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Starting the second year of his second term, Donald Trump has put the world on notice, deposing Venezuelan President Nicolás Maduro, toying with ideas to buy or seize Greenland from Denmark — a NATO ally — and warning U.S. adversaries like China and Russia to stay out of the Western Hemisphere.
Such bold moves could have big implications, both good and bad, for America’s standing in the world. By extending U.S. influence over Venezuela, Trump could hit America’s adversaries hard. Both China and Russia were key backers of Maduro, with Beijing also a major buyer of Venezuelan oil. Moscow, in turn, relies heavily on its own oil wealth and is leery about Washington having de facto control over more than half of the world’s petroleum reserves.
Elsewhere in the region, Cuba’s teetering economy could be pushed over the edge by the loss of Caracas as an energy supplier and middleman in global trade. But will he maintain this pressure campaign outside of Latin America? China and Russia both hope that Washington’s policy shift will leave them freer to pursue territory in their spheres of influence. So far, Trump is not entertaining this idea, even agreeing to tougher sanctions on Russia and threatening action against the Iranian regime amid anti-government protests.
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At the same time, Trump is burning bridges with U.S. friends and allies, particularly with his efforts to acquire Greenland. Even if the threat of force is a ploy to get Denmark to give up the territory, it will sow distrust throughout the alliance, whose members were already concerned about U.S. commitment to their security. Expect this distrust to outlast Trump, even if NATO ultimately endures.
Meanwhile, the rest of the alliance will continue to prioritize increased defense spending. Security concerns could combine with trade tensions closer to home. Trump’s threats to take military action against drug cartels south of the border could worsen relations with North American free trade partners Mexico and Canada.
Trump seems to be betting his presidential legacy on bold action abroad, even invoking past commanders in chief, like James Monroe, as part of this push. Doing so can be a double-edged sword. On the one hand, presidents generally have more latitude on foreign policy, a plus when they are struggling to accomplish their domestic goals. On the other hand, the administration also risks stirring up regional chaos or getting bogged down in a conflict beyond its control — just ask George W. Bush. Trump has gotten lucky so far, but luck can be fleeting.
Also note that if Trump goes too far, there may be a congressional backlash. Republican lawmakers largely stand behind the president, but the initial GOP votes in favor of a Senate war powers resolution on Venezuela could signal trouble ahead.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
