A televised image of Donald Trump towered over delegates in a conference room at the ski resort of Davos on Thursday, epitomizing the enormous influence the new president has wielded 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 see him address the World Economic Forum, his first speech to a global audience since returning to the White House. One attendee joked about bringing popcorn to the show.
Trump didn’t hold back, eliciting nervous laughter as he issued a series of demands and ultimatums to allies and rivals.
Saudi Arabia and other producers must reduce oil prices, global central banks must cut interest rates “immediately,” and foreign companies must increase investment in American factories or face tariffs. The EU – which has been particularly embarrassed – must stop punishing 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 US. We cannot allow this to happen again.”
Trump’s demands came amid a frenetic first week in office in which the president launched a blitzkrieg of executive orders and announcements intended not only to reshape the country but also to assert America’s economic and commercial supremacy. Tariffs of up to 25 percent could be imposed on Canada and Mexico as early as February 1, due to the harsh treatment of the trade agreement that Trump himself negotiated in his first term.
China could face taxes of up to 100 percent if Beijing fails to agree to sell at least 50 percent of the TikTok app to a US company, while the EU has been told to buy more US oil if it wants to avoid tariffs. Emphasizing the new US unilateralism, Trump withdrew the US from the World Health Organization, as well as exiting the Paris Climate Agreement for the second time.
Astoundingly, Trump reached for an obscure, 90-year-old provision in the US tax code to threaten doubling of tax rates for foreign nationals and companies if their home countries are deemed to have imposed “discriminatory” taxes on US multinationals.
The proposal throws a “hand grenade” at international tax policy-making, says Niels Johannesen, director of Oxford University’s Center for Business Taxation at the Saïd Business School. The move suggests a determination to “shape the tax policy of other countries through coercion, not cooperation,” he adds.
The plans unveiled this week by the new president raise the specter of an economic war on multiple fronts as Trump uses the power of a resurgent US economy to rebalance the international order in his favor.
The key question, investors and policymakers say, is whether this represents a more intense version of the transactional, deal-making approach seen in Trump’s first term or a shift toward unbridled unilateralism, where a White House freed from the constraints of international law coaxes and intimidates foreign governments and businesses.
“He puts weapons in everything: trade, taxes and energy. I am worried that finance will also become a weapon,” says the head of one of the world’s largest sovereign wealth funds. “Most people bet he cares about the stock market – that’s the only check. That and the fact that he said he wanted to be a peacemaker.”
In Davos, leading American executives they were eager to support Trump’s agenda – suggesting there is little concern within the corporate sector that the US could undermine the rules-based global order.
Tariffs are an “economic tool. That’s it,” said Jamie Dimon, CEO of JPMorgan Chase, in an interview with CNBC 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 huge A $100 billion artificial intelligence infrastructure project launched by OpenAI and SoftBank. By the end of the week (as of late Friday afternoon in New York), the S&P 500 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 ask myself what justifies the animal spirits, the banking deregulation stuff is real and the prospect of lower corporate taxes is real.”
Outside the US, however, the threat of a widening set of trade barriers and a clash over tax policy weighs on the economic outlook. Valdis Dombrovskis, the European Commissioner for the Economy, says that a split in global trade would be of particular concern to economies like Europe, where trade accounts for more than a fifth of GDP.
He cites IMF estimates that show this extreme geo-economic fragmentationwhose in trade could wipe out 7 percent of global GDP in the medium term. “If this global economic fragmentation takes hold – and there is a risk that it will – it will have significant negative economic consequences.”
Even as they brace for an onslaught of tariffs, some European policymakers say they see potential upside.
“It is a new environment that is definitely less comfortable for Europe, but which also offers many opportunities,” says Alexander de Croo, the Belgian prime minister. “Europe can show there that we have stability and that you are in a predictable environment where you can invest.”
European officials also say they could benefit from deeper trade ties with other countries that could be squeezed out of US markets. “Countries come 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 Spain’s Economy Minister Carlos Cuerpo. “We have to have our companies competing on a level playing field, on a level playing field and on a level playing field with others. This was the case with China. This will have to be the case with the USA as well.”
While the US and Europe have long railed against China’s trade practices, Beijing this week has been quick to cast itself as a defender of the rules-based global order rather than its enemy.
Speaking the day after Trump was inaugurated, Chinese Vice Premier 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 presenting itself as a paragon of free trade while Trump seeks to use brute economic force to extract concessions from its closest allies was not lost on the Davos visitors who watched Ding’s performance.
Despite the barrage measures and statements released by the White House this week, most global policymakers are taking a wait-and-see approach to Trump’s aggressive transactional approach, rather than jumping to conclusions about the long-term consequences for global economy rustling.
“Why put my cards on the table before he does?” says a senior EU official.
Jonathan Reynolds, the UK’s business secretary, admits “many questions” remain about the president’s approach. “Is it about levers around negotiations? Is it about raising revenue in terms of tariffs?” Great Britain, he says, will continue to push for a “much more open, global trading economy”.
However, there is no doubt that Trump is signaling a significant escalation in how he will use trade as a weapon compared to his first term.
“Those around Trump have had time to build a systematic, methodical approach to protectionist trade policy and it shows,” says former UK trade ministry official Allie Renison, now at SEC consultancy Newgate. The approach will be to build a dossier of “evidence” against countries, she says, and then use that to extract concessions in areas of both economic and foreign policy.
The question remains how far Trump is willing to go. The danger of undermining the rules-based order, says Jeromin Zettelmeyer, head of the Bruegel think-tank, is the complete breakdown of 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 arrangements that help govern the global economy could be “significantly destroyed”.
It is an extreme case, he adds, that “they are really making Putin” – namely by violating the sanctity of international borders. Taking control of Greenland or the Panama Canal by force, as Trump has threatened, would mean “reimposing 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 do it. But regardless, he says, uncertainty about his true intentions “makes business planning difficult, creates a chilling effect on investment and creates tensions with our allies.”
Some caution against being dazzled by Trump’s threats or his push for unfettered capitalism because his agenda has been so incoherent.
“What we see are huge doses of American arrogance,” says Arancha González, dean of Sciences Po’s Paris School of International Affairs. “We are blinded by the intensity of all the issues that have been put on the table and by Trump’s conviction. But we do not look at contradictions. It’s like we’re all on an orange drug.”
Additional reporting by Harriet Agnew in Davos and Peter Foster in London
Data visualization by Keith Fray
