Donald Trump's trade war will keep escalating, causing more economic havoc in 2026. That's a common fear. We don't buy it.
The president's unilateralist instincts are intact. On security, where the United States is much more asymmetrically powerful than the rest of the world, Trump will become less restrained this year (please see Top Risk #3: The Donroe Doctrine). On domestic politics, he's unlikely to moderate, even in the face of pushback (please see Top Risk #1: US political revolution). But on the global economic front, Trump's leverage will be more constrained going forward and he knows it.
deglobalization
Trade as a share of global GDP has been stagnant for years. Average US tariff rates are now at levels not seen since the 1930s. The global trading system is scrambling to adjust. This is the economic corollary of a G-Zero world: The United States no longer wants to lead a multilateral, rules-based trading order or serve as the principal engine of globalization.
But that doesn't mean 2026 will be a year of deglobalization.
Spheres of influence
The Western Hemisphere elevated to the top of the US National Security Strategy. European allies cut out of Donald Trump's negotiations with Vladimir Putin, Ukrainian territory conceded before talks even started. Containment of China dropped in favor of dealmaking with Xi Jinping. Add it all up, and it's no wonder people are speculating that we're headed back to a world where great powers mind their own backyards and stay out of everyone else's—a kind of 19th-century great-power carve-up for the 21st century.
We're skeptical.
Yes, geopolitics are becoming more anarchic and competitive—that's the G-Zero world we've been warning about for over a decade. But spheres of influence? The world is messier than that—and far harder to carve up.
Sell america
After Liberation Day, markets panicked. The dollar fell as volatility spiked—the opposite of its usual safe-haven behavior. Reserve managers sharply shifted allocations away from dollars; the greenback's share of global reserves hit its lowest in two decades. Pundits rushed to declare American exceptionalism dead: The US was on course to becoming uninvestable, losing its spot as the prettiest ugly man in global markets.
The concerns weren't baseless. Some of the Trump administration's policies have dented the foundations of US credibility, both in absolute terms and relative to other countries—the chaotic introduction of higher tariffs, fiscal profligacy, growing state intervention, threats to the Fed's independence and future commitment to price stability, and erosion of the rule of law. Restrictions on skilled immigration and cuts to research funding threaten the innovation ecosystem that has long powered American dynamism.
Yet by mid-year, the dollar's safe-haven behavior had largely reasserted itself; by the end of 2025, foreign investors had bought more US assets than the year before. The United States remains the most investable major economy in the world, even if that edge is narrowing.
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