Sow the wind
The most assured dogmas of recent decades on economic and political governance are rapidly crumbling, buffeted by the wave of blows from Trump and his allies.
These supporters of another world and a different kind of alter-globalization were heartily welcomed to this year’s World Economic Forum at Davos, where twenty years ago, very dissimilar alter-globalization supporters – from the left at the time – tried to get a hearing without ever gaining an invitation. On 23 January 2025, we heard the Argentine president Javier Milei rail against the very idea of social justice. Then came Donald Trump, against the principles of free trade, market autonomy and the independence of central banks. Liberal principles are thus being called into question, ushering in a new economic era, the consequences of which remain unclear.
The first principle to be sacrificed was free trade. According to traditional theory, free trade is supposed to favour global growth by the interplay of the comparative advantages of different countries. Today it is just an intangible principle, thanks to Trump’s desire to distort international competition with punitive customs tariffs. Paradoxically, China is now one of the last defenders of unimpeded international trade.
The second principle to be sacrificed is autonomous markets. Railing against energy prices that he considers excessive (especially for his electorate), Trump intends to do everything in his power to promote an increase in oil extraction. This pressure is being applied to foreign producers, such as Saudi Arabia, whom he is urging to open the floodgates, despite the country’s commitments to OPEC and contrary to its own interests as it tries to end its dependence on oil. It is also being brought to bear on US producers, who are being incited to expand drilling. But the profitability threshold for domestic oil wells – estimated by a Statista survey at 62 dollars per barrel[1] – is now close to current prices, with the risk that US companies will commit to less profitable or even unprofitable investments. In principle, a self-regulating market would not invest in such risky opportunities, and the oil economy would depend primarily on the supply-demand situation rather than on political pressure, although this has always played some role.
Lastly, central bank independence, a flagship dogma of the end of the twentieth century, is being challenged – to the wide-eyed dismay of the global economic elite – by Trump’s claim to the right to influence interest rate reductions, stating that as oil prices fall, “I’ll demand that interest rates drop immediately”. The US Federal Reserve (Fed) thus finds itself again under attack, as in 2018 when Trump railed against these “enemies of the people” for raising rates. At the time, Fed Chair Powell resisted. He will certainly try to do the same this time. But how long can the dam hold? In the coming years, Trump will be able to influence regular replacements to the Board of Governors. Powell’s own mandate only runs until May 2026, and after that, it may be easier for Trump to apply pressure.
What will be the consequences of the questioning of these dogmas? A lower oil price combined with forced relocation and far lower key rates than justified by the economic situation could eventually trigger overheating in the US economy. Furthermore, this overheating – accompanied by speculation and the disastrous consequences that we know only too well – could result in rising long rates due to fears of a resurgence in inflation. This steepening of interest rates would place a considerable burden on the US budget, potentially placing the country’s financial stability on a worrying trajectory.
But before that, Trump has to actually implement his plan, which is far from a done deal. The consequences may thus be less brutal than we envisage today. The wind of optimism sown by Trump in markets could thus reap something other than a whirlwind.