{"id":574156,"date":"2026-04-09T16:10:13","date_gmt":"2026-04-09T16:10:13","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/574156\/"},"modified":"2026-04-09T16:10:13","modified_gmt":"2026-04-09T16:10:13","slug":"falling-trust-in-america-is-a-pandoras-box-for-the-global-economy","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/574156\/","title":{"rendered":"Falling trust in America is a Pandora\u2019s box for the global economy"},"content":{"rendered":"

Investors embraced in 2025 the so-called TACO trade\u2014that is, a bet that \u201cTrump Always Chickens Out\u201d on any move that would rattle markets for too long. That idea seems blithe now.<\/p>\n

President Donald Trump\u2019s war in Iran is too big to be reversed, even if his sporadic signals of a softer line can spur quick rallies. And deep changes regarding America\u2019s place in the world and in the global economy crystallized even before the fighting began. Think back just several months to the World Economic Forum, when Trump and other world leaders and businesspeople gathered in the snowy Alpine town of Davos, Switzerland. There were moments when the room seemed to tilt.
Also Read: Developing countries in Europe, Central Asia face slowdown, World Bank says<\/a><\/p>\n

It wasn\u2019t a single speech, or even the strange, unprovoked quarrel over Greenland. It was the growing acknowledgment, in private conversations and in public moments such as the now-famous address by Canadian Prime Minister Mark Carney, that the US was no longer being treated as a predictable actor. It isn\u2019t seen as unreliable in every instance and certainly isn\u2019t irrelevant. But the US is now a nation whose actions can no longer be readily anticipated. That difference changes everything.<\/p>\n

For decades, the global order rested on what Carney called the \u201clie of mutual benefit,\u201d or a useful fiction, that countries played by a set of rules. America was the first among equals. Allies understood the hierarchy, but the arrangement helped them too. The country with the most powerful military and the largest economy, and the owner of the world\u2019s reserve asset, would rule, provided it kept certain nations in its protection and revved up its consumer-driven economy. Other nations could sell cheap goods to the US and hold back on defense spending while bolstering their welfare systems. The patina of shared ownership of the results meant world leaders could return home from global meetings with their heads held high, speaking the language of partnership.<\/p>\n

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Also Read: From falling U.S. wealth to Indian factory closures, oil shock raises global recession risk<\/a>
Even adversaries calibrated their moves against a Washington they found legible. Everyone acknowledged that the rules-based order was never pristine: It failed to prevent wars in Afghanistan, Iraq and Syria, or address the broader Middle East conflict; and countries could bend trade rules. But there was a shared expectation about how the US would behave, and thus how the rest of the world would. \u201cYou end up in a world where strategic trust has dropped,\u201d said Vivian \u00adBalakrishnan, Singapore\u2019s foreign affairs minister, in a March interview with Reuters. \u201cEveryone has to assume the worst.\u201dAmericans themselves are uncertain about what to expect. Trump has tried to undercut the independence of the US Federal Reserve and has derided a conservative-majority Supreme Court as \u201cinept.\u201d The war in Iran came without congressional input and without public debate. The midterm elections in November will be a test of voters\u2019 response to the war and rising oil costs. They could also be another test of the electoral system itself, given Trump\u2019s penchant for coloring outside the lines and his reaction to his loss in 2020.<\/p>\n

Yet here\u2019s the paradox: In a world where America is less well understood, capital still wants to be in the US. Despite the US-Israeli airstrikes triggering a 20% disruption in the global oil supply over the first 10 days of the Iran conflict, the dollar has been neither displaced nor debased. In 2025 a \u201csell America, buy Asia\u201d narrative gripped traders, pushing the dollar index down about 8% for that year. In the immediate days following the Iran strike, it nudged upward.<\/p>\n

A sustained rise in oil prices could fundamentally alter the equity outlook across Asia, which is dependent on oil and natural gas from the Middle East. And the US is somewhat insulated because of its status as an energy exporter\u2014and the perception that it\u2019s still a kind of economic safe haven.<\/p>\n

\"GlobalBloomberg
In global finance, trust is not solely about virtue; it\u2019s also about scale, liquidity and opportunity. Investors who may question America\u2019s politics can\u2019t ignore its markets. Although a recent Treasury auction of two-year notes unexpectedly drew weak demand (a mark of concern about a potentially protracted war), US government securities remain the world\u2019s deepest, safest asset pool. The AI revolution\u2014real, capital-intensive and concentrated in the US and its tech companies\u2014is reinforcing US economic centrality, even as it destabilizes everything else.<\/p>\n

A short window of time (years, not decades) may determine not only America\u2019s place in the world but also the course of AI. Europe has produced hundreds of pages of AI \u00adregulation; it\u2019s almost too much to be of any real use. In Washington, policy is erratic, including chip deals, AI use in military operations and a public fight between the Pentagon and leading AI lab Anthropic over how the technology can and should be used in warfare. A new White House framework for AI regulation focuses on power costs, safeguards for children and preventing states from making their own rules.<\/p>\n

Meanwhile, executives and workers alike sense an existential threat from AI. The level of alarm in boardrooms and living rooms is not remotely matched by what is on the table in Washington.<\/p>\n

Some policymakers see the rise of AI as less of a job-eater than globalization was. \u201cAI is a tool. It\u2019s not going to replace us as human beings,\u201d Christopher Waller, a Fed governor, said in a February speech. What industries are trying to figure out about AI is whether it causes labor reduction versus labor shifting, he said. Other observers are bracing for a different kind of pain. \u201cWe\u2019re going to have a lot of societal stress\u201d over the coming years, Reed Hastings, the co-founder of Netflix Inc., said at an event in December in New York. \u201cThe rate of change in society that\u2019s driven by AI is going to be large.\u201d He compared the change to the Industrial Revolution, except that this one will happen over just a few decades.<\/p>\n

Financial markets are already reorganizing around AI, pumping up the value of so-called hyperscalers and key chipmakers while punishing the shares of any company suspected of being vulnerable to disruption. Periods of intense financial innovation without adequate oversight have rarely ended quietly, and social upheaval tends to follow economic crises. In this way, the same forces drawing capital into US markets\u2014data centers, semiconductor demand\u2014could also intensify geopolitical tensions and competition.<\/p>\n

We\u2019re still a long way from the euro or the yen or the renminbi displacing the dollar, yet policymakers around the world are recalibrating. For example, the European Central Bank has begun revamping its euro liquidity facilities, explicitly aiming to make the single currency more attractive to global reserve managers. The move could help make the ECB another global lender of last resort. The Federal Reserve\u2019s dollar swap lines were deployed at massive scale during the 2008 financial crisis and revived in 2020, \u00adbolstering the dollar along with US economic power.<\/p>\n

The ambition is clear: If the US is less predictable, Europe should become a beacon of stability. ECB President Christine Lagarde speaks openly about the \u201cdeliberate weaponization of dependencies\u201d on America. \u201cTrusted partners do not always remain so,\u201d she said in a speech at the Munich Security Conference in February.<\/p>\n

China, too, may see opportunity in American volatility. The US\u2019s growing appetite to intervene directly in markets\u2014for example, by acquiring equity shares of Intel and other companies\u2014and Trump\u2019s attempts to bully the Federal Reserve are showing China that the US economic system is less distinct from its own, says Eswar Prasad, an economics professor at Cornell University. \u201cThe contrast between a market-oriented liberal democracy and a command system is no longer as stark in practice as it is in theory,\u201d he says. \u201cIf America blurs that line, China does not have to win the geopolitical contest outright. It can win by default.\u201d<\/p>\n

What happens when trust dissolves? What we\u2019re seeing now is allies hedging, building parallel institutions, exploring alternative payment systems and diversifying reserve holdings at the margin. In essence, they\u2019re curbing exposure to America. Even if the US remains a dominant financial power, the margin of that dominance can shrink. Multipolarity doesn\u2019t require America to collapse. It requires others to develop credible alternatives.<\/p>\n

The question for investors and policymakers is not whether the dollar falls from its perch. It\u2019s whether trust erodes enough to raise the cost of capital for the US. Should portfolios diversify more aggressively away from dollar-based assets? Is tail-risk protection against financial crisis now prudent? These questions are no longer fringe.<\/p>\n

Investors know that humility is warranted. The past year has been a cascade of apparent hinge moments\u2014the April 2025 tariff announcements, Trump\u2019s attempt to fire a sitting Fed governor\u2014that seemed epochal and then receded as markets stabilized. The TACO trade worked.<\/p>\n

But accumulation matters, and institutional norms, once bent, may not snap back to their original shape. A central bank pressured once can be pressured again. A generation of workers displaced by automation doesn\u2019t simply learn new skills on command.<\/p>\n

The Trump administration is still counting on the benefits of a familiar international order. The US\u2019s position in the global economy is \u201ca key factor in enabling economic security,\u201d Treasury Secretary Scott Bessent said in a February speech in Dallas. \u201cThis status rests on confidence in our institutions and, critically, in the health of the US Treasury market,\u201d he said as he cited the importance of continued investment in the US. Investors have an insatiable appetite for American federal debt, because it\u2019s underpinned by institutions they still trust more than the alternatives.<\/p>\n

It\u2019s worth remembering that not everything is in the hands of the White House. Both the Fed and the courts are still asserting themselves. In a Supreme Court ruling in February, Justice Neil Gorsuch, who Trump selected for the job during his first term, joined the majority to rule that the administration\u2019s use of a specific law to impose tariffs was illegal. In the ruling, Gorsuch laid out a defense of the authority of Congress in such matters, explaining that its slow decision-making also lent itself to predictability. What the justice writes about congressional authority also speaks to America\u2019s place in geopolitics: \u201cRetrieving a lost power is no easy business.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Investors embraced in 2025 the so-called TACO trade\u2014that is, a bet that \u201cTrump Always Chickens Out\u201d on any…\n","protected":false},"author":2,"featured_media":574157,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[28,252576,101,252575,252578,252579,252572,252571,252577,252580,252574,252573],"class_list":["post-574156","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-dollar-dominance","tag-economy","tag-global-economic-order-shift","tag-global-markets-and-trump-policy","tag-oil-shock-global-economy","tag-trump-iran-war-impact","tag-trump-taco-trade","tag-us-dollar-safe-haven","tag-us-energy-exporter-advantage","tag-us-geopolitical-strategy","tag-us-global-leadership-uncertainty"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/574156","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=574156"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/574156\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/574157"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=574156"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=574156"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=574156"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}