The global system is under great stress

For almost eight decades the global economic and political systems worked almost flawlessly

For almost eight decades – from the end of the Second World War to the second arrival of President Doanld Trump to the White House – the global economic and political systems worked almost flawlessly. The United States helped Britain and its allies win the Second World War.

That was in 1945. Had it so wanted, it could have constructed a global economic and political system that it dominated. Instead, advised by the British economist John Maynard Keynes, it created an international order in which the entire free world participated. Keynes had studied the aftermath of the First World War, fought from 1914 to 1919. The then victors devised the system in which those who were defeated had to pay the victors for part of what they had spent to win the war. Keynes and others who studied the post-First World War order concluded that the rise of Nazis in Europe was a reaction to the way Germany and Italy were treated after they lost on the battlefield. The Second World War victors were not prepared to repeat that mistake. They created a system that distributed power among those who participated in it. The institutions that were founded, including the United Nations, the International Monetary Fund and the World Bank Group, did not concentrate power in the hands of those who operated from Washington.

But Donald Trump's view of the United States' role in world affairs was driven by different considerations. His focus on what he called Make America Great Again, or MAGA, aimed to have the United States become the dominant global power. This move did not go well with other large economic powers, especially those located in Western Europe. However, it was supported by the Jewish state of Israel. It is the way Trump has operated in the Middle East that has put the global system under great stress.

How does the International Monetary Fund see the current global economic situation? According to its report, World Economic Outlook, issued in early July, the global economy is set to slow sharply in 2026 after the war in Iran launched by Donald Trump, the American president, on February 28, 2026. Global output growth is poised to fall to 3 per cent in 2026 from 3.5 per cent in 2025. The forecast was made in a situation of great uncertainty. Attacks on tankers trying to transit the Strait of Hormuz that runs along the western coast of Iran disrupted shipping in a vital waterway that connects the oil-rich nations of the Middle East with the large Asian economies heavily dependent on the supply of energy sources from the Gulf States. Shipping traffic through the strait was disrupted for months fallowing the attack on Iran, sending energy prices higher and pushing up consumer prices around the world, The IMF expects global inflation will rise to 4.7 per cent in 2026 from 4.1 per cent in 2025 because of elevated commodity prices.

Nations that consume the most energy are also facing an output crunch. Growth in India is expected to decline to 6.4 per cent in 2026 from 7.7 per cent in 2025. Output in China is projected to decline to 4.6 per cent in 2026 from 5 per cent in 2025. The GDP estimates have also been lowered for Pakistan although large investments by China in the country's infrastructure would bring dynamism to the economy. The poor in the affected countries are going to suffer the most from the turmoil in world affairs.

Output projections in the United States were influenced by oil exports and technology investment. These buttressed growth. High gas prices have been a political concern in the United States but Kevon M Warsh, the new chairman of the Federal Reserve Bank, appointed to his position by President Donald Trump, after taking up his position, said that inflation risks had eased since early July. Speaking at a gathering in Europe after assuming his office, he repeated his pledge to deliver price stability after an extended period in which the American central bank had missed its 2 per cent target. The IMF urged policymakers to remain focused on price stability as they assess the effect of volatile commodity prices and growing demand for new Artificial Intelligence.

The main reason for the stress in the global economic and political systems is the continuing war in Iran launched by Trump and Israeli Prime Minister Benjamin Netanyahu in February 2026. The attacks on Iran were carried out without much thought. Trump had clearly underestimated the theocratic power structure that assumed power by overthrowing the monarchy that had governed Iran with the support of the United States. Several analysts have faulted Trump in the way he has conducted his country's Middle Eastern policy. According to John Hannah, a senior fellow at the Jewish Institute for National Security of America, the massive strikes on Iran by the United States and Israel were based on flawed assumptions none "more damaging than the president's apparent conviction that Iran's revolutionary regime was a flimsy house of cards ready to collapse in a hail of American airstrikes and bellicose Truth Social posts. Compounding that error there was no rigorous national security apparatus around the president prepared to speak the truth to power and subject his wrongheaded assumptions to systematic questioning based on the knowledge and experience of real foreign policy, defense and intelligence professionals."

Trump has entrusted JD Vance, his Vice President, to bring the Iran war to an acceptable conclusion. Vance worked with the senior leaders of Pakistani – in particular Prime Minister Shabaz Sahrif – to reach the Iranian leadership. His efforts resulted in the signing of a Memorandum of Understanding between his government and the rulers of Iran. However, knowledgeable Iranian experts in the United States called this deal a "Memorandum of Misunderstanding". An assessment of the situation was provided by Aaron David Miller, a former Middle East peace negotiator who served the United States presidents of both parties and is now a senior fellow at Carnegie Endowment for International Peace. He says, "Iran consumed and tarnished the legacy of one president", referring to Jimmy Carter and the 1979-81 hostage crisis. "And the way it appears now, with time on Iran's side, not on Trump's, it could very well tarnish or ruin the legacy of another": that of Donald Trump. But the impact of the Trump-launched Iran war will go beyond the legacy of the sitting US president. It would have serious consequences for the world at large.