MB's Weekly Selection
To accompany the Monthly Barometer, my selection of and reflection on 5 macro themes, plus some insightful articles to help you make sense of what's going on and an inkling of what might be next
(1) THE GLOBAL GEO-ECONOMIC (DIS)ORDER: WHAT’S NEXT?
(2) TARIFFS: THE TRADE WAR DRAGS ON
(3) UNINTENDED CONSEQUENCES
(4) GLOBAL LIVING STANDARDS: STILL BELOW TREND
(5) ZERO-SUM THINKING AND POLITICAL DIVIDES
THE GLOBAL GEO-ECONOMIC (DIS)ORDER: WHAT’S NEXT? We now live in a world in which economics is subservient to geopolitical interests - a structural shift that preceded Donald Trump but that the US President is now exacerbating. There won’t be a return to the neoliberal era, meaning that business leaders and investors must adjust to this new world (an argument made in simple terms in this Harvard Business School article from March – metered paywall). As Martin Wolf explains in “The old global economic order is dead” (sadly behind a FT paywall), the US is stepping away from its role as “balancer of last resort”. He delves into the details of what the trade war between the US and (mainly) China will entail and evokes the massive dislocations about to occur in global macroeconomics: trade of course, but also exchange rates, monetary and fiscal policies, global economic cycles, the role of global institutions. Everything is about to change!
TARIFFS - THE TRADE WAR DRAGS ON: The “tremendous trade deal” (to quote Trump) just signed with the UK is no such thing: it is just a trade framework which keeps in place a 10% baseline tariff to be further negotiated over the coming months. In the coming days and weeks, there’ll be other similar announcements (like a de-escalation between China and the US this weekend), but the bottom-line won’t change: the trade war will proceed with its ups and downs. There’ll be some exemptions and U-turns, but, by and large, it's exceedingly unlikely that Trump will be capable neither of negotiating reasonable trade deals nor backing down on tariffs. As a result, the United States will be the major loser, both politically and economically, from a global trade war in which everyone else loses too. This article (free access) written by three economists from the Bank of Italy on the global impact of the trade war shows that, even with partial suspensions, it will trigger sharp contractions in trade, significant welfare losses (especially for the US), and major disruptions to global supply chains. Longer term, it will reconfigure global value chains, resulting in a less efficient trade system.
A WORLD OF UNINTENDED CONSEQUENCES: Strategies rarely unfold exactly as planned, particularly when they are as flawed as Trump’s policies. Today’s world is one in which anything can happen in the most surprising ways, with some policies resulting in the exact opposite of what was intended - like Xi rather than being contained by US action (Trump’s intention) has instead become one of the greatest beneficiaries of Trump chaos (alongside Putin, a point made by Alexander Gabuev in this FT op-ed (paywalled). In a recent article (paywall that may require prior registration), Edward Tenner (a scholar who just published “Why the Hindenburg Had a Smoking Lounge - Essays in Unintended Consequences”) offers a rapid survey of the academic literature on unintended consequences and makes the following point about tech exacerbating unintended consequences: “One of the great, underappreciated facts about our technology-driven age is that unintended consequences tend to outnumber intended ones.” The crux of the issue: we are not in control to the extent thatwe think we are, so humility and a deep undertanding of our limitations are of the essence.
GLOBAL LIVING STANDARDS - STILL BELOW TREND: Two years after the pandemic officially ‘ended’, the setback it inflicted on living standards endures. The 2025 UN Human Development Index which tracks progress in life expectancy, education and income (and is used alongside GDP as a measure of development) shows that the pace of improvement is the lowest recorded in 35 years (after the exceptional crisis of 2020-2021). What is of greatest concern are the growing inequalities between rich and poor countries, which have been expanding for 4 consecutive years. Almost all high-income countries have either fully recovered or exceeded their pre-pandemic scores. By contrast, only 60% of poor countries have.
ZERO-SUM THINKING AND POLITICAL DIVIDES: Stefanie Stantcheva, a young Harvard professor, just received the John Bates Clark Medal (the most prestigious prize awarded to an economist under the age of 40) for her research that quantifies perceptions of economic policy and the factors that determine them. Zero-sum thinking – i.e. the world framed as winners and losers, in which the gains of an individual, or country, or company always come at the expense of the other - is at the core of all this, with Donald Trump epitomizing the zero-sum zeitgeist. But Stancheva’s research shows that zero-sum thinking does not map neatly with party lines. For example, many young Americans tend to see the world as zero sum. In this Harvard Gazette article, Stancheva says: “If there’s been more growth, more mobility in the first 20 years of your life, we find it’s associated with being significantly less zero-sum (…). So in places like the US or Continental Europe, where things used to be better in terms of mobility, the older generations are a lot less zero-sum.” The bottom line: the underlying reasons underpinning political divides are more complicated than we think, but sluggish economic growth is an impediment to thinking in positive-sum terms. This 11min video with Stancheva explains in more details what this is all about.