The post-American world economy has arrived. U.S. President Donald Trump’s radical shift in economic approach has already begun to change norms, behaviors, and institutions globally. Like a major earthquake, it has given rise to new features in the landscape and rendered many existing economic structures unusable. This event was a political choice, not an inevitable natural disaster. But the changes that it is driving are here to stay. No guardrails will automatically restore the previous status quo.
To understand these changes, many analysts and politicians focus on the degree to which supply chains and trade in manufactured goods are shifting between the United States and China. But that focus is too narrow. Asking whether the United States or China will remain central to the world’s economy—or looking primarily at trade balances—yields a dramatic underestimate of the scope and impact of Trump’s changed approach and how comprehensively the prior U.S. framework undergirded the economic decisions made by almost every state, financial institution, and company worldwide.
In essence, the global public goods that the United States provided after the end of World War II—among others, the ability to securely navigate the air and seas, the presumption that property is safe from expropriation, rules for international trade, and stable dollar assets in which to transact business and store money—can be thought of, in economic terms, as forms of insurance. The United States collected premiums from the countries that participated in the system it led in a variety of ways, including through its ability to set rules that made the U.S. economy the most attractive one to investors. In return, the societies that bought into the system were freed to expend much less effort on securing their economies against uncertainty, enabling them to pursue the commerce that helped them flourish.
Some pressures had been building within this system before Trump’s ascent. But particularly in his second term, Trump has switched the United States’ role from global insurer to extractor of profit. Instead of the insurer securing its clients against external threats, under the new regime, the threat against which insurance is sold comes as much from the insurer as from the global environment. The Trump administration promises to spare clients from its own assaults for a higher price than before. Trump has threatened to block access to American markets on a broad scale; made the protections that come with military alliances explicitly dependent on the purchase of U.S. weapons, energy, and industrial products; required foreigners who want to operate businesses in the United States to make side payments to his personal priorities; and pressured Mexico, Vietnam, and other countries to drop Chinese industrial inputs or investment by Chinese companies. These acts are on a scale unprecedented in modern U.S. governance.
The United States’ withdrawal of its former insurance will fundamentally change the behavior of the country’s clients and its clients’ clients—and not in the ways that Trump hopes. China, the country whose behavior most U.S. officials want to change, will likely be the least affected, while the United States’ closest allies will be the most damaged. As other U.S. partners watch these reliant allies suffer, they will seek to self-insure instead, at great cost to them. Assets will become harder to save and investment abroad less appealing. As their exposure to global economic and security risks rises, governments will find that both foreign diversification and macroeconomic policy have become less effective tools for stabilizing their economies.
Some argue that Trump’s new posture will simply drive a potentially desirable realignment. In this view, although his program requires both governments and businesses to pay more for less, the world will ultimately accept its new normal, to the United States’ benefit. This is a delusion. In the world Trump’s program creates, everyone will suffer—not least the United States.
GANGSTER’S PARADISE
Imagine that you were fortunate enough to inherit a piece of land by the ocean. It always offered great views and beach access. But you only invested in building a grand house on the lot when a well-regulated, reliable company came along that offered sufficient home insurance. You had to pay a pretty penny for it, of course. But that company’s coverage also enabled the owners of nearby lots to build, inspiring the creation of a rewarding neighborhood with roads, water, cell towers, rising home values—and most crucially, the guarantee that if you continued to pay premiums insuring you against floods and hurricanes, any further investments you made in your property would be at low risk.
In essence, this is the economic situation in which much of the world operated for nearly 80 years. The United States recouped enormous benefits by acting as the world’s dominant insurance provider after World War II. By assuming this role, it also maintained some control over other countries’ economic and security policies without having to resort to harsh threats. In return, countries that participated in the system were shielded from various forms of risk. Washington’s military supremacy and the mechanisms of international order that it enforced allowed national borders to remain mostly settled; most economies could thrive without the threat of conquest. Between 1980 and 2020, incomes converged overall both between and within the states that took part.
Economic injustices persisted; at times, they were imposed by the United States. But broadly, this global insurance regime was a win-win for nearly everyone with regard to economic stability, innovation, and growth. Violence and warfare declined overall, and poorer states were better able to integrate their economies with higher-income markets that opened up to trade. This security may have rested on a communal illusion about how little military investment and action it would take to keep geopolitics stable. But that regime persisted for decades, in part because U.S. policymakers in both parties valued the system and in part because enough outside actors believed in it and benefited from it.
Now that sense of safety is gone. Imagine, again, your hypothetical beachfront house. Some threats to your property have started to increase: sea levels are rising, and hurricanes are becoming deadlier. Instead of simply raising your premium, however, your insurer—which you had long trusted and dutifully paid—suddenly begins to refuse your claims for damage unless you pay double your official rate and slip the insurer something extra under the table, too. Even if you do pay what is asked, the insurer then writes to say that it is tripling the price of your general premium for less comprehensive coverage. Alternative insurers are not available. Meanwhile, your taxes begin to rise, and your day-to-day public services become less reliable because of the demands that disaster response is placing on your community.
Trump is not the only actor responsible for the breakdown of the economic regime that prevailed for 80 years. The list of contributing factors—the underlying threats not posed by your home insurer, in the beach house analogy—is long. The rise of China, and the United States’ response, played a part. So, too, did climate change, the advance of information technology, and the U.S. electorate’s understandable loss of trust in incumbent elites after the country’s interventions in Afghanistan and Iraq, the 2008–9 global financial crisis, and the COVID-19 pandemic.
But the Trump administration’s policies constitute a clear turning point. The president’s supporters sometimes portray these as a mere repricing of risk: the free world’s insurer is adjusting its fees and services to fit new realities and correct a previous tendency to underprice its offerings. This depiction is mistaken. The Trump administration has made clear that it wants the United States to operate a completely different kind of scheme, in which it weaponizes and maintains uncertainty in order to extract as much as it can for as little as possible in return.
Trump and his advisers would argue that this is simple reciprocity or fair treatment for countries that, in their view, exploited the United States for decades. Yet those countries never extracted anything that remotely matched what the United States received: dirt cheap long-term loans to the U.S. government; disproportionately massive foreign investment in American corporations and the U.S. workforce; a near-global adherence to U.S. technical and legal standards that advantaged U.S.-based producers; reliance on the U.S. financial system for the vast majority of global transactions and reserves; compliance with U.S. initiatives on sanctions; payments for garrisoning American troops; widespread dependence on the U.S. defense industry; and best of all, a sustained rise in the American standard of living. Not only did the United States profit handsomely from being an insurance provider that others valued, but its allies also ceded many important security-related decisions to Washington.
The great thing about providing insurance is that for years at a time, you don’t have to do or pay anything to collect your premiums. That is even truer for the form of economic insurance the United States provided globally than it is for a home insurance provider, because the very existence of the U.S. security guarantees reduced the real-world threats to policyholders. This reduced the claims paid out. But the Trump administration is jettisoning this profitable and steady business model in favor of one that reinforces the opposite cycle. Ever-fewer clients will become more at risk. Already, businesses, governments, and investors are fundamentally changing their practices to try to self-insure instead.
FIGHT OR FLIGHT
In truth, Trump’s approach will do the greatest damage to the economies that are most closely tied to the U.S. economy and took the previous rules of the game most for granted: Canada, Japan, Mexico, South Korea, and the United Kingdom. Take Japan: it had bet on the United States long term, investing substantially in U.S.-located production for over 45 years and transferring its technological and managerial innovations along the way. It has placed a larger share of its people’s savings in U.S. Treasuries for longer than any other economy. Japan agreed to serve as the United States’ floating aircraft carrier on the frontline with China, and it garrisons U.S. troops in Okinawa despite growing domestic opposition. Japan supported the first Trump administration in the G-7 and the G-20, followed the Biden administration in adopting parallel sanctions against Russia after Russia’s invasion of Ukraine, and, since 2013, has increased its military spending substantially in line with U.S. policy priorities.
Until this year, what Japan got in return was reliable platinum-tier coverage. Japanese investors and businesses were able to take it for granted that they could sell products competitively in the U.S. market, get their savings in and out of U.S. Treasury bonds and other dollar-denominated assets as needed, and safely invest in production in the United States. Japan’s economic strategy heading into Trump’s second term was based on the assumption that this coverage would continue, if at a higher price: in 2023 and 2024, Japanese companies announced investment plans that emphasized their readiness to put even more capital into U.S. industries, including uncompetitive ones such as steel, and forgo some market share in China to coordinate with the United States.
The trade deal announced in mid-July between the United States and Japan has increased the price tag for Japan well beyond that and diminished Japan’s coverage. The 15 percent tariffs imposed on the country are ten times what they had been and affect autos and auto parts, steel, and other major Japanese industries. Japan committed to creating a fund that invests an additional 14 percent of the country’s GDP into the United States—its monies spent at Trump’s personal discretion—that will cede a share of any profits to the United States. This constitutes a huge downgrade in Japanese savers’ expected returns and control compared with their prior private-sector investments, which were not subjected to such arbitrary U.S. government oversight. Explicit provisions requiring Japan to buy U.S. aircraft, rice, and other agricultural products, as well as support Alaskan natural gas extraction, expose the country to new risks. Even if Japan delivers on the agreement, it will remain vulnerable to Trump’s potential decisions to unilaterally raise its premium and reduce its coverage even further. Meanwhile, Washington’s recent accommodations to China on the semiconductor trade further diminish the benefits for Japan of pursuing an alliance-based economic path.
U.S. allies will not accept a “rebalancing” imposed on them.
The Trump administration expected that its key allies would simply pay any price for U.S. protection. So far, Japan, Mexico, the Philippines, and the United Kingdom have followed an approach closest to the one that the Trump administration anticipated. In the near term, these countries have decided that their fates must lie with the United States, whatever the cost. But Trump underestimated the degree to which allies’ closeness to the United States would lead them to register Washington’s new stance as a shocking betrayal. The popularity of the United States has declined sharply: in the Pew Research Center’s spring 2025 survey on attitudes toward the United States, the proportion of Japanese citizens who viewed the country favorably had slid by 15 percentage points from a year earlier; the country’s favorability rating had plummeted by 20 points among Canadians and 32 points among Mexicans. This large and negative shift reflects the sense of disappointment that only those truly invested in a relationship can feel.
National security concerns, existing ties, and—in the case of Canada and Mexico—geographical proximity will limit the degree to which the United States’ closest allies can undo their economic dependence. Yet they have more room to do so than advocates of Trump’s economic approach appreciate. Canada has resisted Trump’s attempts to unilaterally revise the 2020 U.S.-Mexico-Canada trade agreement and impose asymmetrically high tariffs on Canadian goods. Prime Minister Mark Carney and all of Canada’s provincial premiers announced in July that, to reduce the country’s dependence on the United States, they had agreed to limit their concessions to Trump’s escalating demands and actively pursue increased internal integration. Carney also vowed to expand trade with the EU and other entities.
Other close U.S. allies such as Australia and South Korea will probably decide that in the near term, they have no choice but to throw in their lot with the United States. Over time, however, allies may well tire of the declining benefits that appeasement yields and reorient their investments. Like Canada, they will try to expand their ties with China, the EU, and the Association of Southeast Asian Nations (ASEAN). But this reorientation will yield a worse outcome for all these economies. They relied economically on the United States for good reason; if substitute markets, investments, and products were just as valuable, they would have chosen those in the first place. In the absence of fairly priced U.S. insurance, the value proposition changes.
LEFT BEHIND
The seismic Trump shock has hit other major economic land masses, too. ASEAN and the EU were always less fully aligned with the United States on economic and security policy than the five most integrated allies were. The two blocs are diverse, with a variety of commercial specializations, advantages, and political orientations within their memberships. Yet they and their member states—particularly Germany, France, the Netherlands, Singapore, Sweden, and Vietnam—have also based their economic behavior on the insurance the United States previously provided. As a result, they came to play leading roles in U.S. supply chains and technology investment. Their governments and citizens poured money into the U.S. economy through foreign direct investment, purchases of Treasury bonds, and participation in the U.S. stock market. They agreed to join U.S. sanctions and export-control regimes, albeit less consistently, and directly supported the U.S. military.
Trump has now subjected these countries to massive tariffs and tariff threats as well as bilateral requests for specific accommodations and side payments, such as demands that they purchase more U.S. natural gas or transfer industrial production to the United States. These economic players have more choice in how much effort they want to devote toward maintaining ties with the United States. And they are shifting their behavior more rapidly, strengthening economic linkages with one another and with China. ASEAN and the EU both had greater commercial ties to China than to the United States to begin with; that gap is widening, not only because the Chinese economy is growing but also because the United States is limiting its exports to and imports from China and its investment there. Over the past decade, the share of Chinese inputs into European and Southeast Asian industrial supply chains rose steeply as the United States’ share fell.
It is not sustainable for the EU, and certainly not for ASEAN, to economically isolate China, and the gains from doing business with China will only increase as the United States leaves the scene. Commerce with China does not substitute for the insurance that the United States previously provided. But as the Trump regime makes the United States less competitive as a site for production and limits access to the U.S. market (shrinking that market’s growth potential), an expansion of trade and investment with China can provide these blocs with a partial offset. As sizable economic entities in their own right, Asian and European countries have a far greater ability to pursue a different path, even though they will be spending more to self-insure than they used to. For instance, orders for Eurofighter jets as an alternative to U.S. combat aircraft have surged among NATO members such as Spain and Turkey. And the Indonesian government, in the spring of 2025, struck new economic deals with China, including an approximately $3 billion “twin” industrial park project that will link Central Java with Fujian Province. The project is expected to create thousands of jobs in Indonesia at a moment when nothing of that kind is on offer from the United States. Indonesia’s central bank and the People’s Bank of China have also agreed to promote trade in local currencies, and the two countries have vowed to strengthen their maritime cooperation; both deals surprised U.S. policymakers.
