Donald Trump’s televised image drew delegates to a conference room in the ski resort of Davos on Thursday, epitomizing the outsize influence the new president has had just days into his second term in the Oval Office.
Prime ministers, business leaders and the president of the European Central Bank lined up to watch him address the World Economic Forum, his first address to a global audience since returning to the White House. One attendee joked about getting some popcorn for the show.
Trump didn’t hold back, provoking nervous laughter as he issued a series of demands and ultimatums to allies and rivals alike.
Saudi Arabia and other producers must lower oil prices, global central banks are “immediately” required to cut interest rates, and foreign companies must increase investment in US factories or face tariffs. The EU – which came in for particular opprobrium – should stop hitting big US tech companies with competition fines.
“We will demand respect from other nations,” the president said. His predecessor “allowed other nations to take advantage of the U.S. We cannot allow that to happen again.”
Trump’s demands came amid a frenzied first week in office in which the president launched a blitzkrieg of executive orders and announcements designed not only to reshape the state but also to assert America’s economic and trade preeminence. Tariffs of up to 25 percent could be hit in Canada and Mexico as early as Feb. 1, riding on the rigors of the trade deal Trump himself negotiated in his first term.
China could face tariffs of up to 100 percent if Beijing failed to agree a deal to sell at least 50 percent of the Tiktok app to a US company, while the EU was told to buy more US oil if it wanted to avoid fees. Underscoring the new American unilateralism, Trump pulled the US out of the World Health Organization, as well as exiting the Paris Climate Agreement for the second time.
Remarkably, Trump reached for an obscure, 90-year-old provision in the US Tax Code to threaten a doubling of tax rates for foreign nationals and companies if their countries of origin were deemed to have imposed “discriminatory” taxes on multinationals. american.
This proposal throws a “hand grenade” into international tax policymaking, says Niels Johannesen, director of Oxford University’s Center for Business Taxation at the Saïd Business School. The move suggests a determination to “shape other countries’ tax policy through coercion rather than cooperation,” he adds.
The plans unveiled this week by the new President raise the specter of a multi-front economic war as Trump uses the power of America’s resurgent economy to rebalance the international order in his favor.
The big question, say investors and policymakers, is whether this amounts to a more intense version of the transactional approach seen in Trump’s first term, or a shift toward unsparing unilateralism, where an unfettered White House from the constraints of the international law cajole and intimidates foreign governments and businesses.
“He is weaponizing everything: trade, taxes and energy. I’m worried that finance will also be weaponized, “says the head of one of the world’s largest sovereign wealth funds. “Most people are betting that he cares about the stock market – that’s the only control. That and the fact that he has said he wants to be a peacemaker. “
In Davos, the main American leaders were eager to cheer Trump’s agenda—suggesting there is little anxiety within the corporate sector about the US potentially upending the rules-based global order.
Tariffs are an “economic tool. That’s what it is,” said Jamie Dimon, CEO of JPMorgan Chase, in a CNBC interview in Davos this week. “If it’s a little inflationary, but it’s good for national security, so be it. Get over it. “
The U.S. stock market rallied this week as investors digested the prospect of easing regulations governing banks and high-tech companies, as well as the announcement of a massive $100 billion artificial intelligence infrastructure project launched by Openai and Softbank. By the end of the week (as of Friday afternoon in New York), the S&P 500 Index was up 1.8 percent.
“Anecdotally, people talk to CEOs and they say they’re all feeling super positive,” says Mahmood Pradhan, head of global macro at Amundi Investment Institute.
“If I wonder what justifies animal spirits, the bank regulation stuff is real and the prospect of lower corporate taxes is real.”
Outside the US, however, the threat of a wide array of trade barriers and conflicts over tax policies is weighing on the economic outlook. Valdis Dombrovskis, the EU’s economy commissioner, says a breakdown in global trade would be particularly worrying for economies like Europe, where trade accounts for more than a fifth of GDP.
He cites IMF estimates showing that extreme geoeconomic fragmentation in trade could wipe out 7 percent of global GDP over the medium term. “If this global economic fragmentation takes hold – and there is a risk of it – there will be significant negative economic consequences.”
Even as it tightens its grip on a tariff attack, however, some European policymakers claim to see potential upside.
“It is a new environment which is definitely less comfortable for Europe, but which also offers many opportunities,” says Alexander de Croo, Belgium’s prime minister. “Europe can show there that we have stability and that you are in a predictable environment where investment can be made.”
European officials also say they could benefit from deeper trade ties with other countries that could be squeezed out of US markets. “Countries are coming to us because they want to diversify away from the US,” says a senior EU official.
“We must continue to be open, but not naive,” says Spanish Economy Minister Carlos Cuerpo. “We need our companies to compete under an equal footing, a level playing field and a level playing field relative to others. This was the case with China. This will have to be the case with the US as well.”
While the US and Europe have long railed against Chinese trade practices, Beijing was quick this week to cast itself as a supporter of the rules-based global order rather than its nemesis.
Speaking the day after Trump was inaugurated, Chinese Vice President Ding Xuexiang insisted that economic globalization “is not a ‘you lose, I win’ zero-sum game”. The world’s biggest countries should “lead by example,” he said, praising international bodies including the World Trade Organization and the UN.
The irony of China posing as a paragon of free trade while Trump seeks to extract concessions from his closest allies from economic brute force was not lost on Davos attendees watching Ding’s performance.
Despite the barrage of measures And statements from the White House this week suggest most global policymakers are taking a wait-and-see approach to Trump’s aggressive transactionalism, rather than jumping to conclusions about long-term ramifications for the global economic system.
“Why put my cards on the table before he has?” says the senior EU official.
Jonathan Reynolds, the UK’s business secretary, admits “many questions” remain about the president’s approach. “Is it about leverage around negotiations? Is it about collecting revenue in terms of fees? The UK, he says, will continue to argue for a “much more open, globally trading economy”.
However, there is little question that Trump is signaling a significant escalation in how he will weaponize trade compared to his first term.
“Those around Trump have had time to develop a systematic, methodical approach to protectionist trade policy, and it shows,” says former UK trade department official Allie Renison, now at SEC consultancy Newgate. The approach will be to build a case file of “evidence” against countries, she says, and then use that to extract concessions in the areas of economic and foreign policy.
The question remains how far Trump is willing to go. The danger of violating the rules-based order, says Jeromin Zettelmeyer, head of the Bruegel Think-Tank, is a complete separation in diplomatic and legal channels for resolving international disputes.
If Trump were to withdraw from a wider range of international frameworks, such as the WTO or the IMF, he warns, then the agreements that help govern the global economy could be “fundamentally destroyed”.
The extreme case, he adds, is that “they really do a Putin” — namely by violating the sanctity of international borders. Taking control of Greenland or the Panama Canal by force, as Trump has threatened, would amount to “reinstating the law of the jungle.”
Michael Strain, Director of Economic Policy Studies at the American Enterprise Institute think-tank, questions whether Trump will reverse the “fundamental forces” driving global economic integration—and whether the President even wants to. But regardless, he says, uncertainty about his true intentions “makes it difficult for business to plan, creates a chilling effect on investment and creates tensions with our allies.”
Some cautioned against being upset by Trump’s threats or his talk of unfettered capitalism because his agenda was so vague.
“What we are seeing is large doses of American hubris,” says Arancha González, dean of the Paris School of International Affairs at Science Po. “We’re blinded by the intensity of all the issues on the table and by Trump’s conviction. But we’re not seeing the contradictions. It’s like we’re all on an orange pill.”
Additional reporting by Harriet Agnew in Davos and Peter Foster in London
Data visualization from Keith Fray
