What will a tripolar world look like?

I’m stealing the “tripolar world” term from my friend Jay Pelosky, head of TPW Advisory, who began using it a while back as part of his regionalised investment strategy, which assumes that the US, China and Europe will increasingly be in separate economic and political orbits.

Many of us who have thought that globalisation was moving more towards regionalisation over the past few years (and put our money where our opinions are) have been surprised at how well US markets performed in the face of increased political risk. But over the past few weeks, the penny has dropped: Trump 2 will be very different from Trump 1, and that will have big implications for domestic and global markets. 

We can see it in the way the US equity markets have been up and down (and down again) with President Donald Trump’s back and forth on tariffs. We can also see it in the move away from American Big Tech stocks into Chinese technology index funds or European defence stocks. And finally, we can see it in the way in which markets in some European countries have made gains in recent weeks relative to the US, despite the fact that much of the continent’s economic growth is still quite weak. Buckle up, because the tripolar world is just getting started. 

While it may be difficult to believe that Trump would do anything to endanger US markets, given his obsession with commerce and wealth creation, the idea of a Mar-a-Lago accord to weaken the dollar (which our colleague Gillian Tett wrote about last week) is real. So is the White House commitment to pulling Russia out of China’s orbit. As Pelosky writes in his newsletter from last week:

We believe Trump does have a plan and it includes a weak US economy and a positive outcome for Russia in the Ukraine . . . Intentionally weakening what has been the G7’s best performing post Covid economy may seem nuts but a weak US economy provides lower rates and helps achieve a bigger tax cut which is the end objective of Trump’s domestic economic policy. It also sets up a weak dollar so while the financial press is abuzz about a potential Mar a Lago accord the reality is already under way — DXY is down from 110 to 103 & change — how many strong dollar comments have come out of the WH, or [Treasury secretary Scott] Bessent or [commerce secretary Howard] Lutnick? Zero.

The Trump end game for Ukraine has become clearer by the day. The US under Trump has switched sides and now favors rapprochement with Russia over Ukraine, NATO, its own treaty obligations or pretty much anything else. The calculus seems to be that peeling Russia away from China will allow the US to reduce its military commitments to Europe and re-allocate to Asia, thus saving money (tax cuts) while better deterring China from whatever territorial ambitions it supposedly has. Ummm, OK.

So how will all this go down? Probably not well for US markets or for relations with the country’s traditional allies. For starters, Trump’s delusions that he’s Richard Nixon and is somehow going to fundamentally shift the world order are just that — delusions. If anything, I think he’s been played by Russian President Vladimir Putin, who has no reason to loosen ties with China that I can see but will surely try to manipulate Trump into making all sorts of political, as well as economic, concessions. 

Witness, for example, how one of his allies is looping US investors into rebuilding the Nord Stream 2 pipeline to take Russian energy into Europe. Why would anyone assume Europeans would want to increase their dependency on Russia? Likewise, why would America want to help Russians sell more gas in Europe rather than exporting its own LNG to the continent? Like so much of what Trump does, it’s anyone’s guess. The point here is that I don’t think Trump has any coherent strategy around Russia, or China, for that matter. 

What about the domestic economic moves? There is at least a logic there; the Trump administration does want to bring more manufacturing back to the US and certainly needs a weaker dollar to make American exports more competitive. The problem is that he has no real industrial strategy (which Joe Biden — like it or not — did). You can’t simply depreciate the dollar and hope for the best. You need a plan to train workers, agreements with allies to bolster supply chains and build a shared consumer demand base (which is why the tariff threats on Canada and Mexico, particularly in crucial areas like automobiles, make no sense), and much more. Tariffs are a very blunt tool, and simply threatening the rest of the world with them isn’t going to reindustrialise the US.

Add to all this the weaker jobs numbers, dampening consumer demand in the US, and very likely slower investment and market growth off the back of political worries (see my column on how Trump has spooked pensioners), and you have a world in which European and Chinese markets will probably grow disproportionately relative to the US. The only big question in my mind is whether US markets will be flat or will actually fall precipitously as the administration tries to shift the entire geopolitical and geoeconomic regime of the past 50 years. 

Gideon, what do you think of the analysis above? Are we headed to a tripolar world, and if so, what might its characteristics be?

Recommended Reading

Gideon Rachman responds

Dear Rana,

I think I disagree with your friend, Jay, in the sense that I don’t think Trump has a coherent plan. I think instead he has instincts and prejudices. He likes tariffs and Putin. He dislikes Zelenskyy, Trudeau and the mainstream media. He admires wealth and power. He despises those he thinks are weak.

So I wouldn’t expect a well thought-out strategy or consistent policies from him. Instead, what I think we’ll see is an effort to put his prejudices into action. Then, when they hit reality, he might adjust a bit before trying again. The back-and-forth on tariffs this week is a perfect illustration. Similarly, his pro-Putin and anti-Ukraine biases are well established. But when Russia pounded Ukraine with missiles, he suddenly talked about imposing sanctions on Russia. However, I don’t think it alters the fundamentally pro-Putin drift of his approach.

Where I agree is that I think the unintended consequences of some of this might look a bit like the tripartite world you are discussing. Trump has found some weak-looking neighbours he can beat up on: Canada, Mexico, Panama and Greenland. So he is trying to expand American power in the western hemisphere. But he has made it abundantly clear that he has zero intention of tangling with a scary-looking Russia — particularly when it is separated by a “big, beautiful ocean”.

The big unanswered question is, where does China and Asia fit into all of this? There are many people in Trump’s circle who are gung-ho for confrontation with Beijing — and who may see appeasing Russia as a way of isolating China. But that’s not my sense of where Trump is. I think he admires President Xi Jinping and his instinct is to do a deal with him.

If the US, under Trump, concedes a sphere of influence in east Asia to China that will be a fundamental misreading of the global economy. The Indo-Pacific is now the heart of the world economy and the western hemisphere is, comparatively speaking, a sideshow. Greenland for Taiwan would be the dumbest deal in history.

Your feedback

And now a word from our Swampians . . .

In response to: “What’s next for Ukraine?”:

“Nothing Trump can do or say will make any difference to the fact that he is 100 per cent a tool of Russia and is beholden to Putin. Europeans can maybe delay things a little but unless Putin is weakened in some way, nothing will stop him hammering at Ukraine.” — Marie Haines

“I initially thought that [Zelenskyy] screwed up big time (irrespective of the egregious Trump-Vance goading). But perhaps others should follow? The best way to deal with Trump may simply be to ignore him. Let him enjoy splendid isolation with his Russian bestie. EU, Canada, Mexico, UK and China will be quite a strong economic alliance.” — Chris Millerchip