Trade war and global financial dysfunction
The European Union is moving further into an era of economic uncertainty. European Trade Commissioner Maros Sefcovic, the EU's chief negotiator with the United States, stated this Monday that the threat of 30% tariffs on European products would eliminate transatlantic trade. Although Brussels maintains that it remains confident of an agreement before the new August 1 deadline, it is also finalizing a second package of trade retaliations in case negotiations fail again. The uncertainty of a possible trade war is already beginning to be felt. Global growth could remain at its lowest level this year since the 2008 financial crisis. The World Bank has revised its forecasts downward, and the trickle of announcements of tariff increases coming from Washington increases uncertainty about an already fragile economic system. Imports from the United States are also beginning to notice a certain slowdown.
The world economic order is undergoing a transformation. But the final outcome of the tariff disputes that have accelerated since Donald Trump's return to the White House will be decisive in the reconfiguration of the international trading system. The US challenge to a multilateral system, with its institutions and rules, tailored to the United States, entails global costs: in terms of hegemony (with China rivaling the US as the dominant power); costs to public goods; and costs to the infrastructure of globalization (whether in financial stability or the security of maritime trade routes).
But long before Trump, the system had already entered a crisis. Structures created by Western countries after World War II and before the decolonization processes of the 20th century have ended up becoming a straitjacket incapable of adapting to the international reality of the present. United Nations Secretary-General António Guterres asserted in 2022 that "the world is paralyzed by a colossal global dysfunction" and that a new Bretton Woods is needed, where countries agree on a new international financial architecture that reflects current economic realities and power relations. The global financial architecture has become "obsolete, dysfunctional, and unfair, incapable of adapting to the multipolarity of the 21st century," Guterres acknowledged. And all this is happening with the United States globally weaker and China exercising global hegemony and favoring its own alternative institutionalization.
The confrontation between Beijing and Washington is at the heart of the trade war. The trend, shared by Democrats and Republicans and now accelerated by Trump, of decoupling between the two major global powers accentuates the risk of turning up the volume on global disruption. The geopolitical impact of tariffs is already being felt in Asia. Japan, South Korea, and Vietnam—countries feeling the sting of China's regional assertiveness—are now penalized in their trade relations with the United States.
The Global South, for its part, has no interest in getting caught up in a bilateral war between the United States and China. And the EU has been left without its traditional ally. Europe can only survive within a multilateral framework of functioning rules, but the weight of distrust between major powers has become a key factor in global geoeconomic relations.
The sense of uncertainty—pending the volatility emanating from the Oval Office—pervades everything. The United States remains the world's largest economy, accounting for 26% of global GDP in market value. But according to calculations published by Creon Butler, a Chatham House expert, approximately 80% of global trade no longer directly affects the United States, and most of it continues to be conducted under the rules of the World Trade Organization. We are witnessing a shift in dominance in global trade and investment; a transformation in the interdependencies between countries. Despite all these uncertainties and the dysfunctionality of the system, globalization has not stopped but is being reconfigured. Direct trade flows between the United States and China and between the European Union and Russia have declined, while investment in the Global South is growing. There is a diversification of alliances. Supply chains are shortening and reorienting toward geopolitically closer trading partners. The world is looking for reliable alternatives to uncertainty.
