The Grand Renegotiation

The bathroom’s jungle cats are roaming free. The newly elected U.S. administration has embarked on a high-octane campaign to redefine the political and geopolitical order. Its vision has inevitably created radical uncertainty, fueling the rise of two markets: gold and guns.

Eight wide-open (re)negotiation fronts highlight the scale of the historic endeavor. In each case, the old rulebook has been discarded, and a new balance of power is being hammered out.

Negotiation front #1 – On the international scene, the U.S. administration is forcing the entire world to renegotiate the terms of trade with the U.S.

Negotiation front #2 – Through its involvement in the Russia-Ukraine conflict resolution process, the U.S. is effectively renegotiating its position within NATO, with profound implications for Europe’s security architecture and socioeconomic foundations.

Negotiation front #3 – Domestically, the U.S. administration is testing the boundaries of the unitary executive theory, thereby seeking to maximize presidential control over government agencies to enhance ‘state capacity’, i.e., the government’s ability to achieve its electoral mandate – something that has become elusive in the modern world, as last argued in ‘Anti-institutionalism’ (2024).

Negotiation front #4 – In parallel, the administration is challenging the traditional separation of powers vis-à-vis the judiciary (e.g., immigration policies) and Congress (e.g., tariffs) in a bid for effectiveness.

Negotiation front #5 – Beyond constitutional matters, the administration is redefining its relationship with civil society (e.g., universities), economic institutions (e.g., the Federal Reserve, the IMF), and economic actors (e.g., law firms), further expanding its influence.

Negotiation front #6 – The administration's actions are accelerating a redefinition of domestic political and religious coalitions, leading to the negotiation of new alliances across traditional lines.

Negotiation front #7 – More surreptitiously, the U.S. domestic circumstances are triggering a renegotiation of the ‘social contract’ that governs the relationship between the state and its citizens.

Negotiation front #8 – Internationally, the U.S. administration’s policies are catalyzing (re)negotiation processes like those discussed above in other nations across the globe (Canada, UK, Germany, etc.), thereby affecting trade, immigration, fiscal priorities, and political systems worldwide.

No wonder many feel trapped in the opening scenes of a long movie they do not want to watch.

Estimating the range of potential outcomes is complicated by the administration’s approach to negotiation, which leverages emotional brinkmanship and uses uncertainty as a tactical weapon. As explored in ‘The Art of Being Unreasonable’ (2011), an appearance of irrationality can enhance bargaining power. But it also risks provoking irrational responses and thus unpredictable outcomes.1 

While imperfect, the DXY2 offers a powerful real-time gauge of how markets perceive the relative strength and credibility of the U.S. economy while the grand renegotiation process unfolds. More broadly, recent market experience suggests the existence of a ‘Trump put’ when the S&P 500 dips below 5,000 or the 10-year yield rises above 4.5%. Though now distant, these floors may offer some comfort to decision makers as policy uncertainty fluctuates.