Trump's long-term aim curtails Westminster's options

Despite Donald Trump’s erratic tactics and threats attracting constant mass media coverage, a largely unspoken longer term US defensive mission and corresponding strategy is also emerging.  Shaped by several right-wing think tanks, amply funded by fossil fuel and other powerful economic interests over recent years, its objective is to limit and conceivably halt a slow decline in the USA’s global economic dominance discernible for some time.  This formidable project is now regarded as achievable only through jarring geopolitical realignment combined with the relentless exploitation of the planet’s natural resources, above all in the Arctic region.

The decline itself is undeniable.  The credit agency Moody’s this year finally removed its highest ‘AAA’ rating from the US government after maintaining it for 108 years.  However, S&P Global took the same step in 2011 and Fitch followed suit 12 years later, prior to Trump’s re-election.  The principal driver of this trend has been the nation’s high and rising public debt, now valued at $36 trillion.  The Congressional Budget Office has estimated that this will represent 117% of US gross domestic product (i.e. annual economic output) by 2034 and Trump’s new ‘beautiful’ budget plan would add further trillions to this financial albatross.  This seeks to extend drastic tax reductions, mainly for the wealthy, and further expand the country’s already strong armed forces, while cutting spending on vital clean technologies, Medicaid and basic welfare benefits.  The total value of these savings is considerably lower than the projected drain on federal finances, which helps to explain Trump’s repeated demands for new trade tariff revenues.  The borrowing costs associated with all this indebtedness are themselves rising and the traditional prominence of the US economy tempts other countries’ interest rates to follow the related increasing yields imposed on US Treasury Bonds – including in the UK.  Trump’s concept of new trade tariffs as a means of encouraging domestic US manufacturing and deterring US companies from locating factories abroad, is itself dubious as there is no accompanying government industrial policy to channel and facilitate this transition.  In addition, Trump’s recent disruption and down-sizing of public agencies supporting scientific groundwork, and of autonomous US university-based research, will hinder the future technological advances on which the prospects of the manufacturing sector rest.

The mighty global reserve currency, the US dollar, is consequently weakening as global demand for it slips. It remains the strongest international currency, representing some 60% of the total value of worldwide financial reserve holdings, but has lost 10% of its share since 2000, mainly to the currencies of countries with more robust credit ratings.  The BRICS countries (Brazil, Russia, India, China, South Africa and several wealthy middle eastern states) are now working to boost rival currencies, including electronic varieties for which China is prepared in that it is already responsible for half of the global digital payments market.  Traditionally, the US Federal Reserve Bank provides important liquidity via currency ‘swap lines’ giving access to dollars to the central banks of smaller nations facing economic crises, a practice clearly dependent on the US dollar’s remaining strength. 

Another evolving difficulty is presented by the expansion of the US private credit sector, already worth an estimated $1.6 trillion, consisting of a range of non-bank finance houses.  This sector is less regulated than traditional banks and is steadily replacing bank borrowing by offering clients more flexible and tailored loans for such activities as leveraged buyouts of other companies.  This has led the established banks to search for responses varying from heightened competition to forms of cooperation with the private credit firms but is generally bringing lending closer to the world of commerce.  The Federal Reserve Bank of Boston has recently warned that any severe overall economic downturn could duly damage the finance sector sooner than might be expected.[i]

Arctic Wealth

Roughly 40 years ago, the unsparing American essayist Gore Vidal sketchily imagined, during the West’s cold war with the Soviet Union, an eventual economic alliance between the USA and Russia.  This would offset what he perceived as “the Sino-Japanese axis that will dominate the future … an opportunity to survive economically in a highly centralised Asiatic world” as the US “begins to crack under the vast expense of maintaining a mindless imperial force”[ii].  Some broadly similar notion now attracts a US administration clearly mindful of the growing strategic importance of the Arctic and of China’s durable economic progression.  The Arctic region covers 8% of the planet’s surface but holds almost a quarter of the world’s reserves of oil, gas, coal and valuable minerals.  These are potentially recoverable by large corporations focussed on profit maximisation effectively regardless of the impact on the natural environment and the rights of indigenous peoples.  As the area’s ice melts due to today’s rising sea temperatures, much shorter and less expensive trade routes to Asia also become accessible and the region further promises strategic military advantages including navigational passage for warships, and sites for early warning and missile defence systems to support Trump’s much-heralded ‘Golden Dome’ anti-missile scheme for North America.  Russian involvement in such militarisation of the Arctic would also seriously disturb European leaders concerned for their continent’s future security.  Russia has already laid claim to the Lomonosov Ridge on the Arctic Sea floor, seeking to extend its legal control beyond the standard 200 nautical miles from its Arctic coast – a claim disputed by Canada and Denmark.  Russia already borders on a large swathe of the region and shares much of Trump’s unconcern over further damage to the natural world.  A newly incentivised closeness to the USA, focussed on lucrative economic cooperation in the Arctic over the years ahead, could wean Russia away from its present alliance with Trump’s most feared rival China and serve to rebalance a national economy presently heavily focussed on military needs due to the Ukraine conflict and weakened by EU sanctions.  Eventually ending the Ukraine war on terms generally acceptable to Vladimir Putin could pave the way for such a new US-Russia economic alliance.  This growing significance of the Arctic region also clarifies Trump’s special interest in the future of Canada and Greenland.  He is already proposing to allow oil drilling and mining operations in northern Alaska bordering the Arctic Sea.

Other regions are inevitably affected by Trump’s overall strategy.  In the Middle East, he is beginning to partially sideline an old ally, Israel, in order to bring Saudi Arabia under greater US economic influence, given its considerable importance as a vital oil supplier to China and its substantial leverage over world oil prices.  Netanyahu nonetheless appears not to have learned the hard lessons the US has gleaned from its series of wars over recent decades.  Overwhelming military force can certainly win battles and inflict horrific civilian casualties but still not secure an enduring victory.  It is apparent that the US spent vast sums on nuclear weaponry and on failed military interventions in Vietnam, Iraq, Libya and beyond, ultimately for insufficient political and economic gain to avert today’s decline, while China has risen rapidly to become the world’s second strongest economy.  It now produces half the globe’s total manufactured goods and is developing new high-tech industries, benefitting from valuable rare earth minerals available within its borders, and its own modernised armed forces.  China was recently invited by Putin to jointly invest in developing Arctic Sea trade routes to supplement its existing intercontinental Belt and Road Initiative.

Political Instability

Can Trump’s longer-term aspirations be realised?  While the trade war tactics stoked by his focus on import tariffs generated specific concerns over the health of the US economy, the deeper problem is the instability of overall US governance under his highly autocratic administration.  Political events across the world have long been closely monitored by major players in the international financial markets, who invariably seek competence and certainty in government policies in order to organise investments with sufficient confidence in the likely eventual returns.  As an interesting IMF Working Paper, which examined 169 countries over long periods, concluded “…political instability is particularly harmful through its adverse effects on total factor productivity growth and, in a lesser scale, by discouraging physical and human capital accumulation”.[iii]  In short, government unpredictability damages growth and future investment.

Nonetheless, elite donors to Trump’s projects hoping to safeguard their interests by slowing US economic decline – a rational objective seen through a narrow protectionist lens – have to cope with short-term bouts of turbulence occasioned by his own style of often irrational one-man decision-making.  In addition, they must allow for pressures exerted by the prejudices he repeatedly unleashes within his large popular base.  Unless his carefully selected cabinet and advisors exert more realistic policy influence over him when complex issues arise, political instability will persist, and the underlying longer-term international realignment strategy might be slowed though will still very likely endure.  His electoral base includes differing strands of opinion, some of them intolerant of external debt escalation or resisting cuts to Medicaid and those views are reflected within the ranks of Republican members of the Senate and House of Representatives.  While Trump’s hold over his party machine has been strong, the practical experience of his flow of presidential directives will promote a different level of party debate and dissent.  He has already alienated senior US judges by ignoring their courts’ decisions, including judges he helped to appoint.  Early indications also suggest his party will lose ground in the next US mid-term elections, risking its current small majorities in both houses of Congress, but it is unclear how fairly these future elections will be conducted or their results respected by a driven White House.

Should a major crisis unfold on his watch, especially in the form of a visible economic recession triggered by reduced international trade as his import tariffs take effect, Trump’s options might well initially include a heavy diversionary campaign to hold an internal or external ‘enemy’ chiefly responsible.  This always carries the danger of mounting conflict which could grow into more dangerous scenarios.  Another avenue should the crisis deepen would be to unashamedly change course on fiscal policy, possibly replacing higher trade tariffs with more active federal protectionism in the form of large subsidies for ailing sectors or even capital controls.  This would be hard to swallow for his neoliberal, pro-market donors and supporters, duly requiring robust nationalist justification to ‘rescue’ the nation in its hour of need. Should Trump be seen to stumble badly, his sinister and deeply reactionary Vice President J D Vance would be waiting in the wings to take over.  Short of such dramatic developments, though, an easier option would see the easing back of new import tariffs, assisting the negotiation of less restrictive trading agreements with other major economies and lowering the risks to the world economy posed by Trump’s earlier policies.  Some alternative ideas to tariffs and tax cuts are already being quietly explored to boost investment within the US economy, including the recent suggestion of a possible joint US-Japan sovereign wealth fund to raise capital for US industries.  Partial reconciliation between Trump and the neoliberal wing of his base could potentially follow.  Meanwhile, his central longer-term project appears to be gradually progressing. 

UK Labour’s Options

Trump’s hostility to the EU is deep-seated and consistent and the prospect of a US-Russia realignment inevitably de-prioritises European interests with their relatively social democratic heritage well into the future.  This is already posing fundamental questions for both the UK and the EU.  Britain has been seriously weakened by Brexit and is presently searching for freer trade arrangements with a range of other countries, so far yielding only limited progress with the US, India and the EU itself and falling short of a clear overall direction of travel to achieve the substantial improvement in overseas trade the UK requires.  Its unbalanced economy remains particularly vulnerable to any downturn in the world economy given its large, internationally-orientated finance sector, just as global tensions and superpower polarisation are intensifying.  An overweight finance sector by its nature detaches wealth from other key economic sectors, with its high salaries attracting talented staff needed elsewhere and its identifiable tendency towards investing in short-term profit-seeking rather than ultimately productive activities.  This in turn triggers wider wealth and regional inequalities and heightened labour casualisation.[iv]  It is also clear that any closer UK trade ties to the US will involve additional difficult pressures to further open up Britain to US private healthcare interests and giant high-tech corporations and also risk a lowering of certain agricultural product standards inducing fresh concerns on the part of the EU. 

The EU represent the world’s largest single market, though it is not yet fully unified, but has been falling behind the US and China in technological innovation, slowing its economic growth.  It is now starting to pool and coordinate the resources of member states to meet the new challenges of Russian nationalist assertiveness in Europe and declining US interest in Europe’s defence and prosperity.  This process is also beginning to involve the UK more closely and the EU’s existing position as the UK’s largest trading partner offers the most attractive route for cementing Britain’s future economic security in a deteriorating geopolitical climate.  This requires Labour to finally find ways to embrace the positive advantages of moving towards rejoining the EU’s single market and customs union and resuming an influential role inside EU decision-making.  A stronger and proactive EU remains our best hope for meaningful economic progress as the Trump camp’s broad global mission is pursued.  The EU’s trade with the USA accounted for 5% of the latter’s GDP, greater than China’s share, prior to Trump’s tariff wars and China is the EU’s third largest partner for EU exports, underlining the Union’s potential leverage in the world economy if it reinforces both its internal unity and democratic accountability over the troubled period ahead.  Trump’s apparent long-term ambitions may leave the British Labour government little strategic choice but to reassess its current complicated and difficult 'balancing act' approach to overseas trade and support the unity and strengthening of Europe, with its advocacy of genuinely global forms of economic cooperation as opposed to rivalry, over the years to come.

John Chowcat is the retired general secretary of the education union ASPECT. He was previously assistant general secretary of the union MSF.

[i]  J Fillat, M Landoni, J Levin & C Wang “Could the growth of private credit pose a risk to financial system stability?” Federal Reserve Bank of Boston 21 May 2025

[ii]  Gore Vidal Armageddon? Essays 1983-1987, André Deutsch, London 1987

[iii]  A Aisen & F Veiga How does political instability affect economic growth? IMF Working Paper No. 2011/012, 2011

[iv]  L Flamencourt “Britain’s shift towards financial capitalism: how financialisation is altering economic behaviour, paving the way for a new regime of risk-taking-driven growth in the UK”, UCL Journal of Economics, Vol 3 No.1 2024