The changing world order

Erosion of the post-war order

The cornerstones of the international order that has existed since the end of WWII are on increasingly shaky ground. What a new global structure might look like is currently unclear – not least because Europe has not yet formulated a clear position on whether it aspires to play an independent geopolitical role.

The USA as global hegemon – a model in transition

For decades, the United States dominated the world order – economically, militarily, and technologically. It had:

• the largest economy,
• the most powerful military,
• the deepest capital market,
• and the most important “safe haven” financial instrument: US Treasury bonds.

The country was also the driving force behind multilateral institutions such as the International Monetary Fund, the World Bank, and the World Trade Organisation (WTO), with a clear commitment to the rule of law, democracy, human rights, and free markets. In times of crisis, the USA guaranteed open trade routes, military protection, and liquidity in the form of US dollar loans. Its innovative strength and productivity were the result of an excellent research system and intense competition.

Structural rupture under the new US administration

With President Donald Trump taking office, this order has changed fundamentally. The new US policy calls into question central principles of the previous system, with noticeable consequences:

• Loss of confidence in the reliability of the USA
• Lack of planning certainty for companies and investors
• Increasing volatility in the global economic and financial architecture 

Retaliatory tariffs and trade conflicts

On 2 April – known as “Liberation Day” – the USA imposed retaliatory tariffs on the grounds that it had been treated unfairly. This effectively suspended the principle of non-discrimination in world trade. As a result, the risk of a global trade war rose significantly, with potentially serious consequences for the global economy.

Although the measures were later suspended for 90 days to allow for negotiations, the tariffs remain arbitrary and legally controversial. The approach is more reminiscent of autocratic than constitutional structures – a pattern that is also evident in other policy areas.

The “Triple B” plan: risks for US financial stability

The US government's draft budget – dubbed the “One Big Beautiful Bill Act” by President Trump – is seen by critics as a path to a (poor) BBB credit rating. The planned tax cuts significantly exceed spending cuts. According to the Congressional Budget Office (CBO), this will result in additional expenditure of about USD 2,400bn by 2034. The national debt dynamic therefore remains unsustainable.

Further measures are undermining confidence in US Treasury bonds:

• Planned tax increases on foreign investments whose tax policies are disadvantageous to the USA
• Discussions about converting Treasury bonds into long-term (100-year) bonds or perpetual bonds
• Political pressure on the US central bank to cut interest rates. In doing so, Trump’s administration is jeopardising the independence of the central bank.

Lower financing costs and the supposed elimination of a competitive disadvantage vis-à-vis countries with lower interest rates are at odds with the central bank's goals of full employment and price stability. Given that about USD 1,000bn is needed to finance the current account deficit, even a slight loss of confidence could lead to rising yields, losses on the financial markets, and a long-term depreciation of the US dollar (see chart).