23/04/25
Trump, IFCs, And The New World Order
Donald J. Trump, the 47th (and 45th) President of the United States, has made quite a splash since his inauguration on 20 January. His ‘America First’ vision is being implemented at speed, and with a consequential seismic shift in the post-World War Two geopolitical order in which the United States will only promote and protect freedom and democratic values (or, rather, ‘American Values’) if it is in its economic interests to do so. The use of tariffs and aid-based incentives are the new carrots and sticks to ensure the United States gets its way, diplomacy is conducted through press conferences, Fox News interviews and Truth Social, and ambition is imperial in nature.
To many in the United States, this is a breath of fresh air: why should US-tax dollars be used to fund wars or prop up political regimes of countries that have no or limited return on investment to the United States? Why should the United States continue to be expected to protect Europe from Russian aggression when Russia is a shadow of its superpower self and China is far more of a threat? Why should the United States be expected to work towards climate goals that are, in all likelihood, going to lead to significant and negative economic and social change in small-town communities built on fossil fuel extraction across America? And why, quite simply, should the United States have to support a global economy at its own economic expense when it can operate as a perfectly sustainable economic bloc by itself?
But elsewhere across the Western world, and particularly in Europe, the mere fact that these questions are being asked is horrifying enough, let alone the significant economic consequences that could emerge.
But could international finance centres help both stabilise the global economy and dampen some of the more extreme effects of Trump’s current trade policy? They have helped stabilise previous periods of global economic turmoil. They act as safe havens for investors and multinational firms alike, helping to provide a home for assets that would otherwise be subject to undesirable volatility without having to liquidate those assets and find ‘safe’ asset classes such as gold. And their role in the global trade system means that the usually adversarial approach to tariffs can be avoided, as trade is effectively conducted between (or through) IFCs rather than the countries in which the goods and services are located.
In this article, we explore the risks and opportunities for IFCs in the new world order through the lens of energy security and the link to the green transition.
The Global Bloc Economy Has Arrived
We have written about our belief in a new world order being based on bloc economies, and we are now seeing this develop in real time with the America First agenda forcing a bloc-driven response to new tariffs and trading restrictions.
Our view of the bloc economy envisioned continued economic, regulatory and, in some cases, political integration between countries within predominantly regional geopolitical blocs, but with these different groupings diverging from each other. Fissures would grow between groups of nations, reflecting increasingly conflicting economic interests and diverging social values, political ideologies and cultural perspectives – and activity between these blocs would be increasingly restricted. There is a rising incidence of traditional barriers to inter-regional trade – such as tariffs and quotas. But much of the additional friction at the regional borders is created by other means, such as: entry and residency visas; regulatory standards; technology standards; and professional recognition and the trade in services.
In addition, and as we are seeing, the global gatekeepers of the twentieth century – the United Nations, Bretton Woods institutions, and World Trade Organisation – are marginalised and ineffective within our bloc economy scenario, with bilateral negotiations between blocs or between individual large nations and blocs, taking their place. Conversely, trade tariffs, quotas and non-tariff protections continue to be eroded within blocs (possibly at a faster rate than before) – as do barriers to intra-regional travel and migration. Time will tell, but some blocs may accelerate in the direction of political and military integration.
The United States operates as a single bloc with most trade occurring within its borders (see Figure 1), and a natural resource asset base that is deeper and better exploited than anywhere else in the world. Trump, though, is keen to go further and enable the United States to be almost completely independent of needing to import resources from countries with which trading relationships have been fractious for some time, most notably China. Only by doing so can he provide the security of natural resource supply chains that are crucial to build the confidence and trust required for long-term, significant inward investment.
As investment flows replace trade into the United States because of Trump’s tariffs, there is an enhanced opportunity for IFCs in the long-term. Take a European car manufacturer, for example: instead of sending cars built in France or Germany on large container ships to customers in the United States, those same cars are made in a United States factory built as a result of inward investment by the car manufacturer. IFCs have the opportunity to capitalise on these cross-border investment flows, making them more efficient for companies investing in the United States with the application of enabling intermediary structures and facilities. And for those IFCs that have a keen current understanding of multiple economic blocs, the business opportunity is only enhanced.
The downside, of course, is that the shift to investment does not fully offset the loss of trade, and as a result, the global economy shrinks or at least has a significant slowdown. The likelihood of higher interest rates to offset potential tariff-fuelled global inflation is a risk to inward investment, particularly given that those investments are likely to be debt-related. In both situations, larger IFCs will be able to weather the storm better than smaller IFCs, not least because of how their critical mass of services will enable them to pivot swiftly to different economic blocs.
In the longer term, there is an undoubted risk of Trump’s proposed tax reductions leading to the United States being a de facto (and very large) IFC, which would cause significant challenges for those on its doorstep. Business would naturally flow towards the United States, given its substantial gravitational pull and ability to simplify company structures, particularly for United States’ based entities. Divergence in regulatory policy between economic blocs will also potentially lead to smaller IFCs having to choose a ‘primary’ bloc that they will align to in the longer term, because the overheads associated with attempting to meet regulatory policy from multiple blocs will be too great.
A Policy Of The Ends Justifying The Means
Unquestionably, Trump has favoured tariffs and a form of economic nationalism since the 1980s, although it is unclear how far the current ‘zone flooding’ is an elaborate deal-making strategy (for which he is well known) or a genuine attempt to push the United States into splendid isolation. The truth probably lies somewhere between the two, and the vehemency with which Trump is going about this strategy suggests that phase one is more about ‘shock and awe’ and deploying full leverage to secure immediate concessions that will bolster his fading popularity domestically.
And given that his view is clearly that any means are permissible to achieve the desired ends, his threat to break as many of the accepted geopolitical norms as possible must be taken seriously. Take Trump’s approach to Greenland, for example. The United States has to import many of the metals and minerals required for high-value technology and electronics (including building Teslas), which become at risk in a tariff-led economy. Greenland is on the United States’ doorstep and has these metals and minerals in abundance: the fact that it is a territory of fellow NATO member and long-time ally, Denmark, is immaterial in an America First view of the world.
A similar case can be argued for Trump’s approach to Canada, or the ‘51st State’ as he likes to refer to it as, where illegal immigration and fentanyl trafficking have been used as reasons for steep tariffs, even though there is limited evidence to suggest either is a particularly significant problem at the United States’ northern border. Looking at the approach taken by Trump through the lens of ‘economic security’ (or, more appropriately, natural resource security), though, and it becomes clearer why he has mooted embedding Canada within the United States: its mineral riches would enable the United States to become largely self-sufficient. Another America First aim, which if achieved would justify the means in the eyes of many Americans.
Energy Security Is A Precursor To Economic Security
Natural resource security can mean a number of things, and starts with energy security, which (in itself) is a precursor to the kind of economic security Trump talks about. Trump’s approach to energy security is clearly fossil fuel focused, because the United States has abundant reserves, the extraction, refining, processing and use of which removes the need for energy imports, reduces oil prices, and creates jobs and (in the short-term) localised economic growth. Whilst Trump has, perhaps, failed to make the link between lower oil prices and lower shareholder returns, which would make Boards think twice about expanding production and make exploration and extraction far less viable, it was a clear indication that maintaining (or even raising) fossil fuel consumption is a primary policy objective. Ironically, in enacting this policy by cancelling the Inflation Reduction Act, President Trump has withdrawn millions of federal dollars of investment and subsidies in low carbon and renewable technologies from States that overwhelmingly supported him.
This also more broadly reflects a scepticism about climate change, and a view of the world which worries less about the impact the United States has on others and more about the impact others have on the United States. This can be exemplified in the belief that reversing the negative global externalities caused by the United States’ greenhouse gas emissions aren’t the United States’ problem if the required response limits its citizens prosperity and industrial power disproportionately to other nations.
Not surprisingly, the world’s largest polluter acting in this way has caused consternation across the globe. Some have suggested that it could set the global green transition back years, as investors pivot away from investing in the green transition given the now challenging political environment and a reduction in subsidies that propped up returns.
The paradox appears to be that Trump is both committed to fossil fuels and sceptical of climate change, but also committed to a renewable energy-focused future that requires the acquisition of territories with the minerals required for the needed technology and infrastructure. And by acquiring the mineral resources of other economic blocs (Europe, most notably), he reduces the ability of those blocs to be more competitive than an isolated United States in the advanced technologies that will drive future economic prosperity, even if by doing so, he reduces global prosperity more broadly.
The Bloc Economy Offers Hope For The Green Transition
For energy security, members of blocs will look internally at the capacity and capabilities that exist within each bloc. Given the uncertainty and barriers outlined above, they will need to determine what resources they have and how reliance on other blocs can be limited. The United States has done so, and has concluded that its future energy security and ability to control prices relies on reducing oil imports by expanding domestic production and imposing high tariffs on existing non-domestic sources.
But the United States is unique amongst developed economies in being able to do this, as most others do not have access to sufficient secure domestic supplies of oil and gas to meet demand and provide certainty over prices (see Figure 2). Therefore, to provide greater energy security and price control in our bloc economy scenario, adaptation is needed and, in particular, a transition to renewable and low carbon sources of energy that do not rely on having to trade across blocs.
The EU (plus the UK and Norway) and China are in this position, sharing significant and plentiful supplies of rare earth metals and minerals and having to import the vast majority of their oil and gas. Both have greater deposits of rare earth elements, copper and platinum group metals, than the United States, which are all critical raw materials for the high-value electronics and technology required for the green transition. China’s increasing influence in South America and Southeast Asia also gives it priority access to Indonesia, Chile, and Peru’s abundant lithium and copper reserves.
IFCs are critical to enabling this, given the complexity of the global supply chains for green transition-related technologies: a solar panel designed in the United Kingdom but fabricated in Vietnam could have copper from Chile, silicon from China, glass from India, and aluminium from Canada. Having IFCs helps enable frictionless trade that can bring these various elements together quickly and cheaply. And this role in supporting investment in the green transition should continue across the non-United States economic blocs, although it is less clear whether it would continue if supply chains associated with the green transition become internally focused within each economic bloc. Depending on how much this reduces, some IFCs (particularly those with close links to the United States) could find their business and viability decimated.
Opportunities Persist For Those That Survive The Short Term Uncertainty
There are undoubted challenges for IFCs in such a rapidly changing global economic and geopolitical order. There are short-term upside risks in the form of IFCs being go-to safe havens for investors wanting to have certainty and stability, but downside risks in terms of tariffs reducing cross-border trade, and potentially rapidly diverging regulatory policy between emerging economic blocs. Many IFCs are too small on their own to survive (let alone thrive) in a world where the volume of available business drops sharply, and therefore a need for ‘coopertition’ (the need to cooperate within a broader framework of competition) between smaller jurisdictions will be required for long-term survival and relevance.
Investment supporting the green transition is just one area that will be affected, but it is potentially the most relevant to IFCs, given the tightly intertwined global supply chains that exist for most products and services required for its delivery.
However, the gamble is that Trump inadvertently does the opposite of what he intends to do, and ends up creating a deep recession in the United States that leads to job losses and wealth erosion amongst his core blue collar/red state voters. This might be seen to be more likely if you subscribe to the perspective that the United States is actually a declining economic power being caught (and perhaps even overtaken in time) by China, India, and the EU. He will likely place the blame elsewhere (for example, the Fed is in the firing line for his ire if it doesn’t reduce interest rates to stimulate business investment and spending domestically), but with only two years until the mid-terms, Trump has little room for error.
Whatever we know now, there is an overriding likelihood that Trump won’t be able to run for a third term – and whilst there could be interesting constitutionally-challenging options available for him to effectively do a third term (for example, Vance/Trump win in 2028, Vance resigns on day one and hands the presidency back to Trump), these appear highly unlikely. And even if a Trump-endorsed Republican wins the White House in 2028, it is more likely that we will see a different approach – more so if Trump’s experiment with the world economy fails.
Paul Marshall
Paul is Pragmatix Advisory’s director responsible for strategy and governance research. Having spent more than twenty years working in higher education, he has a depth of expertise in supporting C-suite leaders develop and implement robust strategies for complex organisations in regulated markets where government policy is decisive but often unpredictable. Paul is a Fellow of the Royal Society of Arts, a chartered governance professional and currently studying for an MSc in Global Finance at Bayes (previously Cass) Business School in London.
