Whiplash

Whiplash

The concept of the 'West' has been in existence since shortly after the end of World War II. It describes the post-war order of the USA and its allies against the 'East'. It consisted of an economic, political, and military arrangement and had nothing to do with geography. It included the dominance of the Dollar as the reserve currency of the world, initially backed by Gold and then not.

It symbolized an American-led world order that included Japan, Korea, and in the period since the collapse of the Soviet Union, many Eastern European nations.

The nature of US world leadership has been impacted by the changing balance within the global order, led by economic changes. See this graphic from Visual Capitalist (article below).

The share of world GDP accounted for by the USA has shrunk and so to its share of world trade.

Weakening nations have historically favored protectionism. Strengthening nations, especially economic global leaders, have historically favored free trade. The US began moves towards protectionism well before the current Government, but now the tipping point has arrived.

2025 represents the end of the 'West'. USA first replaces the 'West' as an organizing principle. The on-again, off-again whiplash of tariffs and markets is noise. The signal is in the breakup of former relationships and an attempt to reorganize the US's position in a new fragmented world order.

Attempts to characterize these changes as deglobalization are superficially correct. But only because the USA was the world leader for the past 8 decades. Unchallenged US leadership was the form taken by globalization. Free trade represented its strength in the context of economic growth. The end of US world leadership is the end of globalization in that definition. But actually, we are about to experience a new global order.

The next phase of the global order will be made up of the same players, but playing different roles. China is already a global giant and growing. Asia as a whole is bigger still and a center of manufacturing as well as technology. Consumption inside Asia will be larger than the rest of the world as a whole.

Global (and US) GDP is not going to shrink. Indeed it may grow faster under the rise of AI than ever before. But a shrinking percentage of it will be made in or revert to the USA.

Looked at from this point of view Trump's tariffs, and the direction they represent, is rational. The USA has to do what the UK learned to do over the past century, play defense and accept not being the sole world leader. This may slow down the change to a new global order, but not stop it.

In this context, ideological memes can be confusing. It is worth remembering some truths.

Global trade is a human good.

GDP grows more if trade grows.

The local share of global GDP is a measure of success in making and selling things

Policies to protect local economies from global competition are a symptom of weakness, not strength

As individuals, we want good products at the best price. This requires a global market.

My point of view is that humanity wants to be global. That is an economic truth and can live alongside social and political preferences that are intensely local. In the same way, technology wants to be global. The Internet and the smartphone were not local but instantly global. The same is true of AI. Economic and technical globalization is a bottom-up globalization.

It contrasts with top-down political, economic, and military structures like the World Bank, the United Nations, The EU, NATO, the G7, the G20 and so on that are symbolic of US leadership since World War Two and so only global due to the strength of the US in that time.

So what to think? Trump isn't wrong to react to these changes to attempt to slow down a long-term trend of US relative decline. However, the future of the world is about bottom-up globalization driven by technology innovation and related markets. World GDP will grow, despite tariffs. US GDP will also grow but more slowly. The US-based AI leaders can play a big role in US performance if they can figure out global growth and monetization. But so too will China's AI leaders.

This week's articles are a smorgasbord of content all relevant to these discussions.