The world’s major growth engines are about to run in reverse. The policies and uncertainties of US President Donald Trump’s second administration have hit a sluggish global economy with a transformational exogenous shock. Risks are especially worrisome in both the United States and China, which have collectively accounted for a little more than 40% of cumulative global GDP growth since 2010.
America is now the problem, not the solution. Long the anchor of the rules-based international order, the US has turned protectionist, posing major risks to an already fragile global trade cycle. At the same time, Trump’s MAGA (“Make America Great Again”) movement has driven a powerful wedge between the US and Europe and divided North America, with Canada’s very independence in Trump’s crosshairs. The central role of the US in sustaining post-World War II geostrategic stability has been shattered.
The US will be unable to put the genie back in the bottle. Trump’s shocking actions have eroded the trust that has underpinned America’s global leadership, and the damage will be evident long after Trump has left the scene. Having once abdicated its moral authority as the anchor of the free world, who is to say it can’t happen again?
This breakdown in trust will cast a long and lasting shadow over economic performance, not least in the US itself, where it is affecting business decision-making, especially the costly long-term commitments associated with hiring and capital spending. Businesses need to scale their future operations relative to confident expectations of future growth trajectories – now an increasingly uncertain proposition. Asset values and consumer confidence, too, have been shaken. Uncertainty, the enemy of decision-making, is likely to freeze the most dynamic segments of the US economy.
For China, state-directed policy guidance might temper the initial blow of a Trump policy shock. But the pressures of Trump’s tariff escalation will undermine China’s export-led growth model, which is especially problematic for economic growth, given the lingering weakness of China’s domestic demand.
The country’s long-promised consumer-led rebalancing of the economy remains more of a slogan than an actual shift in the sources of Chinese growth – especially with a deficient social safety net that continues to encourage fear-driven precautionary saving. China’s just-announced 30-point action plan to boost household demand draws much-needed attention to the seemingly chronic plight of the Chinese consumer. But it offers only modest support to an inadequate social safety net.
The Trump shock is likely not only to exacerbate the Sino-American conflict but also to weaken both countries’ growth prospects significantly. Don’t count on other economies filling this void. Eventually, India might be able to take up some of the slack. But its relatively small share of world GDP – currently 8.5% (in purchasing-power-parity terms), compared to 34% for China and the US combined – means that that day is in the distant future.
The same is true of Europe. While the European Union’s 14% share of world GDP is nearly double that of India, Europe remains saddled with anemic growth, compounded by mounting trade pressures associated with an escalating global tariff war.
If the apparent breakdown of the transatlantic alliance has a silver lining, it is that the incentives for strategic cohesion should have an outsize impact on European defense spending. But that will also take time. Meanwhile, Europe will equally be exposed to the adverse effects on business and consumer expectations and decision-making, comparable to those afflicting the US.
What does all this mean for global economic prospects in the coming years? The current baseline expectation of around 3.3% world GDP growth for 2025-26, as per recent forecasts by the International Monetary Fund, is far too sanguine. While there may be some front-loading of growth momentum in the early part of this year – exemplified by accelerated shipments of Chinese exports ahead of Trump’s tariff hikes – I suspect that the downside risks will progressively build.
That points to a fractional reduction of forecasts for global economic growth for 2025, with the slowdown becoming considerably more pronounced in 2026 and after. That could easily push an increasingly fragile world economy down to the 2.5% growth threshold, typically associated with outright global recession.
Nor is this likely to be a standard shortfall of global growth. To the extent that the tariff war is aimed at promoting friendshoring and strengthening supply-chain resilience, the global economy’s supply side is likely to come under significant strain. A new layer of adjustment costs is being imposed on a once-globalised world. Reshoring to higher-cost local producers not only takes considerable time but also erodes the efficiencies of production, assembly, and delivery that have underpinned worldwide disinflation over the past three decades.
Nearly five years ago, in the depths of the COVID-19 shock, I warned that the onset of stagflation was only “a broken supply chain away.” Subsequent experience and research have borne that out, confirming that the supply-chain disruptions during the pandemic and its immediate aftermath generated significant upward pressure on prices.
A global trade conflict implies a similar dynamic. The higher costs associated with Trump’s coming “reciprocal” escalation of multilateral tariffs, which are due to be announced on April 2, are especially problematic. In the face of a likely shortfall of economic growth, the added cost and price pressures are likely to tip the scales toward a global stagflation.
The Trump shock, in short, is the functional equivalent of a full-blown crisis. It is likely to have a lasting impact on the US and Chinese economies, and the contagion is almost certain to spread throughout the world through cross-border trade and capital flows. Perhaps most importantly, this is a geostrategic crisis, reflecting a reversal of America’s global leadership role. In the space of little more than two months, Trump has turned the world inside out. If my assessment of this shock is anywhere close to the mark, concerns over the global economic forecast seem almost trivial.
*Stephen S. Roach, a former chairman of Morgan Stanley Asia, is a faculty member at Yale University and the author of the forthcoming Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, November 2022). Copyright: Project Syndicate, 2025, published here with permission.
41 Comments
“Trump has turned the world inside out.” There is more to come as Trump’s presidential power is unbridled. It is difficult to imagine that the Supreme Court’s decision on immunity anticipated Trump’s subsequent interpretation of it for himself, and resultant unprecedented actions. Couple that with the electorate providing him total control of both Congress and the Senate and nothing at all is off the table. All the carefully thought out checks and balances installed by the forefathers into the American system of government to exactly prevent what has happened, have been defeated.
I think this Signal app use clown show might just pull a couple of nails out of the legislative branch coffin (they will want their power restored). And he hasn't yet knee-capped the judiciary.
Hence, with pushback from his own GOP members in Congress (if it happens) and with a couple of the multitude of court cases on the unlawful Executive Orders, finally reaching the Supreme Court (and if there is another defeat there for him) - then Trump and his Cabinet will start to get really nervous.
And when a dictator and his minions feel threatened... things usually get even worse. As we've already seen, this administration just doubles-down on disaster.
Time to start thinking on the line of succession - and what/where a coup might come from. I do not think this administration will last another year without the circuit breaking, so to speak.
Reshoring to higher-cost local producers not only takes considerable time but also erodes the efficiencies of production, assembly, and delivery that have underpinned worldwide disinflation over the past three decades
Debt, technology and especially cheap labour in China have been the cause of the growth of living standards in the western world for 30 years, which cannot be reproduced without another country rising with cheap labour and the worlds confidence to invest and produce their, coupled with access o the energy to produce as China has, and ruthless ability to produce without care of things such as air pollution of it's populace as a byproduct.
Just like the lowering real interest rates of the last 35 years, we will not likely see this again.
Acceptance of current average living standards will eventually become the norm (notwithstanding there is a affluence spectrum) as there will not be the trade cooperation or cheap good available to consume at the rate we are doing so. Unsure about the rest of you all, but personally I've found those who are most fulfilled in life are contempt with feeling they have enough, and their time and efforts contribute to the good of others, as opposed to always searching for bigger, better, more.
Debt, technology and especially cheap labour in China have been the cause of the growth of living standards in the western world for 30 years,
Outsourcing of manufacturing to China and the Global South has enabled the Anglosphere in particular to focus on debt-driven consumption / speculation as the economic growth engine. It's quite possible that the Trump admin believes that for the US to be anti-fragile, they need to be far more self reliant going forward. That may involve near-term pain and disruption.
Aotearoa could not handle such kind of change. We barely have any kind of vision of what we want to be as a nation. We think that everything can be solved by trite marketing messages and faux shared spiritual values.
The world’s major growth engines are about to run in reverse.
America is now the problem, not the solution.
The central role of the US in sustaining post-World War II geostrategic stability has been shattered.
The US will be unable to put the genie back in the bottle.
Trump’s shocking actions have eroded the trust that has underpinned America’s global leadership, and the damage will be evident long after Trump has left the scene.
Having once abdicated its moral authority as the anchor of the free world, who is to say it can’t happen again?
Stephen Roach in the above comments essentially outlines the actual implementation points of Trump's MAGA movement.
Perhaps he should be careful? He might be named as a traitor and an enemy of the state?
Stephen Roach in the above comments essentially outlines the actual implementation points of Trump's MAGA movement.
We need to move on from everything being the fault of MAGA.
I saw a news segment of a Nancy Pelosi town hall meeting with her constituents this week. Pelosi was being shouted down by these people and severely unrattled. Naturally, people blame all this kind of behavior on MAGA and 'neo-Naz^s'. Nothing further from the truth. The protestors including Asian American women and other minorities all absolutely appalled at the lack of leadership and competency as it affects their daily lives. They're also all aware that Pelosi has been making out like a bandit and simply holding her to account.
You miss the point and attribute a separate issue. My citing of SRs comments in the article are all the results of or are pointed directly at Trump and MAGA.
What you're referring to is the deeper problem of "Why Trump?" or someone like him. I've already said this before, that the US is seriously unable or unwilling at a governmental level to ask that question. The GOP have essentially in toto capitulated to him. Why? What power does he hold over them, that they are willing to sacrifice everything America was and could be, for some other, presumably self serving dream?
My citing of SRs comments in the article are all the results of or are pointed directly at Trump and MAGA.
What you're referring to is the deeper problem of "Why Trump?" or someone like him.
I think people need to get used to the fact that people voted for Trump, so the 'why Trump' question is kind of history at this point. And obviously the alternative is not particularly good, as I pointed out through people like Pelosi getting accosted by those who don't fit into the 'MAGA' profile.
Anyway, what is wrong with the US having a patriotic stance towards its economy in particular? And what is the US "sacrificing"?
"I think people need to get used to the fact that people voted for Trump, so the 'why Trump' question is kind of history at this point." And of course those who choose to forget history are forever fated to relive it.
The "Why Trump?" question is very relevant. I agree that to the American people the alternatives were unpalatable to the degree that it seems they saw them as just 'more of the same' and perpetuating a broken system, so they turned to Trump - in droves. It is not for us to understand the why, it is for the Senate and Congress. But the GOP is so wrapped up in itself, as is the executive, that it is unlikely they could do and internal scrutiny at the moment and anything the Dems do will just vanish into a black hole.
it was asked a couple of weeks ago whether the US could stand four years of this, but the question is can the world stand it?
"And what is the US "sacrificing"? " Have you even read the article, or the list of comments I made? The US will never be "Great Again" as it once was. No one will ever trust the US again as they used to. I would go so far as the backlash may even extend to countries not using the US $ as the international trading currency any more. Trump has stated he won't like that, but I would suggest it is only there due to consensus. Perhaps the Euro will become the reserve currency?
"And what is the US "sacrificing"? " Have you even read the article, or the list of comments I made? The US will never be "Great Again" as it once was. No one will ever trust the US again as they used to.
No disrespect but I'm not really sure what your argument is. Basically most of the anti-US rhetoric I see is based on a few things:
- Dislike of DJT
- Fear of change
Re fear of change, I think that positives can can from disruption, particularly for those who can deal with the friction.
You must have some interesting blinkers if you can't see past the superficial to cause and effects.
Does change have to include turning the world upside down? Why can't political leaders just stand up and admit that previous governments have got it wrong and they intend to make it better with bipartisan support? The answer there, is too much self interest, and politicians are never held to account for the consequences of the actions, so they don't really care.
Change has to happen, but not the way Trump is doing it.
Change has to happen, but not the way Trump is doing it.
Which can mean you 'personally' don't like or want the change that the Trump admin is bringing.
But if you can't articulate what it is you're opposed to - either overarching or even in execution - then your voice will get stuck in echo chambers.
Or you could try another approach - try to understand what is trying to be achieved.
I can and have articulated it before. Change does not have to happen through chaos. And that is the one thing Trump is creating. Most of what he is unwinding is what America did to the world, with no plan on what to replace it with, other than preserving his power and wealth. America's power is not being rebuilt or preserved. It is being undermined wholesale. As SR points out in the article above, no one will trust America again.
Are you an anarchist?
Most of what he is unwinding is what America did to the world
Also internally: unwinding government and executing powers not seen for a generation. I'm not stating this is good or bad, just stating an observation. USA is trying to both grow their resource reach via Canada, Greenland etc as they need energy to sustain their level of consumptions, and simultaneously shrinking their reach by not bothering with he issues of the suez canal piracy slowing global trade.
They have to shrink their empire globally to preserve what they have, or they will, like every historical empire that has fallen, overreach their territory, then currency, before failing. They cannot maintain the global policeman role any longer, it's too costly to them, so they look closer to home where they can gain more energy and resources. Akin to reaching over the fence to pinch from the neighbours garden instead of going across the road to pilfer another.
What you're referring to is the deeper problem of "Why Trump?" or someone like him. I've already said this before, that the US is seriously unable or unwilling at a governmental level to ask that question.
I don't see it as relevant anymore. Given the level of wealth inequality growing by the day there, it is unlikely they will ever see the ability again for the average person to afford a home and family on an average wage in an average job unless the wealthy elite are taxed appropriately in a way they cannot flee the country in avoidance to a more favourable location. The middle class has been gradually eroded over decades, the level of parasitic jobs and means of 'gaining' wealth (not producing it) has grown across this time also. The only thing that has allowed the middle class to exist in history is the appropriate measures having been taken to prevent accumulation of wealth at the top end of society. This was achieved, and slowly unwound, and it will be hard to put that cat back in the bag given he level of influence held at governmental level in the USA also. Add in the lack of resources available sayin the 1960's USA, and there is no longer said resources to exploit to allow for the same level of prosperity.
I think you explain at least one answer for "Why Trump?" to a degree. The suggestion is that due to equity gaps increasing in size meant that the passive revolution for voters in a democratic country is to vote in a 'disrupter' AKA Trump or someone like him.
He promised to make things better for them if they voted for him. If he doesn't, history suggests the next level of population protest is to be more violent. Currently the US is on a path to self destruction, ironically led by their executive rather than partisan political groups. And this will impact the whole world.
it will be hard to put that cat back in the bag
I might have agreed a year or so ago. But then, I heard an analysis of Musk's business empire and there's a lot of debt that was borrowed on the security of his personal shareholdings elsewhere, mainly in Tesla. He's a liability to some - just as Trump is, based on his borrowings. And, you know what? I think they're both on the hook to the Russian oligarchs/mafia; perhaps Putin himself.
And it's Europe with the lion's share of the seized assets.
I think we're in for another GFC, but the US won't be able to step in with a rescue this time. It will be each bank to its own, more or less.
Oh what a world we live in.
Roughly 60% of Americans do not have a passport. That rather illustrates, firstly how little society there considers the importance of the rest of the world and secondly its great concentration and reliance on domestic affairs and outcomes. Trump mimicked Reagan, with a promise of making folk better off, not worse off. It remains to be seen when, how or even if Trump’s administration impacts negatively on the American people at large. But should it significantly do so there is the prospect of public disorder that will make the anti Vietnam protests of the 1970s look like a pub fight.
Roughly 60% of Americans do not have a passport. That rather illustrates, firstly how little society there considers the importance of the rest of the world and secondly its great concentration and reliance on domestic affairs and outcomes.
Just because more Aotearoans are likely to have passports, it does not make us more worldly or cosmopolitan.
what do you mean by that?
Kiwis tend to have a pretty good perspective of the world, well balanced and aware of how politics impacts across borders. But we are also very accepting and open minded.
Made no comparison to New Zealanders or any other nation for that matter. My suggestion is based on having lived and worked in the USA and the associated experiences. That view is not at all based on what may be seen as complacency on their part. It is more that there is so much available at home in terms of diverse activity and dynamics, entertainment, natural wonders and on and on that a great percentage of the population just don’t need to get to think beyond their own country for lifestyle enjoyment . and that too is how the media, en masse conditions them. Fully appreciate this is just my personal take but by way of an example, when the foot and mouth outbreak occurred in the UK, and CNN etc were loading up shot after shot of pyres of burning carcasses, in our neighbourhood, suddenly the supermarkets had shelf loads of heavily discounted beef on offer because folk were scared about beef full stop. But that’s not the point of my earlier post which simply suggests that the real test of what Trump’s administration achieves will, before anything else, rise or fall on the reactions of the American people at large.
Made no comparison to New Zealanders or any other nation for that matter. My suggestion is based on having lived and worked in the USA and the associated experiences.
Plenty of Aotearoans who can work their way through a Thai menu and think they're cosmopolitan and worldly. They may even done a stint working in an office in London for a few years and wear pounamu around their necks. Does that make us more sophisticated than someone who lives in Columbus Ohio and travels to Florida for vacations?
I'm just suggesting that perhaps we're not as worldly as we like to think we are.
I offered a suggestion based on my experiences of American society. You may well be correct as to your equivalent opinion about New Zealanders but within the context of my post, that is entirely irrelevant.
Right. But all you're really saying is that the American people are responsible for their own democracy. They have done so by voting in Trump / Repubs and voting out the broken Democrats.
Why are you so pro-America JC ?
J.C. is exactly right. The American people are fully responsible for their own democracy which aligns, as it therefore must, with my comment that the status, impact and outcome of the Trump’s presidency will be identified by the population at large, be it positive or negative, more than any international reaction or opinion.
Precisely
What you need to know about the American electoral system is that it has been gerrymandered to the heavens.
"I'm just suggesting that perhaps we're not as worldly as we like to think we are. "
Why are you asking that question?
Are you defending Trump and what he is doing?
Your questions seem to hint at something but you don't say what. Do you not think that a new government in a country as some responsibility towards what their predecessors have done, especially when there are significant international implications and consequences which could be very harmful?
Yes, JC is very pro-Trump, the question is why ?
Are you defending Trump and what he is doing?
Nothing I have expressed is for or against Trump. That is the whole point. And more to the point, I think it's far more constructive to understand what the Trump admin is doing. It was quite clear prior to the election that Trump puts America first socio-economically and it's not about being a benevolent figure to the world. Time to face some hard truths.
Are you saying that Donald Trump is doing what he is doing to save the USA? Because many of us think he is doing what he is doing to make him (and his rich associates) richer, while selling his actions to the nation as "saving it" (or making it great again).
Are you saying that Donald Trump is doing what he is doing to save the USA?
In terms of what the admin's goal of onshoring manufacturing, I think the answer could be yes. It depends on how you define "saving the USA".
Preserving the status quo would mean the 1%ers continue to make out like bandits while the lower socio-economic classes struggle.
Americans are remarkably insular. I've met some who have never seen the sea, and one who wasn't even sure it was real!
But from that perspective it can make them remarkably ignorant and gullible as to America's position in the World.
Closer to home, there are likely people in the hutt valley who've never been into Wellington city. I know some who have never left the south island or travelled further south than Christchurch from the top of the south. We have the same capacity for gullibility here, just with less national pride (pros and cons to this). My view is that this complacency and lack of intelligence comes from a lack of emphasis on education and political engagement both in parenting and systemically. Too many laying back and expecting others to do work for them or fix their lives, yet grumbling about it simultaneously.
May be worth considering the power of the tech bros supporting Trump this time round....how many of the US politico's would be confident their surfing history is without problem?
A great article, thank you Stephen!
DON'T WORRY FOLKS - CAPTAIN CHAO$ IS HERE TO SAVE THE U$A
He has lots of MIGA, oops, I meant MAGA, cult backup too - with Musk his Prime Minister and Mafia-like Dons, Peter Thiel, Larry Ellison, etc, along with the Adelson family yanking on all of the domestic and foreign affairs strings from the shadows.
And then there is DOGE's creative accounting too. DOGE even added its magic touch to the US Debt clock.
These dancing billionaire geniuses have the power to miraculously wave a wand and transform an average total debt (including unfunded liabilities) of ~$500K per U$ citizen into a wealth figure of +$493,306 - fancy that - a net change in wealth of almost $1 million per citizen - just like that, the U$ is not broken-arsed at all, it is suddenly fabulously wealthy - poised to monetize all these trillions of dollars worth of assets to enable them to borrow trillions more so they can prolong the spending spree.
DON'T WORRY FOLKS - CAPTAIN CHAO$ IS HERE TO SAVE THE U$A
He has lots of MIGA, oops, I meant MAGA, cult backup too - with Musk his Prime Minister and Mafia-like Dons, Peter Thiel, Larry Ellison, etc, along with the Adelson family yanking on all of the domestic and foreign affairs strings from the shadows.
And then there is DOGE's creative accounting too. DOGE even added its magic touch to the US Debt clock.
These dancing billionaire geniuses have the power to miraculously wave a wand and transform an average total debt (including unfunded liabilities) of ~$500K per U$ citizen into a wealth figure of +$493,306 - fancy that - a net change in wealth of almost $1 million per citizen - just like that, the U$ is not broken-arsed at all, it is suddenly fabulously wealthy - poised to monetize all these trillions of dollars worth of assets to enable them to borrow trillions more so they can prolong the spending spree.
THE U$ DEBT CLOCK - completely reinvented in one day! - usdebtclock.org
For years I have regularly checked this site and always marvelled that it could be so honest in its disclosure. I assumed that it was only tolerated because it might help focus attention on the country's crazy borrow-and-spend culture and maybe begin to help Americans take on board the fact that the entire economy was in a giant debt death-spiral.
Pre-DOGE on the US Debt Clock, the average total liability (including unfunded liabilities) per citizen was close to $500K, and per taxpayer approaching a mind-numbing $1 million.
DOGE addressed it alright - with a novel trick almost akin to alchemy - they term it...
'HIDDEN WEALTH ASSET-BACKED DOLLARS' - the list below...
Precious Metal Reserves $1.2 trillion
Mineral Reserves $5.6 trillion
Real Estate $5.6 trillion
Land $74 trillion
Stock Market $50 trillion
Recaptured Assets $7.4 trillion
Total HIDDEN Wealth $167 trillion
Revised wealth per Citizen $493,306 - WOW - happy days!!!
I have to say, the $7.4 in "Recaptured Assets" had me stumped, and so I referred to Investopedia to decipher that one - it turns out that term refers to an asset in the "sense that a seller has the right to purchase something back, just as you might do if you pawned your watch at a pawn shop."
You have the right to go back to the shop and purchase it at a higher price, as long as the dealer hasn't sold in on at a profit in the meantime - yep, why not add this in too - the more trillion we cram in as assets, the merrier we all will be.
DOGE added another touch while they were there remodelling - what a marvellous opportunity to promote their sterling work - look at that, they have added a D.O.G.E clock showing almost $1500 savings per taxpayer already!
The cute DOGE dog logo is there too, resplendently displayed in the upper left-hand US NATIONAL DEBT section in the link. They claim savings already of $244 billion ($2172 per taxpayer). Slight problem here though - none of this money has been saved because once it is approved for appropriation by Congress to these bureaucratic branches, that's it, the funds will still be spent.
No savings will happen until these appropriations are revised downwards using the correct procedures, and when that is done the savings can only begin at the commencement of the new fiscal year - Oct 1 2025.
Of course that didn't stop these clowns from adding these 'savings' in too - displayed above the Federal Debt:GDP ratio which is only just shy of a suicidal 123%.
YCHMTSU!
Col
Great post.
And quite right, you can't :-)!
INTERESTING HEADING - "Stephen Roach likens Donald Trump's reversal of America's global leadership role to a full-blown crisis, similar to Covid-19"
I would hope that the disastrous "Warp-speed" mRNA gene editing toxins that Trump championed are fresh in all of our minds too.
He made that crisis exponentially worse by pushing through the most lethal medical experiment in the history of our species. Not content with facilitating ruining the health of hundreds of millions of people world-wide, he has now been handed a wrecking ball to try to bring down the financial economy as well.
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