By Xu Bin

Following the US and Israel’s large-scale airstrikes against Iran, resulting in the death of Iran’s supreme leader Ayatollah Ali Khamenei, and Iran’s retaliatory firing of hundreds of missiles and drones at states across the region, the geopolitical shockwaves are rapidly being felt in the economic sphere, rattling the fragile nerves of global markets.

How will this political crisis reshape the global economic landscape? Here, CEIBS Professor of Economics and Finance Xu Bin offers analysis from three key dimensions.

From Globalisation to the Geopolitical Era

To understand recent events in the Middle East, we must place them within the broader transformation of the global order. In my view, the world has shifted from an era of mutually beneficial cooperation based on economic efficiency (the age of economic globalisation) to an era defined by great-power rivalry across political, economic, technological, and military domains. This can be called the “Geopolitical Era”.

The turning point was the 2007–2009 global financial crisis. Economic globalisation had generated prosperity and wealth, but was also shown to have brought risks and deepened social divisions.

At the onset of that crisis, the global community established the G20 summit mechanism, elevating emerging economies, represented by China, to a central role in global governance. China’s large-scale economic stimulus played a critical role in reviving the global economy, marking the last true example of win-win global cooperation.

Nevertheless, the financial crisis exposed and intensified domestic contradictions which globalisation had masked. This ultimately enabled the rise of Donald Trump in the US under an “America First” banner. Although he failed to secure reelection after his first term, the COVID-19 pandemic further exacerbated domestic divisions in the United States, paving the way for his political comeback four years later. In this sense, Trump is a significant figure shaped by the tides of history, the end of the globalisation era, and the arrival of the geopolitical age.

His predecessor Barack Obama had already laid the groundwork for this shift through the “3T” framework: the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), and the Trade in Services Agreement (TISA). In his own time in office between Trump’s two terms, President Joe Biden advanced similar strategic groupings, including The AUKUS Trilateral Security Partnership, the Quadrilateral Security Dialogue (QUAD), and the Five Eyes (FVEY).

The difference between these Presidents and Trump is that he does not believe in alliance-based cooperation; he only believes in power. He uses US strength to pressure not only adversaries but also allies (what Canada and some European leaders call “middle powers”). When confronting China, America’s only great power rival, Trump in his second term has adopted a strategy of tactical retreat to gain strategic advantage.

What does this mean for the current situation in the Middle East? Within this logic, the continued use of hard power tactics by Trump is highly probable.

US Policy is More Consistent than it Appears

All politics is ultimately domestic politics. Though Trump may appear unconstrained on the world stage, he faces strong domestic economic and political pressures. Economically, Trump places great importance on the performance of the US stock market, and he is therefore likely to exert influence on the Federal Reserve and promote a "low interest rate and weak exchange rate" monetary policy that is beneficial to the market.

He is also acutely aware of the significance of the upcoming US midterm elections in November. His foreign policy adventures are likely in part aimed at converting military and political gains into economic benefits to win over American voters.

Thus, while Trump may appear unpredictable, he is in fact quite consistent, operating according to his own internal logic. By amplifying his self-identified achievements, he seeks to shape public perception and consolidate support.

For this reason, I believe Trump has rational boundaries. The negative effects of his disruptive style will likely be temporary, and even controllable (as I write the word “controllable,” I can almost imagine Trump smiling with satisfaction).

Trump’s Focus on Power May Create Strategic Space for China

The power-based model Trump champions may, paradoxically, create opportunities for China. After all, the world is composed primarily of small-and medium-sized countries. For these nations, international economic ties are the lifeline of their prosperity. Trump’s power-driven approach forces many countries, including developed “middle powers”, to adopt strategies of self-protection and risk diversification.

I believe the global economic order is evolving toward a “two poles, two major zones” structure centred on China and the United States. Previously, these two economic spheres significantly overlapped, with most smaller countries engaging economically with both. This reflected what China has advocated as “open regionalism.”

However, Trump’s power model, what one might call the “Donroe Doctrine”, is shifting “America First” toward “America Only.” Such isolationism cannot endure indefinitely, and future adjustments by the United States are inevitable. In the short term, however, this shift opens up strategic space for China within the emerging dual-pole framework.

Conclusion

Allow me to conclude with three brief reflections:

First, there is no limit to what we can learn, and in today’s rapidly changing world, independent thinking is paramount; Second, the world has entered a new era filled with uncertainty; Third, business leaders must cultivate the ability to analyse issues from multiple perspectives, along with the agility to respond swiftly to change.

Xu Bin is Professor of Economics and Finance, Wu Jinglian Chair Professor in Economics at CEIBS. His current research focuses on the global and Chinese economy, multinational enterprises in China, and trade and finance Issues of emerging markets.