As President-elect Donald Trump completes his Cabinet nominations, still subject to legislative approval after January 2025, the policy intentions of his second term have become relatively clear. The nominees are all almost all white male, right wing loyalists, with media experience, and inclined towards tariffs and an isolationist bent. The influence of the tech moguls, such as Elon Musk, is on the ascendent. Commerce Secretary-nominee Howard Lutnick, billionaire former Chairman/CEO of Cantor Fitzgerald, will enforce all the tariffs to protect American jobs.

Three front-runners for the Secretary of the Treasury post have emerged – veteran former Fed Board member Kevin Warsh, Key Square Capital founder Scott Bessent, and Apollo Glabal Management billionaire investor Marc Rowan. On top of his deserved reputation as a Washington finance insider, Warsh has the support of his billionaire father-inlaw, Ronald Lauder of Estee Lauder family fame, also Chairman of the World Jewish Congress. Trump will come into office with an unprecedented strong hand, having Republican control of the House, Senate and a Supreme Court majority. He will be tough on rivals and allies alike, preferring bilateral negotiations rather than working through multilateral channels, which he finds constricting his transactional style.

His policy roadmap was detailed by the 887-page rightwing Heritage Foundation Project 2025, the blueprint for a conservative President to “dismantle the administrative state and return power to the states and the American people”. Musk will take charge of a “Department of Government Efficiency (DOGE) that would operationalize the dismantling of government bureaucracies, agency by agency. The tools of tariffs, sanctions and executive orders will be used to possibly make either the biggest overhaul of American bureaucracy in recent history, or a damaging disruption of internal administration and external order. The report’s anti-China stance is evident in almost every chapter, including the banning of Tik-Tok. As the chapter on the Department of Defense stated, “By far the most significant danger to Americans’ security, freedoms, and pros perity is China.”

Chinese policymakers should have no illusions that all guns will be pointed at Beijing. On the other side of the Atlantic, Europe is clearly worried that Trump will do a deal on Ukraine, leaving Europe to bear the brunt of funding Ukraine in either continuing the debilitating war with Russia or reconstructing the ruined economy. To avoid tariffs and protectionist policies, European manufacturers are all shifting their investments into the United States at a time when they are facing painfully high energy and labour costs, invasion of cheap Chinese EVs and loss of competitiveness in technology and innovation. The recently published Draghi Report on European competitiveness makes dismal reading. Former Italian Prime Minister Mario Draghi minced no words to say that Europe faces an existential challenge. There are three top priorities;

(1) refocus efforts to narrow the innovation gap with the US and China;

(2) a joint plan for decarbonization and competition, and

(3) increasing security and reducing dependencies (namely, not relying on the US fully for European defense). Given the reality that Trump 2.0 will act quickly to show its power and effectiveness, the rest of the world has three fundamental options: first, accept Trump directives meekly; second, diversify and not take sides and/or self-strengthening to become more resilient to a volatile world order. Acceptance of vassalization of allies and rivals alike sticks in everyone’s craw. Second, grouping around Brics, with increasing number of members, makes decisions and responses more and more cumbersome.

If more emerging markets join Brics to try to implement a multipolar order and avoid unipolar sanctions, then what is the difference of this bloc with G77, a caucus of 134 developing countries that seeks cooperation but has not been effective in coming up with alternatives to the current IMF/World Bank Bretton Woods order? Realists can only conclude that self-strengthening must be the main thrust, which would require each country to undertake painful reforms based on domestic comparative advantages to immunize itself against a fragmenting global order, increasing climate heating, natural disasters and possibly outright war. The real macro-economic threat to the global economy is the rapid growth of American debt and the strengthening dollar. Both the Biden and Trump administrations have pumped up the US economy with more debt and deficits.

From end of fiscal year 2015 (beginning of Trump 1.0) to end October 2024, the US government debt rose by $17.7 trillion to $35.85 trillion or 122 per cent of nominal GDP of $29.35 trillion. One country’s debt alone accounts for just under onethird of global GDP and rising. The US 10-year Treasury yields have already risen to reflect fears that Trump 2.0 will continue to spend and cut taxes. Higher US interest rates dampen the global economy, because more global savings will flow towards dollar assets to chase higher yields. That leads to a stronger dollar, encouraging more US trade deficits despite higher tariffs. Attempts by the US to unilaterally depreciate the dollar are self-defeating, because basically everyone can simply devalue around the dollar by lowering their interest rates. The last time there was a concerted effort to depreciate the dollar was the 1985 Plaza Accord, which led eventually to the Japanese bubble.

Trump 2.0 cannot therefore try a Plaza Accord 2.0 without getting quid-pro-quo help from the Europeans, Japan, China and the oil producing countries. Fundamentally, global ambitions for NetZero are seriously damaged by the Trump 2.0 Administration’s dislike of green policies. Europe’s eagerness to maintain green policies will be tested if her economy continues to weaken. Furthermore, without Great Power cooperation, it will be tough to get the multilateral financial institutions to help developing countries achieve the Sustainable Development Goals of social plus planetary justice. At the same time, developing countries will have to spend more on AI/robotics/education and reskilling to reduce the digital and knowledge gap with the Great Powers.

In sum, Trump 2.0 will see every country going for self-interest and self-strengthening, in an era of less cooperation and more fragmentation. They will cooperate with the US only under coercion or tariff/sanction threats. They will side with Brics or other blocs if they see benefits and not costs. Given Trump’s character, there could be different outcomes, but so far, it is tough to see the path towards peaceful nights without more stunning surprises.

(The writer, a former Central banker, writes on global affairs from an Asian perspective.)