The world is at a geopolitical crossroads, as one of the major pillars of the existing global order—the United States—has begun to question the foundational assumptions of that system. Although the global order began to unravel following the 2008 financial crisis^[1], successive US administrations—including President Biden’s—sought to uphold the existing framework through traditional alliances. That trajectory shifted dramatically with the start of President Trump’s second term. Within weeks, his administration signalled a decisive pivot: rebalancing defence commitments and overhauling trade and financial systems.

This strategic pivot appears poised to have lasting consequences, regardless of future political changes in the US. Moving away from soft power instruments, the US may become more reliant on the other powers to advance its goals. China and Russia, who have long expressed dissatisfaction with the Western-led liberal order, are similarly leveraging their markets and militaries to shape global dynamics in their favour. While many European nations continue to champion human rights and democratic values, the absence of a consistent US leadership has made it more difficult to present these ideals as globally unifying.

In this article, we attempt to map out a range of possible scenarios for a new world order.

Night Watch sheds daylight on uncertainty

When uncertainty reaches extreme levels, single-point forecasts can fall short in helping portfolio managers make good investment decisions. In such situations, Capital Group’s Night Watch team can often provide valuable insights. Night Watch is our in-house team of economists, political analysts and portfolio managers that explores market disruptions to help make better investment decisions.

Named after a painting by 17th century Dutch master Rembrandt, the Night Watch uses scenario analysis as a framework to explore a range of outcomes, rather than try to predict a specific result. The goal is to gather a range of perspectives from across Capital Group to provide a dynamic forum for forward-looking scenarios and ultimately connect these scenarios to investment implications.

“We don’t make predictions,” says US economist Jared Franz, who chairs the Night Watch. “We try to identify a set of narratives that all plausibly construct a view of the future. We then connect investment implications to each outcome, so portfolio managers are prepared to make investment decisions as the future unfolds.”

The Night Watch has evaluated major crises including the Covid pandemic, global military conflicts and debt crises, among others. The team looks to consider issues in advance or before they escalate and identify low probability, but potentially highly significant events in advance.

A framework for an uncertain future

This year, Night Watch has analysed the Trump administration’s imposition of historic tariffs and shake-up of traditional security alliances. The groundwork for this analysis was launched shortly after President Trump’s election in November 2024.

The global order is fragmenting along two powerful axes: economic and military hard power. On the economic front, the world could tilt toward either tactical dealmaking or entrenched decoupling. In a dealmaking environment, tariffs are used as leverage but remain manageable, capital flows stay robust, and global supply chains adapt through friendshoring. In contrast, a decoupling world sees failed negotiations, permanent tariffs, retaliatory trade blocs, severe disruptions to critical goods and capital movement and a greater threat to the dollar’s status as the global reserve currency.

From a military perspective, the spectrum ranges from long-standing alliances and strategic deterrence to more assertive demonstrations of influence. In cooperative global scenarios—such as the international environment that has largely characterized the past six to seven decades—alliances like North Atlantic Treaty Organization (NATO) remain stable, conflicts are managed through multilateral engagement, and diplomacy plays a central role in mitigating tensions. In such a context, leaders may adopt more measured approaches to international claims and interests. In parallel, the United States could support efforts to promote de-escalation and dialogue.

In a less cooperative scenario, however, major powers might seek to assert their interests through more direct means—potentially involving the occupation of strategic areas, intensification of regional disputes, and increased risks of arms proliferation. In such a world, the effectiveness of multilateral institutions like the United Nations could be challenged, echoing historical precedents where global governance structures struggled to maintain influence.

These dynamics combine to form four distinct geopolitical outcomes, each with profound implications for global stability, economic integration, and the rules that govern international engagement.

Geopolitical realignment: Potential outcomes and investment implications

With the scenarios above on the economic and security outlooks, our Night Watch team has identified four broad potential outcomes: trade battlefront, grand trade bargains, return of global powers and assertive nationalism.

Trade battlefront: The trade battlefront scenario is characterised by significant tariffs, technology export restrictions, and other protectionist measures that would accelerate economic decoupling and supply chain shifting. The US partners with other countries to de-risk and diversify their economies. Great powers like the US and China clash in terms of technology and trade.

Grand Bargains: In this scenario, diplomacy prevails, and alliances survive. Mini trade deals could satisfy President Trump, and tariff hikes are only moderate. The US pivots back to NATO/Europe, and US-China tensions are manageable. This is the most benign scenario and generally a good environment for equity markets and the economy.

Great Powers: Major powers recognise regional spheres of influence and avoid mutual conflict. Trade threats abate, and there is an orderly division of power. This would be like going back to the age of empires, where the great colonial empires once divided the world into spheres of influence, bound by mutual non-aggression pacts.

Assertive nationalism: This is the inverse of that benign scenario and is characterised by a global trade war and increased use of hard power to address security concerns, with a tail risk potential for military clashes between major powers. Markets and economies would likely be negatively affected here.

Where are we headed?

While we continue to believe that the US remains guided by pragmatism, it is clear that traditional frameworks no longer seem to apply, and new patterns of alliances, trade routes, and supply chains are still taking form. The World Trade Organization has weakened, and rulings by institutions such as the International Court of Justice are increasingly disregarded by major powers.

Analysts in the Night Watch team offer varied takes on how the shape of the new global order might unfold over the coming years. Dane Mott sees a world where US influence is more contested, with power increasingly dispersed and relationships turning transactional. Jared Franz notes that while the US leans toward protectionism, “the EU, Japan, and India remain committed to open trade and security frameworks.” Meanwhile, Tryggvi Gudmundsson describes a cautious America, a China balancing ambition with interdependence, and a Russia focused on security. Matt Miller concludes that China is preparing for “greater self-reliance without cutting global ties,” while the US seeks a strategic reset.

Investing in a shifting world

The macroeconomic implications reflect four divergent futures shaped by geopolitical and economic dynamics. The most severe outlook, Assertive Nationalism implies a lack of growth, near-zero interest rates, a large fiscal deficit and a weakened dollar as rival currencies and gold gain traction.

The Trade Battlefront scenario could bring conditions that result in a stagflationary environment. An increase in tariffs could contribute to inflationary pressures, potentially prompting the Federal Reserve to raise interest rates despite subdued growth, elevated unemployment and a sizable fiscal deficit.  

In the Return of the Great Powers scenario, governments run higher fiscal deficits and tolerate elevated inflation as they prioritise geopolitical influence and regional control. Despite these pressures, global growth remains relatively resilient, supported by bloc-based trade and strategic investment.

The Grand Bargains scenario envisions a more stable global environment, where diplomacy prevails, growth remains relatively robust, inflation remains moderate, and the dollar retains its strength.

The sector implications across the four scenarios—Trade Battlefront, Grand Bargains, Great Powers, and Assertive Nationalism—highlight how geopolitical shifts could reshape global industry dynamics.

• In the Trade Battlefront scenario, domestic-centric industries benefit from protectionist policies and national champion strategies, while foreign-exposed firms and consumer discretionary sectors might face headwinds.
• Grand Bargains favours a more balanced environment, supporting cyclicals, consumer discretionary and financials with less support for staples.
• Under Great Powers, regional blocs and military-industrial investments dominate, boosting aerospace, cyber, and semiconductor sectors, though global trade exposure becomes riskier.
• The Assertive Nationalism scenario presents the most disruptive outlook, where defence, utilities, and gold gain prominence amid economic stagnation and consumer discretionary faces a bleak outlook.