Can Trump Bring Peace Amid Rising Global Tensions?

Israel and Hezbollah agreed to a ceasefire in Lebanon. Meanwhile, reports indicate that Trump will consider direct talks with Kim Jong Un. In our 2024 Watchlist, we detailed how the world was shifting from a state of (relative) peace to one where war is increasingly present. It’s what one UK minister referred to as the shift from a post-war era to a pre-war one.

As part of our upcoming Watchlist 2025 report, we look at the distinct possibilities for 2025 across ten key themes. For the prospect of war and peace, we have two possible scenarios to consider, unapologetically seen through the lens of the new US administration. Here’s an excerpt:

War: WW3 has already begun; we’re just not calling it that yet. The conflict between Ukraine and Russia will grind on, and we can expect a broadening of conflict in the Middle East. China has stepped up military drills and seems close to invading Taiwan. Proxy wars will spread.

Whilst President-elect Trump has vowed to end the Ukraine war, what chance does this have if Kyiv still has backing from Europe? And what would a peace deal actually look like? It could embolden Putin. Meanwhile, Trump is even more pro-Israeli, which could embolden the Netanyahu government to widen the conflict. Maximum pressure on Iran will lead to fragmentation among Arab states and widen the war.

Peace: the fragmentation will pause – Ukraine will find a way to strike a peace deal with Russia, arm-twisted by the Pentagon, and Iran’s regime will be toppled by Israel, ushering in a new era of peace in the Middle East.

Donald Trump has vowed to end the war in Ukraine “within a day” of returning to the White House. Ukraine’s sovereign bonds rallied after his election, an unlikely Trump trade that reflects a belief he will push hard for a peace deal. Even European allies are braced for a peace-for-land deal that will end the conflict. Trump selected as his Secretary of State the noted China hawk Marco Rubio, who voted against the $95bn aid package for Ukraine, Taiwan and Israel in April, and said in September that the war in Ukraine is going to end with a negotiated settlement.

In the Middle East, we will see the impact of the new administration in Washington will be felt instantly. Whilst Biden sought to appease Iran and impose regime change on Israel, Trump will do the exact opposite, supporting the Netanyahu government and imposing ‘maximum pressure’ on Iran. This will lead to a deal, at the least, to bring peace and a new settlement in the region. In East Asia, Trump’s offensive posturing should curtail any ambitions in Beijing to take Taiwan, at least for the time being. 

Personally, I favour the latter scenario the more likely: Trump the Peacemaker.

Elsewhere, the post-election rally was back on after Trump’s Treasury pick and tariff news. One, Bessent is seen as a good choice market because he’s a markets guy. Two, the news on tariffs indicates that Trump is using them as a bargaining chip first and an economic policy lever second. I wonder if the market is a tad complacent about the nature of a trade war, but I do think it’s going to be more heavily felt in the FX markets than in US equity indices. The dollar fell for a second day; gold rallied for a second day after Monday’s steep plunge.

Fed Minutes showed that policymakers backed a gradual pace of rate cuts. The minutes noted that “many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually”.

RBNZ cut by 50bp as expected, and Governor Orr said even after this, “we remain somewhat restrictive”.

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