At a Fork in the Path of History
How the global elites lost control and Europe hesitates over its biggest decision. It's time to take The Sniff Test.
Civil War, Polarisation, and the Fragile U.S. Experiment
History is against republics lasting more than 250 years. Rome was destroyed by civil war and historian Niall Ferguson fears something similar in the polarisation of left and right in America. Will this battle be contained, or spill out to the wider world?
Polarisation brings a rise in presidential pardons and a willingness to ride out controversies. The truth seeps out. Only a few holdouts cling to the belief that Covid wasn’t a lab leak. It’s not a shock to read in reviews of Original Sin, released this week, that those closest to Biden knew he was unfit for office. The only people deluding themselves are those in authority who believe they can fool all the people, all the time.
There is a leader for troubled times and others for the rest. Churchill was thrown from office after winning the war. Those who tear down cannot build back. The invaders of Iraq and Afghanistan were poor nation builders. Troubled times demand action and when they are over, its back to a chairman of the board.
This is the second in a three-part series on the Fourth Turning. This is a theory of Anglo-American history, and its international impact depends on how the world responds. Change is coming fastest to trade, investment and defence. The rules of all three are evolving.
The Rise of Populism and the Decline of Trust in Institutions
Show me one theory and I’ll raise you several. In the Things My Wife Worries About, I noted that we may be at the end of the Fourth Turning, the post-Cold War era, the neoliberal order, or the age of liberal democracy. What is clear is the ground shifts beneath us. Those stepping back to where we were will disappear into the abyss.
Trump is taking on the way the world has worked for decades. This pits him against multinational companies, international investors, and governments at home and abroad. If Make America Healthy Again gains traction, he takes on the giant food and pharmaceutical corporations, and those they pay in university hospitals, media, and Washington lobbies. How can he be confident of beating these entrenched interests?
Trump has his ear to the ground. He understands better than anyone the deep resentment felt by many and tapped it twice to win office. He is on the right, because the populists of the left are tarred by nanny state nagging about the environment, pronouns and privilege. Progressives are still fighting over why they lost and Original Sin is part of that battle.
The pattern repeats across the West. Britain moved first by rejecting the EU, not because it expected better, but because it wanted to bloody the nose of the elites. They are still trying to turn back the clock. We’ll look at Britain next week, but here is Ferguson comparing the dream of the old order to the misnamed Holy Roman Empire.
“The same is true of the liberal international order. It was never very liberal, very international or very orderly.” – Niall Ferguson in Noema
This week, the Portuguese far right tied second with the socialists, breaking the two-party hold on parliament. A fifth of votes in Poland’s first-round presidential elections were for the far right and they may propel the nationalist Karol Nawrocki to power in the June 1 run-off. Meanwhile in Romania, a country still seeking the benefits of globalisation, a pro-EU president won election.
My favourite response to last week’s letter was headed “4th Turning – Surely Bollocks?” There is too much history to pick a few events and call them epoch making. For sure, Generational Theory is a framework rather than a testable hypothesis, but it holds a mirror to our thinking. Change happens, even when we cannot conceive of it and only later realise, like those who trusted Covid came from bats, we’ve been played by politicians.
Trade, Capital and the End of the Neoliberal Order
Harvard economist Dani Rodrik warned 20 years ago that no nation can support globalisation, national sovereignty, and democracy. In the parts of the world without democracy this is no big deal, but it matters in the West. Blair, Obama and most EU leaders told the people they had to live with the consequences of a global economy. They told them to get a degree. Blair repeats the same message about AI today. Then Trump, sensing a turning tide, told everyone there is another way.
The biggest afront to the West, and Europe in particular, is not that Trump torpedoed its economic model. It’s not that it must defend itself and make hard choices about immigration and welfare. The white hot anger is because Trump exposed their political message as a lie. The extremes of left and right are more credible as a result.
Tariffs mean America reduces trade and attracts less capital. The flow of goods and the flow of money must balance. Nations with large trade surpluses have excess savings. If the world’s biggest consumer buys less, these nations will invest or consume their savings. Investment would benefit the EU economies and consumption boost China.
Less capital flowing into US markets upends conventional investment wisdom. Buying gold is a sensible reaction to Trump’s stated aim of a weaker dollar, lower oil price and reduced interest rates. It makes even more sense if you believe that China is creating its own trading club to rival that of the US. As the renminbi is a controlled currency enabling China to dominate global supply chains, it cannot anchor a trading system. Gold plays a part.
Trump’s message may be raw, but it is not new. Obama’s pivot to Asia was a warning to Europe to defend itself, and to China to watch its back. Europe shrugged, China did not. It launched the Belt and Road Initiative in 2013, a network of land corridors and port developments in over 150 countries, targeting road, rail, energy and digital infrastructure. Known also as the New Silk Road, it aims once again to bring the world’s traders in tribute to the Middle Kingdom.
The project has been downsized in recent years, but not forgotten. Chinese banks lead the funding of infrastructure, built and leased by Chinese companies. Where the plan is to build and transfer ownership to locals, the debt terms often prove onerous, resulting in the assets remaining in Chinese hands. Assistance from the West looks attractive in comparison.
Why Gulf States Prefer Trump’s Deals to China’s Debt
There will be nations pulled into the Chinese sphere of influence by geography, ideology and indebtedness. In the American system, the dollar will continue to play the central role, with free movement of capital and investment in US markets. China is ready to fight a trade war, but the US is still in charge of how capital flows.
Most countries have a trade surplus with America. These will remain but be smaller. Everyone must figure out what to do with the capital they earn, if the long term trend in bonds and the dollar is down.
The first place to figure to this out is the Middle East. Trump finds it easy to do deals there, because the locals understand that grift goes hand-in-hand with the national interest. The leaders have figured out what a realignment in trade and technology means.
The majority of deals signed with Saudi Arabia last week were investments in US companies operating in the kingdom. The UAE and Qatar committed long-term investments equivalent to three and six times the size of their economies. While US corporations pay-to-play in China, the Middle East must fund its technology and defence in full. This is Trump’s kind of deal, securing allies with their own money.
These deals do not mean that the US is abandoning Israel. The Palestinians will need to sever ties with Iran and Russia if anything is to change. The Houthis continuing to fire at Israel, after coming to terms with the US, does Gaza no favours.
The Middle East understands that artificial intelligence is the defining technology of this century. The raw materials to build the components that enable AI are in China’s hands. To shape them you need semiconductors and Taiwan makes the best. To do this uses machines often made in the Netherlands. AI requires copious memory, in which the Koreans lead. Diffusion through society needs a use for the technology and this is where America excels.
If you have money then you can pay Americans to build AI use cases in your country. This is what the Middle East is doing. It is recycling the dollars earned from energy exports through American companies instead of financial markets. Both the US trade deficit and capital surplus decline as a consequence.
Why Europe is Forced to Reconcile With Moscow
The pivot to Asia is at last understood in Europe. There can be no clinging to post-war institutions pushing a global trade narrative that the US no longer wants nor finances. Europe must fill the gap or find a new narrative.
The EU is a mini-version of the dollar trading system. For the euro to play an outsized role in world affairs it must be possible to invest and withdraw huge sums. This is only possible if Europe has a single capital market, which means a single issuer of debt. This requires a central political authority with major tax raising powers.
The longevity of the EU project depends on political integration. This has long been seen as impossible for reasons of geography, language and culture. Yet Fourth Turnings are when old institutions are torn down and First Turnings when new ones are built.
Trump offers Europe a path to rapprochement with Russia. This is designed to divide Moscow and Beijing and is in Europe’s interests. Russia’s inability to take Ukraine showed the US that it is no longer needed. The tanks will not rollover Poland. Russian energy can power Europe’s industry, if the EU softens its stance on net zero and telling the world how to live. Dividing Ukraine based on the current reality remains the most likely outcome.
The EU will decide whether it uses its capital to consume or invest. Germany has chosen infrastructure and rearmament. The region can play a role in the technology supply chain, but must figure out its relationship with the US tech giants. The days of preaching internationalism and practising protection are drawing to a close. Trump invites Europe to the inner circle, but it has to want to come.
The tantalising prospect is that America forces Europe to do what it could not do on its own. The future is bright if Europe pursues ever closer union, makes peace with its enemies and invests in shared infrastructure. This is easier if it starts with a few core countries, and reserving political alignment for an inner circle would diffuse tension with Russia. Now is the time to reimagine what is possible.
The End of the Old Order and the Birth of the New
The Fourth Turning often ends in an international crisis. The reason is that it is less gut-wrenching to fight abroad than at home. Yet Trump has no time for war and the main risk is that Europe wades into Ukraine as the US retreats. Its lack of resources make this unlikely.
The Pentagon warmongers claim China is about to invade Taiwan. The island’s strategic importance is in its semiconductor industry and it is transferring technology to Europe and the US. While this is slow and painful due to the need to train workers, China can wait until the US no longer needs Taiwan.
There are too few Fourth Turnings to be sure they determine history. Ferguson’s comparison of America with Rome is marketing not prediction. This is, however, a time for leaders to look to the examples of history and take a different course. The world holds its breath and waits.