Graham Allison
In the decade before the great financial crisis of 2008, the chair of the Federal Reserve, Alan Greenspan, became a virtual demigod in Washington. As U.S. Senator John McCain, Republican of Arizona, famously advised, “If he’s alive or dead it doesn’t matter. If he’s dead, just prop him up and put some dark glasses on him.”
During Greenspan’s two decades as chair, from 1987 to 2006, the Fed played a central role in a period of accelerated growth in the U.S. economy. Among the sources of Greenspan’s fame was what financial markets called the “Fed put.” (A “put” is a contract that gives the owner the right to sell an asset at a fixed price until a fixed date.) During Greenspan’s tenure, investors came to believe that however risky the new products that financial engineers were creating, if something went awry, the system could count on Greenspan’s Fed to come to the rescue and provide a floor below which stocks would not be allowed to fall. The bet paid off: when Wall Street’s mortgage-backed securities and derivatives led to the collapse of Lehman Brothers, triggering the 2008 financial crisis that sparked the Great Recession, the U.S. Treasury and the Fed stepped in to prevent the economy from sliding into a second Great Depression.
That dynamic is worth recalling when considering the effect that the 2024 U.S. presidential election is already having on the decisions of countries around the world. Leaders are now beginning to wake up to the fact that a year from now, former U.S. President Donald Trump could actually be returning to the White House. Accordingly, some foreign governments are increasingly factoring into their relationship with the United States what may come to be known as the “Trump put”—delaying choices in the expectation that they will be able to negotiate better deals with Washington a year from now because Trump will effectively establish a floor on how bad things can get for them. Others, by contrast, are beginning to search for what might be called a “Trump hedge”—analyzing the ways in which his return will likely leave them with worse options and preparing accordingly.
THE GHOST OF PRESIDENCIES PAST
Russian President Vladimir Putin’s calculations in his war against Ukraine provide a vivid example of the Trump put. In recent months, as a stalemate has emerged on the ground, speculation has grown about Putin’s readiness to end the war. But as a result of the Trump put, it is far more likely that the war will still be raging this time next year. Despite some Ukrainians’ interest in an extended cease-fire or even an armistice to end the killing before another grim winter takes its toll, Putin knows that Trump has promised to end the war “in one day.” In Trump’s words: “I would tell [Ukrainian President Volodymyr] Zelensky, no more [aid]. You got to make a deal.” Facing a good chance that a year from now, Trump will offer terms much more advantageous for Russia than anything U.S. President Joe Biden would offer or Zelensky would agree to today, Putin will wait.
Ukraine’s allies in Europe, by contrast, must consider a Trump hedge. As the war approaches the end of its second year, daily pictures of destruction and deaths caused by Russian airstrikes and artillery shells have upended European illusions of living in a world in which war has become obsolete. Predictably, this has led to a revival of enthusiasm for the NATO alliance and its backbone: the U.S. commitment to come to the defense of any ally that is attacked. But as reports of polls showing Trump besting Biden are beginning to sink in, there is a growing fear. Germans, in particular, remember former Chancellor Angela Merkel’s conclusion from her painful encounters with Trump. As she described it, “We must fight for our future on our own.”
Trump is not the only U.S. leader to ask why a European community that has three times the population of Russia and a GDP more than nine times its size has to continue to depend on Washington to defend it. In an oft-cited interview with The Atlantic’s chief editor, Jeffrey Goldberg, in 2016, U.S. President Barack Obama lacerated Europeans (and others) for being “free riders.” But Trump has gone further. According to John Bolton, who was then Trump’s national security adviser, Trump said, “I don’t give a shit about NATO” during a 2019 meeting in which he talked seriously about withdrawing from the alliance altogether. In part, Trump’s threats were a bargaining ploy to force European states to meet their commitment to spend two percent of GDP on their own defense—but only in part. After two years of attempting to persuade Trump about the importance of the United States’s alliances, Secretary of Defense James Mattis concluded that his differences with the president were so profound that he could no longer serve, a position he explained candidly in his 2018 letter of resignation. Today, Trump’s campaign website calls for “fundamentally reevaluating NATO’s purpose and NATO’s mission.” When considering how many tanks or artillery shells to send to Ukraine, some Europeans are now pausing to ask whether they might need those arms for their own defense were Trump to be elected in November.
Leaders are waking up to the fact that Trump could return to the White House.
Expectations derived from a Trump put were also at work during the recently concluded COP28 climate change summit in Dubai. Historically, COP agreements about what governments will do to address the climate challenge have been long on aspirations and short on performance. But COP28 stretched even further into fantasy in heralding what it called a historic agreement to “transition away from fossil fuels.”
In reality, the signatories are doing precisely the opposite. Major producers and consumers of oil, gas, and coal are currently increasing—not reducing—their use of fossil fuels. Moreover, they are making investments to continue doing so for as far ahead as any eye can see. The world’s largest producer of oil, the United States, has been expanding its production annually for the past decade and set a new record for output in 2023. The third-largest emitter of greenhouse gases, India, is celebrating its own superior economic growth driven by a national energy program whose centerpiece is coal. This fossil fuel accounts for three-quarters of India’s primary energy production. China is the number one producer of both “green” renewable energy and “black” polluting coal. So although China installed more solar panels in 2023 than the United States has in the past five decades, it is also currently building six times as many new coal plants as the rest of the world combined.
Thus, although COP28 saw many pledges about targets for 2030 and beyond, attempts to get governments to take any costly, irreversible actions today were resisted. Leaders know that if Trump returns and pursues his campaign pledge to “drill, baby, drill,” such actions will be unnecessary. As a bad joke that made its way around the bars at COP28 went: “What is COP28’s unstated plan to transition away from fossil fuels? To burn them up as rapidly as possible.”
A DISORDERED WORLD
A second Trump term promises a new world trading order—or disorder. On his first day in office in 2017, Trump withdrew from the Trans-Pacific Partnership trade agreement. The weeks that followed saw the end of discussions to create a European equivalent as well as other free-trade agreements. Using the unilateral authority that Section 301 of the Trade Act of 1974 gives the executive branch, Trump imposed 25 percent tariffs on $300 billion worth of Chinese imports—tariffs that Biden has largely kept in place. As the Trump administration’s trade negotiator Robert Lighthizer—whom the Trump campaign has identified as its lead adviser on these issues—explained in his recently published book, No Trade Is Free, a second Trump term would be much bolder.
In the current campaign, Trump calls himself “Tariff Man.” He is promising to impose a ten percent universal tariff on imports from all countries and to match countries that levy higher tariffs on American goods, promising “an eye for an eye, a tariff for a tariff.” The cooperation pact with Asia-Pacific countries negotiated by the Biden administration—the Indo-Pacific Economic Framework for Prosperity—will, Trump says, be “dead on day one.” For Lighthizer, China is the “lethal adversary” that will be the central target of protectionist U.S. trade measures. Beginning with the revocation of the “permanent normal trading relations” status China was granted in 2000 ahead of joining the World Trade Organization, Trump’s goal will be to “eliminate dependence on China in all critical areas,” including electronics, steel, and pharmaceuticals.
Since trade is a major driver of global economic growth, most leaders find the possibility that U.S. initiatives could essentially collapse the rules-based trading order almost inconceivable. But some of their advisers are now exploring futures in which the United States may be more successful in decoupling itself from the global trading order than in forcing others to decouple from China.
Trade liberalization has been a pillar of a larger process of globalization that has also seen the freer movement of people around the world. Trump has announced that on the first day of his new administration, his first act will be to “close the border.” Currently, every day, more than 10,000 foreign nationals are entering the United States from Mexico. Despite the Biden administration’s best efforts, Congress has refused to authorize further economic assistance to Israel and Ukraine without major changes that significantly slow this mass migration from Central America and elsewhere. On the campaign trail, Trump is making Biden’s failure to secure U.S. borders a major issue. He has announced his own plans to round up millions of “illegal aliens” in what he calls “the largest domestic deportation operation in American history.” In the thick of their own presidential election, Mexicans are still searching for words to describe this nightmare in which their country could be overwhelmed by millions of people coming across both their northern and southern borders.
FOUR MORE YEARS
Historically, there have been eras when differences between Democrats and Republicans on major foreign policy issues were so modest that it could be said that “politics stops at the water’s edge.” This decade, however, is not one of them. Unhelpful as it may be to foreign-policy makers and their counterparts abroad, the U.S. Constitution schedules quadrennial equivalents of what in the business world would be an attempted hostile takeover.
As a result, on every issue—from negotiations on climate or trade or NATO’s support for Ukraine to attempts to persuade Putin, Chinese President Xi Jinping, or Saudi Crown Prince Mohammed bin Salman to act—Biden and his foreign policy team are finding themselves increasingly handicapped as their counterparts weigh Washington’s promises or threats against the likelihood that they will be dealing with a very different government a year from now. This year promises to be a year of danger as countries around the world watch U.S. politics with a combination of disbelief, fascination, horror, and hope. They know that this political theater will choose not only the next president of the United States but also the world’s most consequential leader.
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