Allies of the United States are increasingly recognising that Donald Trump will present any number of spurious excuses to justify his aggressive actions. This perception underscores a broader transformation in America's role on the world stage.
Economic Havoc Spreads Globally as US Remains Resilient
The war in Iran, initiated by the US and Israel, has triggered significant economic disruptions across Asia and Europe. To protect citizens, the Indian government redirected liquefied gas supplies to households, limiting access for the plastics industry. Nepal implemented gas rationing, the Philippines shortened the government workweek to four days, and Bangladesh closed universities while rationing fuel.
These measures respond to the severe impact of Iran's closure of the Strait of Hormuz. Asian economies, which import over a third of their energy on average, face particular strain. South Korea imports four-fifths of its energy, Japan nine-tenths, and Thailand 55%, with most sourced from the Gulf. According to the International Energy Agency, about 80% of oil and oil products transiting the strait in 2025 were destined for Asia, but traffic has plummeted by 90%.
Europe, while less reliant on Middle Eastern fuel, depends heavily on imported oil and natural gas. Prices for these commodities have surged since the bombardments began, reflected in equity markets. By 20 March, the MSCI index of European stocks had fallen approximately 11% since the war's start, exceeding the 9% decline in the MSCI Asia index.
US Insulation from Global Turmoil
In contrast, the United States has demonstrated notable resilience. The S&P 500 index has lost a relatively modest 5% since the conflict began. This stability highlights the US economy's robustness and its abundant domestic natural gas, which meets about 36% of its energy needs, insulating it from international price volatility.
However, this disparity adds an uncomfortable chapter to the global economic narrative. Once a guardian of a rules-based order, the US now appears as a nemesis, recklessly spreading havoc among friends and foes while suffering minimal harm itself.
Tariffs and Trade: A Widening Ripple Effect
The barrage of tariffs launched by Trump in April last year, marking the start of a new American campaign, imposes costs primarily on US consumers and businesses, as economists outside his orbit confirm. Yet, the economic damage extends worldwide, with many countries experiencing reduced exports to the US.
According to the International Monetary Fund's latest growth forecast revisions, the US economy has emerged largely unscathed. In January, before the bombing of Iran, the IMF projected American GDP growth of 2.4% this year, nearly 0.4 percentage points higher than its October 2024 forecast. Conversely, growth prospects for Britain, Japan, Canada, India, the euro area, and Latin America have all weakened since Trump took office.
WTO Forecasts Further Disruption
More pain is anticipated. The World Trade Organization predicts that if energy prices remain high, merchandise trade growth will slow from 1.9% to 1.5% this year. North American export growth will decelerate slightly, from 1.4% to 1.1%, while Europe will be severely impacted, with exports shrinking by 0.6% instead of growing by 0.5%.
Growth impacts will be equally lopsided. Costly energy could boost North American GDP growth to 2.5% from a baseline of 2.3%, but slow Asian growth to 3.1% from 3.9%. In Europe, expensive energy might nearly halt expansion, reducing growth to 0.4% from a prior estimate of 1.6%.
Broader Consequences: Agriculture and Remittances
The war's fallout extends beyond trade and growth. About 70% of Brazil's and 40% of India's urea imports, essential for agriculture, come from the Gulf via the Strait of Hormuz. Gulf nations import most of their food, with 75% of rice and over 90% of corn, soybeans, and vegetable oil passing through the strait.
Additionally, countries like Bangladesh, India, and Pakistan will suffer from reduced remittances as millions of their citizens working in Gulf countries face economic hardship due to the regional downturn.
Environmental and Political Repercussions
The disruption of the oil and gas economy may not benefit the climate. While environmental advocates hope it will spur renewable energy adoption, the immediate effect in Asia has been renewed interest in coal.
Politically, erstwhile US allies in the liberal West are forced to acknowledge that Trump's America is no longer a reliable partner for international stability but a primary source of global uncertainty. They recognise that Trump will fabricate excuses, such as claiming an imminent nuclear threat from Iran after previously asserting he destroyed its nuclear program, or proposing new tariffs based on dubious arguments about forced labour.
A Lasting Shift in Global Risk
It is naive to view this aggression as an isolated incident or to expect US belligerence to cease after the 2028 election or a potential Democratic takeover of Congress. Tens of millions of Americans in the Maga base are driven by contempt for the world, perceiving it as treacherous and alien.
This political force is unlikely to dissipate soon. Alongside risks like China taking Taiwan or Russia targeting the Baltics, the US pulling arguments out of a hat to create chaos must be factored into the world's risk premium, signalling a profound and enduring transformation in global dynamics.
