and probably the British, will survive Trump. The question is: will the rest of us?

Brendan Simms is an NS contributing writer. His latest book is “Britain’s Europe: a Thousand Years of Conflict and Co-operation” (Allen Lane)

This article first appeared in the 06 October 2016 issue of the New Statesman, Trump's triumph