The restructuring of trade rules, combined with technological changes, demographic shifts, and climate change, is profoundly reshaping global employment patterns, political landscapes, and daily life.
Despite enduring frequent trade war fluctuations, critical mineral shortages, and escalating tensions between the U.S. and China, the global economy has demonstrated greater resilience than previously anticipated. However, this does not mean the world can relax—the wheel of change shows no signs of stopping.
"We are living in an era of great turbulence," said Daron Acemoglu, an MIT economist and last year's Nobel laureate in economics. The AI revolution, rapid population aging, climate change, and the global retreat from liberal democracy and rules-based international order continue to disrupt the global economy. These transformative forces are set to reshape job markets, political dynamics, and human existence.
This year’s chaotic economic policymaking across nations has further complicated this transition. In the U.S., the White House has repeatedly issued contradictory policy statements, with tariffs imposed and revoked without warning. For instance, President Trump recently lifted tariffs on beef, tomatoes, bananas, coffee, and other groceries, only to threaten new tariffs on rice from India and China last week. The delayed impact of tariff-induced price hikes is slowly but persistently affecting the U.S. economy, akin to a snake digesting its prey.
Meanwhile, the future of these tariffs remains uncertain until the Supreme Court rules on their constitutionality. On fiscal spending, Trump has pledged to use $250 billion in tariff revenue to distribute trillions to farmers, taxpayers, and creditors, even as U.S. public debt has surged to a record 125% of GDP. Additionally, AI-driven stock market rallies have generated vast wealth but also stoked fears of a future crash.
In Europe, most economies continue to lag behind other developed nations. Amid fierce U.S.-China competition, the EU’s share of the global economy has steadily shrunk, with its AI investments falling far behind. "Europe’s tech sector faces a serious innovation problem," noted Acemoglu, whose research on institutions and prosperity earned him the Nobel Prize. The EU’s 27 member states, each with distinct priorities and domestic pressures, struggle to advance key policies like strengthening trade and capital markets, streamlining regulations, and signing new trade deals—such as a decades-delayed agreement with Argentina, Brazil, Paraguay, and Uruguay.
High energy prices constrain local producers and manufacturers, who also face competition from Chinese goods—many of which were originally destined for the U.S. before Trump’s tariffs. Security threats are forcing European governments to increase spending and debt, diverting resources to military budgets. The ongoing Russia-Ukraine conflict and Putin’s unyielding stance, coupled with Trump’s weakening of U.S. commitments to the Atlantic alliance, have heightened tensions. A recent Danish intelligence report warned that the U.S. "no longer rules out using military force against allies."
Meanwhile, China continues to grapple with the fallout from its property market collapse, with declining investments in real estate, infrastructure, and manufacturing. Yet its economic influence grows. A $1 trillion annual trade surplus shows Trump’s tariffs have neither weakened China’s trade dominance nor altered its export-driven growth model. The IMF recently raised China’s growth forecast to 5%. "This trade imbalance is becoming unbearable," French President Macron remarked during a visit to China this month. Europe isn’t the only destination for surging Chinese exports—Southeast Asia has seen particularly sharp increases.
Harvard economist Dani Rodrik argues that Western responses to China’s manufacturing surge are "misguided and ineffective." He notes China’s innovations in climate and energy have brought global benefits and urges the West to adopt more nuanced strategies rather than simply accusing China of mercantilism. His advice: focus on next-gen technologies instead of replicating China’s achievements.
In AI, China has emerged as a formidable U.S. rival, with Acemoglu highlighting its advantage in trained engineers. The breakdown of the U.S.-led trade order has introduced new uncertainties and costs. "We’re in a power vacuum with no hegemon, and countries are increasingly going their own way," said Maurice Obstfeld of the Peterson Institute. Surging ad-hoc bilateral trade deals force firms to worry about sourcing and compliance costs. "This system is far less efficient than what we were used to," he added.
Cambridge economist Diane Coyle points out that the pandemic exposed unforeseen vulnerabilities in global supply chains. "We still don’t fully understand the structure of global and national production networks, where bottlenecks lie, or where new ones might emerge in the next crisis," she said. Political upheavals could further destabilize the economy. "Many people worldwide feel their living standards are declining," Coyle noted, fueling distrust in governments.
Upcoming elections may trigger policy shifts. The U.S. midterms could serve as a referendum on Trump’s economic agenda, potentially leading to more deficit-spending. Sweden’s election will test far-right populism and defenses against foreign disinformation. In Brazil, President Lula faces a far-right challenger amid Trump’s tariff-driven interference.
The World Bank and IMF, in a recent report, captured this dislocation—even a sense of crisis—quoting philosopher Antonio Gramsci: "The old world is dying, and the new world struggles to be born; now is the time of monsters."
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