From Dream to Nightmare

No-one trusts Trump. How the president’s arrogant unilateralism has turned to humiliation

At first sight there is no obvious link between central bank intervention to support the Japanese Yen on international currency markets and a mutual defence pact signed by Saudi Arabia, Turkey and Pakistan. Yet, as disconnected as they seem, the two events eloquently describe both sides of the coin of waning American power: the self-defeating arrogance of Donald Trump’s unilateralism and the price US is paying in lost trust and influence.

The Federal Reserve’s attempt in concert with the Bank of Japan to halt the slide in the value of the Yen was unusual but not without precedent. What marked out the operation was that the Fed, acting on behalf of the US Treasury, sold euros as well as dollars from its currency holdings to support the Japanese currency. And didn’t bother to notify the European Central Bank, the guardian of the euro, of a plan that could weaken its currency.

A communications oversight, some might say. But the close cooperation between central banks that has long underpinned the international monetary system is founded above all on mutual trust. If a central bank plans to sell someone else’s currency, it consults. At very least, it gives advance notice of its intentions. The alternative is a system in which uncoordinated, competitive interventions threaten rather than promote stable markets.

The present US administration pretends otherwise. The response in Washington to European concerns about the Fed’s insouciance was simple: the US is the world’s biggest economy and, in the dollar, issues its reserve currency. So it can do just as it pleases. The message for Europeans is that, as for trade and defence, so with management of the international monetary system: America treats its allies as vassals.

Trump has never understood the nature of power or the multiplier effect of alliances. He has also shown himself determined not to learn from experience. His second term began with a pledge to rewrite the rules of the Sino-American trade relationship. When China demurred, he imposed swingeing tariffs. Xi Jinping responded by refusing to take his calls (that really hurt) and restricting the access of US technology companies to vital supplies of rare earths.

By the time Trump finally got his invitation to Beijing no-one had been left in any doubt which of the two leaders was in charge. Tariffs had been cut and the US president had earned the Taco soubriquet - Trump Always Chickens Out.

As with economics, so with geopolitics. When Trump demanded Canada surrender its sovereignty to become the 51st state, Canadians gave an overwhelming vote of confidence to his most formidable adversary, Mark Carney. When he threatened to pull out of NATO if Denmark did not hand over Greenland he was met with a resounding No by Europeans who had formerly attentive to his whims. When he tried to impose peace on Ukraine, Europe stepped up its support for Kyiv while Vladimir Putin scorned the White House’s clumsy attempts at mediation.

The result of these encounters has been a deep, and quite likely irreversible, erosion of trust. Just as Europe’s central bankers now know they cannot expect the US to co-ordinate operations in international financial markets, so the continent’s foreign and defence establishments have learned that they cannot depend on the US commitment to the defence of Europe through Nato.

These allies will rely on the US for many years to come - not least for the communications, intelligence and other technological capabilities integral to defence against Russian aggression. To that extent, they will continue to humour Trump when they can. And shared interests, whether strategic or economic, will outlast this president. But the bond of trust has gone, Europe has learned to draw its own red lines, and the direction of travel has been set. De-risking the relationship demands greater self-reliance, whether in accelerated defence procurement or reduced dependence on the dollar.

The European Union is building a “sovereign” satellite communications network. Governments are developing new weaponry free of American components and restrictions on their use. When the British government invited tenders for a new missile to be supplied to Ukraine, it included the usual list of sine qua non requirements - but with one important addition. Tucked below the technical specifications for cost, range, payload was the condition that none of the parts or technology be sourced from the US. Week by week such decisions, small in themselves but consequential for the future balance of Atlanticism, are being replicated across the continent.

This is not confined to Europe. The defence pact signed by Saudi Arabia, Turkey and Pakistan could scarcely have sent a stronger message. All three count themselves US allies. But one of the many costs of Trump’s failed war against Iran has been to strengthen at once regional distrust of Washington’s intentions and doubts about its capabilities. None of the three are friends of Tehran, but each of them is now bearing the costs of US defeat in a war they were never consulted on. They are de-risking. All this as Benjamin Netanyahu, the Israeli prime minister who persuaded Trump he could defeat Iran, now repudiates White House plans for peace in Gaza.

The bombing of Iran, intended as a demonstration of American power, has become a showcase of its powerlessness. Raining fire on its enemy, the White House boasted, would bring the regime to its knees. Instead it has entrenched it, handing Tehran control of the Strait of Hormuz and with it a large slice of the world’s oil supply. All the while deepening the distrust of America’s allies. As Europe stood aside from the bombing of Iran, Washington might have reflected that even the world’s most powerful nation needs friends. But that’s a lesson Trump will never learn. The dream has turned to nightmare.