Bi-Weekly Geopolitical Report – Trump and the Political Economy of Alliances (January 27, 2025)
by Patrick Fearon-Hernandez, CFA | PDF
Now that President Trump is back in office, we think investors are about to see major changes in how the United States deals with the rest of the world. Trump, Treasury Secretary Bessent, and other key officials have signaled they will push to dramatically shift US policies on national security, foreign affairs, and international trade and capital flows. They haven’t necessarily laid out specific, detailed plans. However, based on their initial statements, it’s clear that they aim to reverse the traditional US approach to global hegemony and force US allies to shoulder more of the cost of allied security and prosperity.
In other words, Trump and his aides want to revamp the “political economy of alliance,” not only in formal military alliances such as the North Atlantic Treaty Organization (NATO), but also in the broader US-led geopolitical and economic bloc. At the same time, the China-led bloc is changing its internal relations. In this report, we show how the Trump/Bessent plan could cut costs for the US but at the risk of reducing its influence or hurting the cohesion of the US bloc. At the same time, the China bloc is moving toward greater cohesion and increased power. We wrap up with the implications for investors.