Donald Trump can appear to defy even the possibility of political explanation. Take trade with China. His attempt to achieve a comprehensive reset of economic relations would seem readily explicable, given the United States has been fighting a trade and tech war with Beijing since 2018. But the fact that the tariffs on Chinese imports have changed five times since the President’s inauguration less than six months ago is mind-boggling. So is the bedlam because Trump drives chaos, or because, having already lost the tech part of a war that it cannot concede, the United States has no good options?
Part of the problem is the President’s shape-shifting character. Trump began his political rise as a Trickster, saying crudely and humorously what was supposed not to be said. In 2016, Trickster Trump did not seem to want to win; he triumphed primarily because his competitor was the perfect symbol of the decay in which he revelled.
Trickster Trump was also a symptom. The United States was highly likely to have produced a candidate in 2016 who on some crucial policy matters stood on Trump’s ground. Trump won the Republican nomination by exploiting the chasm between many Republican primary voters and the party establishment over the Mexican border. As US geopolitical choices hardened under the emerging multipolar world, Trump served as the “Confront China” candidate against a “Confront Russia” Hillary Clinton. Since China’s industrial rise was tied much more directly to US voters than Russia’s annexation of Crimea or intervention in Syria, the victory of Confront China could have been expected. Afterwards, Confront China won the policy debate because the national security implications of Xi’s 2015 “Made in China” strategy, following its rare earths embargo on Japan in 2010, had begun to strike terror into the US political class.
Although a geopolitical omen, Trump’s turn as a Trickster president occurred in a relatively benign short-term international environment. Despite chronic strategic weakness in the Middle East, the shale boom and the Federal Reserve’s post-2008 monetary primacy both strengthened relative US power compared with the previous four decades. Such was China’s macro-economic vulnerability to US monetary policy in the middle of that decade that just the prospect of a 0.25% interest rate hike in late 2015 was enough to push China into a financial crisis.
By contrast, the second Trump presidency is playing out under conditions of systemic crisis not envisaged even by the most pessimistic observers in 2016. As it constrains US governments’ ability to respond to other elements of the crisis, this change begins with the monetary and financial environment. The energy-driven inflation of 2021-22 ended the post-2008 monetary order built around the Fed’s quantitative easing programmes, raising the costs of the huge increase in US debt authorised during the pandemic. Now, up to 25% of the US’s existing debt — $9.2 trillion — either matures or needs refinancing this year.
In a harder investment and fiscal environment, the prospects for reversing US deindustrialisation, after the lack of progress in easier times, deteriorate. American manufacturing as a share of GDP fell from 11.3% in 2015 to 10% in 2024. In the same period, China’s share of world manufacturing rose from around 20% to 30%. Beijing’s success with “Made in China 2025” has proved highly disruptive in high-tech sectors. While DeepSeek’s breakout was an overt psychic shock in the AI race, a less-commented-upon victory in the space race was won when, as interest in lunar mining deepened, China became in 2023 the first state to bring materials back from the far side of the moon. Meanwhile, Tesla has been overtaken by BYD as the world’s largest electric vehicle maker, just as China has created by far the world’s largest domestic market for these cars. BYD’s dramatic rise as a producer and consumer of electric vehicles has left the United States well behind on the electrification of auto-transportation, exposing the Biden administration’s erroneous bet that it would take care of the problems posed by imminent peak US shale oil, now predicted to arrive in 2027.
The old energy world is very far from dead, and the United States still has very considerable hydrocarbon advantages over China. But all states have to diversify from fossil fuels, and BYD’s innovation, including in batteries and chip-production, is such that it offers non-Western countries opportunities to construct low-carbon infrastructure that US firms do not. Nowhere, probably, is this change more consequential for the United States than in Mexico.
This general economic penetration by China in the Western hemisphere is a serious threat to the Monroe Doctrine. Canada is no less part of this problem than Mexico, with Chinese money pouring into the Canadian critical mineral sector in 2023. The expansion of the Trans Mountain oil pipeline in 2024 also allows for more Canadian sales to China, upending a US assumption going back to the start of the post-1945 era that Western hemisphere exports go to the United States and thwarting a 2020 agreement with Washington that Canada would collaborate on critical minerals and tighten investment rules.
All Washington’s China issues are compounded by Russia’s resilience. After initial caution, the Biden administration sought to deliver a strategic blow to Moscow in Ukraine: and then failed in the endeavour. When, in the autumn of 2023, it became clear that Ukraine could not defeat Russia, the US commitment to Ukraine became hostage to US domestic politics, leaving Zelensky without new funding for eight months. That in the interim the European states could not replace US military supplies only laid bare the structural problem that when the larger European states are militarily weak, the United States is over-committed within Nato.
Yet the irony is that the Arctic renders the North Atlantic more of a site of geopolitical tension than ever before in the history of the trans-Atlantic security alliance that bears the oceanic region’s name. Although Nato’s two new entrants in Finland and Sweden are Arctic states, they are a defence neither against Chinese commercial influence in Greenland and Canada, nor China moving to partner Russia in Arctic hydrocarbon projects.
“The Arctic renders the North Atlantic more of a site of geopolitical tension than ever before”
Seen in these geopolitical terms, some of Trump II is explicable. If the Nato security guarantee has been exposed as hollow, yet the United States cannot disengage from Europe, then it is rational to make European relations transactional. If the US will soon need to import more oil, then it will put relations with Russia and Saudi Arabia above those with Ukraine and Israel — as we have seen this week in the Gulf. If any chance of reindustrialisation now requires direct economic harm on China, then the United States will force European allies to decouple from China, as the US-UK trade agreement requires London to do in steel and pharmaceuticals. If Canada is a geopolitical vulnerability, there is some rationale for pushing to the surface the fault lines of the Canadian federation with its population highly concentrated around the US border and a strained internal territorial politics around energy-rich Alberta.
In this crisis, even Elon Musk becomes a geopolitically originating phenomenon. Without Musk’s company Space X, Nasa would not have a programme for lunar landings or to reach Mars, each a response to China’s success in space.
Yet it is unimaginable that anyone other than the Donald Trump of this moment would have governed over the past five months in as incendiary a manner. If Trump mused about buying Greenland during his first term, he certainly did not threaten to annex Canada.
He appears transformed by the political campaign against him in 2023 and 2024 into a political figure intent on accelerating the disruption to destroy what remains of the old order, whatever comes down with it. Figuratively, he is no longer a Trickster but a would-be Caesar, the metamorphosis symbolised by the image of him bloodied and defiant under the Stars and Stripes after the attempt on his life in Pennsylvania last July. Nobody could seriously think that that Trump did not want to be President.
Quite notably, Caesarist Trump has moved beyond attacking the hypocrisies of the professional political class to attacking the pieties of voters, best illustrated in his comment this month that “maybe the children will have two dolls instead of 30 dolls… and maybe the two dolls will cost a couple of bucks more than they would normally”. These words admit an unpalatable truth: if the reset is to get the United States to produce more and China to consume more, its painful underbelly is that Americans must consume less.
The overriding issue that now defines the conflict between the force of Caesarist Trump and the force of the underlying systemic crisis is the position of the Fed. Trump wishes to deal with the US debt by reducing borrowing costs, an imperative intensified by the failure of DOGE to make any meaningful dent in federal expenditure. But lower interest rates would require the Fed to act, and the Fed is still fretting about inflation. Since Trump has no legal authority to fire the Fed chairman, Jay Powell, Trump could only prevail by precipitating a constitutional crisis.
Quite palpably, the debt crisis creates constraints beyond any Caesarist ambition. Either Trump has to make decisions on tariffs that calm bond markets and push down yields, as he appears to have done over the past month; or, he will have to rely on the Fed’s willingness to activate more QE to compensate for foreign creditors losing confidence in holding US Treasuries — an outcome he has largely caused.
But this same debt predicament probably cannot be accommodated for much longer within what remains of normal US politics. The signal from both the systemic crisis and at least some of those with Trump’s ear is that United States will eventually default on its debt by one backhand way or another. As the Mar-a-Lago Accord proposal of Trump’s Chair of Economic Advisors Stephen Miran reveals, the ultimate backstop of Trump’s implicit threats to America’s present security allies to accommodate that default and replace some of US military expenditure are dollar swaps. The Fed’s capacity to provide dollar liquidity to foreign central banks in the emergency is ultimately an instrument of coercion, even indirectly against China, which acquired an effective equivalent credit facility during the pandemic. Dollar swaps could only come into play in a financial crisis, the very scenario the Fed would wish to avoid. That it has become possible to conceive, yet not predict, that Trump may have the nerve to embrace one, and fight the Fed for control of this weapon, is a measure of what has changed in Trump and the world.
