Beyond the chaos, bullying, backsliding and myriad distractions of the second Trump administration, a fundamental and long-overdue rebalancing of the US’s relationships with its key allies is underway, and a “new equilibrium” will emerge.
Global geopolitics expert Stephen Kotkin, a senior fellow at the Hoover Institution at Stanford University, told the Top1000funds.com Fiduciary Investors Symposium in Singapore that “there’s a lot to be optimistic about in this insanity of Trump and chaos and unpleasantness”.
“It’s not pretty, but he’s an instrument of processes that are bigger than him,” Kotkin said. Ever-escalating demands for the US to project its power globally had become fiscally unsustainable, and something had to give. Previous presidents had tried and failed to find a solution but Trump – even if in spite of himself – may force the change that’s needed.
“The US is 5 per cent of global population, 25 per cent of global GDP, and 50 per cent of global military,” Kotkin said
“Europe is 7 per cent of global population, 17 per cent of global GDP and almost 50 per cent of global social spending. How long could that keep going? It went way longer than we thought. Europe has been pocketing $350 billion a year in US security assurance for more than 30 years, spending [it] instead on their quality of life.
“I would have taken that deal, and they took that deal because the Americans gave them that deal. That deal is no longer affordable by the United States, and so the rebalancing is underway.”
Kotkin said the “quality of life social-spending bender” undertaken by Europe but funded by the US could not last. It had to end, and “it took something crazy out of the social media, reality television, real estate, pro-wrestling, beauty pageant side of America that you maybe didn’t know as well, and you know all too well now” to end it, Kotkin said.
“The rebalancing is making a lot of people angry, but it’s also galvanizing them in very positive ways. The idea that US is losing Europe is just bunk. Do you have any idea what the trade volume is, what the tech transfer is, what the [foreign direct investment] is, let alone the cultural ties? Do you think that’s going away because Trump is going to be in the White House for a few years?
“No, none of that’s going to go away. It’s just going to come out the other side, with a different balance, a different equilibrium.”
Right now, politics in the US “couldn’t look crazier,” Kotkin said, andit’s “very hard to understand, it’s very confusing, and Trump doesn’t really know what he’s doing”.
But the chaos is not part of a cunning master plan.
“There is no secret here. There’s no conspiracy. There’s no multi-move thing,” he said.
“That’s not Trump. Trump is all thumbs, literally. And it’s news-cycle stuff, nothing strategic at all.”
No retreat
But Kotkin challenged the view that Trump’s posturing and the rebalancing that he’s set in motion signals that the US is retreating from the world.
“This is not about America giving up its role in the world – all of that is social media rubbish,” he said.
“This is about a rebalancing of the costs and benefits, and it’s happening, and it’s a mess, and Trump’s version of it is going to maybe even fail to produce a new equilibrium, but it’s going to break the current equilibrium that needed to be broken.”
Kotkin said Trump is “an unwitting instrument of history” in this respect – and possibly also in others – but investors should look past the noise and the distractions to focus on “what could be the next equilibrium, and how we might get there”.
“This is a positive story,”
“Something [that] was unaffordable couldn’t continue, and there’s a rebalancing underway, and it’s going to be very difficult to get from point A to point B, but that’s the journey that we’re finally on.”
Kotkin said the concept of the “global commons” form the foundation of global prosperity. It manifests in things like “the fact that you can sail a ship on the sea and have your stuff on it and get it delivered”, he said, or that there’s reliable global infrastructure for the internet and financial systems.
“Everything you do, you’re free riding on the global commons.
“You don’t pay for it. It’s not part of your cost structure, but it’s a colossal part of your revenue structure. The global commons is what some people are calling ‘the US-led international order’, the rules-based order.”
There is no alternative to the US-led order, Kotkin said, except for the loss of the global commons. The US-led order is imperfect, but it’s the best of all options.
“If I had a choice, would I create things the way they are? Are things just? Is it an ideal order? Does everybody have a say? The answer is no, to all of those questions,” he said.
“But you tell me what you got better that provides for the global commons, and then maybe I’ll take it, if you can show me what’s better.”
The “fiscal insanity” of US deficits blowing out from $4.6 trillion to $7.6 trillion in the space of a single lifetime also had to stop.
“I mean, seriously, where was that going to come from?” he said. “I don’t know how much economic growth you’re going to generate or how much inflation you’re going to use to pay that off. And remember, when it started, interest rates, you needed a microscope to see them, and now interest rates are normal again. We now spend in the United States more on interest payments than on our global military. Yeah, that’s not going to work.
“There needs to be a fiscal realignment. The fiscal insanity can’t go on anymore.”
But there is also a “struggle to the death over institutions” being waged between the left and the right of American politics – which tells us that the institutions must be worth having, and that they are resilient, Kotkin said.
“The left is going to lose and the right is going to lose, and the institutions are going to win, because that’s what happens in America again and again and again,” he said.
Trump’s actions and his manner of executing them has galvanised Europeans and Canadians like nothing before him, Kotkin said.
“Now the Europeans are having these crisis meetings about what to do: 17 per cent of global GDP, can they protect themselves?” Kotkin said.
“I think they could. There are countries with a lot less than 17 per cent of global GDP, like Russia with 2 per cent, that have a military.
“How long has Canada been in the doldrums, and now Canada is going to stand tall. Trump has galvanized Canada.
“This galvanization, long overdue, is fantastic. Again, does Trump understand that he’s doing this? Does he understand that he revived Trudeau’s party in Canada with the idiocy of the 51st state that will never happen? No, of course, he doesn’t understand that. But is it a potentially, really good thing? Certainly beyond doubt. It’s really good thing for America too, if Canada stands up.”
