The New Age of Protectionism
Trump's Attack on Germany and the Global Economy
U.S. President Donald Trump wants to stimulate the American economy, but he has shown no interest in existing trade deals or in the basic rules of economics. It is a dangerous cocktail for German industry.
It has been quite a scene at Trump Tower on Fifth Avenue in New York recently, with a never-ending parade of stretch limousines and armored S-Class Mercedes pulling up to the building.
The heads of Ford, Tesla, Boeing and dozens of other companies have all dropped by for an audience with Donald Trump. The president has consistently gushed about the "great meetings," but little more than silence could be heard from the other side.
Behind the scenes, this much has become clear: They didn't come for negotiations or even to offer advice to the new president. They came to hedge their bets. They are on the defensive, in the hopes that Trump will be less aggressive with those who he knows.
Senior executives in Germany have been keeping close tabs on the stream of visitors heading for an audience with Trump, full of concern and nervous about what the future might hold.
They have refrained from speaking about Trump publicly, but internally, it's the only thing they are talking about.
There is significant fear that they too might become Trump targets. Nobody knows what rules are still valid in this new political era, one in which billions in value can be destroyed by a single tweet. An era in which it is no longer clear who is a friend and who is an enemy.
It is an era that began on Donald Trump's first day in the White House, when he turned away from what has been the global economy's most important motor for decades: free trade and globalization no longer have any place in America's new populism.
Trump immediately backed out of the Trans-Pacific Partnership (TPP) and is intent on renegotiating other such free trade deals, these "horrible deals," which he sees as the source of America's downfall.
"This wave of globalization has wiped out totally, totally, our middle class," he said while on the campaign trail.
On the same Monday, he received dozens of America's most important executives, representatives of the country's leading economic sectors. Trump called it a "listening session," but he didn't appear to be the one interested in listening. Rather, it was the business leaders who were to receive the new rules of this new era. "America first," is the only relevant philosophy, and those who go along will be rewarded by way of massive tax cuts and investments.
Those who resist will be punished, with tariffs, special taxes, government reprisals and, more than anything, the fury of the president -- announced on Twitter and followed by a plunge in the stock price on Wall Street.
Attack on the German Model
Trump's first week was a power play, full of attempts at intimidation and threats. It was a week that raised new, fundamental questions: Can Trump really suspend the fundamental rules of economics, which force multinational corporations to maximize profits and minimize costs?
Can globalization be reversed through a few tweets? And most importantly, is the U.S. president risking a global trade war so that he can impose his domestic agenda? For the moment, the answers to these questions appear to be: Yes.
The consequences of this radical political shift are not limited to the United States. When the world's largest and most influential economy makes changes, the shockwaves can be felt everywhere. A new economic world order is coming into being. And it is an attack on the German model.
In his campaign speeches and tirades against globalization, Trump primarily identified China and Mexico as his enemies, but Germany, a nation of exports, is likely to be third on that list.
No other large economy is more reliant on the free exchange of goods and services, on border-free trade and barrier-free exports, than the German economy.
It is becoming apparent that Trump's presidency represents a break in the trans-Atlantic relationship, the kinds of which hasn't been seen since World War II. With a U.S. president who openly threatens a German carmaker with punitive tariffs of 35 percent, one who warns that the Germans were "very unfair to the U.S.," it could even mark a shift from friendship to animosity. In corporate headquarters and in Angela Merkel's Chancellery, executives and government officials are considering how best to stand up to this challenge. Is it better to remain composed and unperturbed, relying on rationality, on the strength of decades of ties and on the rules of the global economy? Or would it be better to prepare countermeasures, search for new allies in, for example, Asia or perhaps even to take advantage of the vacuum that is being created?
Either way, with the world looking more fragile than it has in quite some time, there is a lot at stake.
The consequences of an economic crisis or even a trade war would likely be disastrous for Germany, particularly with elections approaching in autumn. Right-wing populists, who would love to see Trumpism imported to Germany, would be certain to take advantage of any economic downturn by posing as the champions of the victims of globalization.
Much will depend on the economic recipes that Trump ultimately mixes together and the effects they will have -- whether the U.S. economy will begin to wobble or whether it will actually become stronger, at least for a time.
Tax cuts and additional government spending would usher in a period of sustained economic growth.
That, at least, is what the new president is promising, and the stock markets seem inclined to believe him. Optimists believe that good times are on their way and that if the American economy does well, Trump's threats will quickly fade.
A Clear Signal
However, most economists believe that anti-globalization policies can only end in a global trade war that would kill corporate innovation and plunge the entire world economy into a recession.
The pessimists are concerned. The worse the American economy fares, the more radical will be the measures taken by President Trump.
In the first week of his presidency, Trump began putting together his team, charged with transforming his course campaign rhetoric into clear plans for financial and tax policy and for the Fed, for industry and for trade.
To do so, he has not surrounded himself with the country's best economists as his predecessor did. That too is a clear signal. Instead, Trump is relying almost exclusively on "businessmen:" men who have made billions, or at least millions, on the free market. They are not all committed to the same ideological course. On the contrary. Some are in favor of protectionism while others are considered to be adherents of globalization. Some want an enormous state-sponsored infrastructure program while others want to see radical spending cuts. Some want to unleash the markets while others are in favor of state regulation of key industries. Some are arch-conservatives while others are liberal.
It is -- intentionally -- unclear who will emerge victorious. The president has divided the influence of his advisers across several power centers. In the end, only one person will decide how to proceed, likely on an ad hoc basis, largely dependent on his mood. Unpredictability is one of the tenants of Trumpism. Contradictions and conflicts are intentionally fostered.
Basically, though, Trump's team, regardless of ideological proclivities, can be divided into two camps. On the one side is a random collection of speculators and crisis profiteers, provocateurs and extremists. The chair of the Council of Economic Advisors will likely be a television host.
On questions of monetary policy, he relies on an arch-conservative lobbyist who wants to reintroduce the gold standard. An oil industry billionaire advises him on energy policy.
On the other side, Wall Street is celebrating its political resurrection. Steven Mnuchin is to become Secretary of the Treasury, a man who was long a partner and board member at Goldman Sachs. Head of the National Economic Council is Gary Cohn, who was chief operating officer at Goldman Sachs until a short time ago. His chief political strategist Stephen Bannon was once a Goldman Sachs executive.
During the campaign, Trump constantly attacked Hillary Clinton for her close ties to the financial industry. And many of his followers see Wall Street as the core of the conspiracy against American citizens and as the driving force behind the hated establishment.
Such crass contradictions show how deeply dissatisfied Americans are with the slow economic growth that characterized the Obama years. They long for an economic boom and for the growth rates seen in decades past -- and are willing to accept any means necessary.
An Historic High
Stock markets and consumers seem unconcerned that many of the key elements of Trump's economic plan don't fit together, or even cancel each other out. On Wednesday, the Dow Jones climbed to an historic high. Consumer confidence is higher than it has been since before the Sept. 11, 2001, terrorist attacks.
Their enthusiasm is driven by expectations of trillions of dollars in tax cuts, particularly for corporations. The cuts are supposed to encourage both companies and individuals to invest and consume, with the hope that the resulting economic growth will produce sufficient tax revenues to pay for the cuts.
Larry Kudlow, designated head of the Council of Economic Advisors, promises that the tax cuts will "really put a booster rocket underneath this economy" and produce growth rates of up to 5 percent. Growth, he says, solves all problems, including the budget deficit.
Such concepts are not new. Ronald Reagan made "supply side economics" popular in the early 1980s. But they didn't work quite as planned.
To be sure, the massive tax cuts produced economic growth rates of over 3 percent. But at the same time, the U.S. developed sovereign debt higher than anywhere else in the world along with an enormous budget deficit. Later, one of the architects of Reaganomics, a domestic policy advisor to the president in the 1980s, wrote a book pillorying the supply side approach, saying that the strategy had been a "failure." Reagan's successor, George H. W. Bush, even referred to Reagan's policies as "voodoo economics." Bush felt impelled to significantly increase taxes.
As such, economists are extremely concerned, regardless of their political affiliations, that Trumponomics could end just as disastrously as Reaganomics in the long term -- with enormous budget deficits, an even more rapidly shrinking middle class and a deeply wounded economy.
Perhaps even with a stock market crash.
Nikolaus von Bomhard, chairman of the board at the reinsurance giant Munich Re, believes the recent stock market upturn to be excessive. He finds it particularly regrettable that "a part of the price movements will prove expensive, coming at the cost of engagement against climate change and its consequences." He says that if Trump expands infrastructure investments and reduces taxes while pursuing protectionism at the same time, it will drive sovereign debt and inflation in addition to the desired economic growth. "There will be huge disappointment," says Edmund Phelps, a Nobel laureate for economics and director of the Center on Capitalism and Society at Columbia University.
He warns that a "deep recession," could result.
The worse the U.S. economy, the more likely Trump will be to target his putative enemies from abroad. His policies are likely to become more aggressive, including punitive measures against foreign "dumping" and attacks on all those companies who build their new factories in Mexico instead of Milwaukee.
Peter Navarro, a professor at the University of California in Irvine, is responsible for developing these policies. He is head of the newly created National Trade Council.
Navarro is an outsider in several different ways. He is the only economist on the president's team.
And he is almost the only economist in the U.S. who fundamentally believes that free trade is a bad idea and who favors tough punitive tariffs. China is a danger, says Navarro, a country that doesn't play by the rules. He even produced a documentary film called "Death by China."
German Automakers at Risk
Navarro is supported by Wilbur Ross, the new secretary of commerce. He earned billions on the securities market and has compared free trade agreements with serfdom. Last fall, the two wrote an essay together in which they identified the World Trade Organization (WTO) as being primarily responsible for the downfall of American industry. In the essay, they demanded that significant free trade agreements be narrowed so as to eliminate the U.S. trade deficit, which currently stands at over $500 billion.
Most economics experts believe such anti-free trade plans are naïve at the least and perhaps even dangerous. "State trade barriers would inflict significant damage on the economy," says Phelps. The immediate consequences, he says, would be felt by those who Trump promised to help: people who have been left behind by globalization. They are particularly dependent on low prices. But if tariffs were to make imported goods more expensive, their quality of life would suffer immediately.
Trump, though, has thus far shown little respect for the opinions of experts. He has promised to return prosperity to America's rusting industrial cities and in the last several weeks, it has seemed as though he is prepared to exert pressure on each individual company that plans to move jobs overseas.
His first victim was the conglomerate United Technologies, which was planning to move a few hundred jobs from Indiana to Mexico. Trump went after the company on Twitter. Now, the company intends to keep some of the jobs in the U.S. Several other companies, including Ford, General Motors and a half-dozen others, have also said they were planning to modify plans to move elements of their production to Mexico after their stock prices came under pressure following public attacks from Trump.
"It sounds like the economics of fascist times," says Nobel laureate Phelps. "The leader should be in charge of the economy and tells the companies what they ought to be doing."
He says that the greatest danger is to corporate innovation. "If an innovator contemplates the idea for a new product or company but has to worry that he will become the target of punitive action or threat from the government leader, then he will think twice about making the investment and effort," Phelps says.
One of the industries that Trump recently targeted is pharmaceuticals. In demanding lower drug prices, he triggered significant uncertainty among drug companies and biotech firms. What if the government sets prices in the future? Is it perhaps better to freeze investments for the time being?
Trump isn't slowed by such concerns. Rather, he is intent on pushing through his new economic order both in the United States and globally. And he was quick to identify German companies as his next target.
He threatened BMW, for example, with a punitive tariff of 35 percent if the German automaker were to build a new factory in Mexico. In a recent Twitter post, Trump wrote: "Car companies and others, if they want to do business in our country, have to start making things here again. WIN!"
In his attack on the German automobile industry, the U.S. president singled out a company that actually could be seen as an example of the perfect foreign investor in the United States. BMW has been building automobiles for more than 20 years in Spartanburg, South Carolina. In 2016, over 411,000 SUVs were assembled there, many more than BMW actually sells in the U.S. Together with its suppliers, BMW employs around 70,000 people in America, and plans on hiring even more.
BMW is contributing to the reduction of the U.S. trade deficit. Seventy percent of the vehicles that BMW produces in the U.S. are exported. In fact, with exports valued at almost $10 billion, the Bavarian company is the largest car exporter in the U.S. "We refer to the U.S. as our 'second home,'" says BMW CEO Harald Krüger.
Thus far, the U.S. president's threat hasn't had much of an effect at company headquarters in Munich. BMW has continued construction on its factory in Mexico, with completion scheduled for 2019. The carmaker could easily export the 3-Series sedans that will be produced there to countries other than the U.S.
Other German automobile companies, however, are more vulnerable to import tariffs imposed on vehicles produced in Mexico, such as Daimler and Volkswagen. Daimler, of course, has long been building cars and trucks in the U.S. and the company is currently expanding its American presence by moving production of its Sprinter van from Düsseldorf to South Carolina. But more than one-third of all trucks that Daimler sells in the U.S. are produced in Mexico. A 35 percent tariff would make this part of the company's business unprofitable.
'Reliant on Free Trade'
The consequences would be similarly drastic for VW. One of the company's most important factories is located in Puebla, Mexico, where the Golf, Jetta, Beetle and, soon, the Tiguan are assembled. Over 60 percent of all the cars that Volkswagen sells in the United States are manufactured here. The company is also currently building a factory in San José Chiapa, where its Audi subsidiary plans to assemble the Q5 SUV -- largely for export to the U.S.
At the groundbreaking ceremony, Audi CEO Rupert Stadler was still exclaiming, "Viva México, viva Audi." Now Stadler doesn't want to comment on the U.S. president's attack on the company's business model. He isn't alone either -- executives at Daimler and BMW are also holding back.
"The fact is and remains that the global automobile industry remains reliant on free trade," says BMW CEO Krüger. "I believe that integration in world trade, overall, provides a major advantage for all concerned," says Daimler CEO Dieter Zetsche. No one wants to provoke Trump. The modus operandi at the moment seems to be to duck away from the threats coming out of the White House.
Behind the scenes, the companies are seeking to establish contact with the president's confidants and to use those channels to try to ensure that the facts about German manufacturers' activities in the U.S. ultimately reach Trump's ears.
Some German companies that are already extremely active in the American market could even stand to profit from Trumponomics, especially when it comes to possible mass infrastructure investments. They could also benefit from weakened environmental protection regulations.
"Our expectation of our companies is that they will not duck away politically or even praise the supposed advantages of an authoritarian economic policy," says Michael Vassiliadis, head of the German union for employees in the mining, chemical and energy industries (IG Bergau).
"Those who have spent years calling for more cosmopolitanism, flexibility and globalization can't now simply accept American protectionism in silence."
German executives will have to abandon their reserve anyway considering how Trump's policies represent a frontal attack on the German export model. The German economy is heavily dependent on foreign trade, with around one-fourth of all jobs in Germany pegged to overseas business. And many companies have been focused on the global market for over a century.
The German economy has always fared best when the global market was open and flows of goods remained unhindered. Few other industrial economies profited as much as Germany from the opening of markets in the Eastern Hemisphere, especially China's. But Donald Trump's presidency could mark the end of this trend -- at least temporarily.
Recently, Germany registered a record surplus in global foreign trade, exporting 260 billion euros more than it imported -- an amount equal to 8 percent of gross domestic product. Trade in goods with the United States in particular flourished, with some 54 billion euros of the total export surplus originating from America. This massive imbalance has been a source of irritation with the Americans since long before Trump became president. But how can an imbalance on that scale be corrected?
Germany's industry, with the strength of its exports and its successful products, can't really be blamed, but one could be critical of the German government's economic policies, which have kept domestic demand notoriously weak. Consumers and companies spend too little money domestically. Carl Christian von Weizsäcker, an economist with the Max Planck Institute for Research on Collective Goods in Bonn, has come up with an idea he believes would strengthen imports without weakening exports.
Weizsäcker's proposal envisions a kind of braking mechanism for the current accounts balance.
Parliament would sink the value-added (sales and services) tax, fueling consumers in Germany to spend more, buying import goods and thus aiding the economies of the countries delivering the goods and services. "The current accounts balance brake would be a strong weapon to use against newly growing protectionism that represents a threat to Germany's prosperity." Of course, the German government would have to adopt that model -- a move that isn't very likely.
The End of Globalization?
The more likely scenario is that it will grow increasingly difficult for the German export industry to maintain its dominance and that the surplus will melt away on its own in the coming years.
Globalization is losing momentum and the balance is shifting in the world economy. The hegemony of the West -- e.g. America and Europe -- over the Asia-Pacific region is waning in terms of influence and importance as the global world becomes multipolar and more complex.
"Our view is that globalization has now come to an end and is slowly being replaced by a world where very distinct poles are forming -- economically, socially, ethically and politically," economists at Credit Suisse recently wrote in a report on the world's changing state.
This means that the global economic order, as it has been known until now, is history. "It is crumbling at the moment," says economics professor Thomas Straubhaar of the University of Hamburg. He says the international division of labor is undergoing a reordering and that Germany must still find its place in that new order.
Against that backdrop, virtually the entire political class in Berlin is monitoring developments in Washington with deep concern. Inside the German Economics Ministry, the computer systems have been churning nonstop since Trump's election. With the use of stochastic general equilibrium models, officials there have been seeking to determine the possible effects Trump's brash announcements and his first official acts as president will have on the German economy.
What they have determined is this: If the world's most powerful man isolates the U.S. domestic market, German economic growth, depending on the scope of Trump's trade barriers, could shrink by up to three-quarters of a point. Experts within the ministry are horrified at the possibility that Trump could withdraw from NAFTA, the free trade agreement with neighboring Mexico and Canada that was negotiated over two decades ago. If Trump were to revoke the treaty, there would be a six-month transition period before tariffs would be applied as set out in the deal agreed to during Uruguay round of talks at the World Trade Organization.
Officials in Berlin are still hoping that the new government in Washington won't go that far.
They're betting that a move to pull out of NAFTA would lead to outcry from U.S. companies whose factories in the American South maintain extremely tight relations with their Mexican suppliers. "Members of Congress from North Carolina or Alabama will make clear to Trump the consequences that would have," say Economics Ministry sources.
If Trump does make good on his words, though, then the export industry must prepare for a drastic slump.
Berlin Explores Alternatives
In order to prevent the situation from deteriorating that dramatically, the government in Berlin is already exploring alternatives to trans-Atlantic trade. German politicians focusing on trade issues followed with interest the reactions triggered by Trump's decision to halt talks on TPP, which would have created a giant Asian free trade zone with the U.S.
Australia and New Zealand have announced that they intend to forge ahead without the U.S. and possibly even establish the economic zone with China instead. Berlin is also laying plans to ensure that German companies might profit to the greatest extent possible from such a deal. A string of trade deals with countries across the Pacific boom region is envisioned, providing access to German companies.
A little under six years ago, the EU reached an initial trade deal with South Korea. Since then, German exports to the country have risen by around 50 percent. But improved ties with China would hold even greater promise. A new Berlin-Beijing alliance could -- in part, at least -- supplant the old trans-Atlantic order.
The importance of the Chinese economy has been growing for years now among its neighbors.
With Trump's election, China is now likely to attract countries that had previously been anchored in the trans-Atlantic alliance. Europe isn't just closer to China when it comes to issues like climate change, the Middle East or the Iran nuclear program. It may soon become closer on trade policy too.
Chinese President Xi Jinping has already begun positioning himself as a defender of free trade.
"We should adhere to multilateralism," Xi said recently in Davos, choosing a term that Trump uses primarily as an invective. He extolled a "global network of free trade agreements" and warned against "forming exclusive groups that are fragmented in nature."
This year, the Regional Comprehensive Economic Partnership (RCEP) is to be signed, an economic area encompassing over 3 billion people and which is also open to Western countries.
And Germany seems willing to cast its gaze eastwards. "Europe should quickly begin working on a new Asian strategy," said Germany's new foreign minister, Sigmar Gabriel, at the beginning of the week. "We should now take advantage of the space that America is freeing up." China, he said, "isn't yet ready to be an equal partner for investors," he said, referring to limitations imposed by China on German companies in the country. But his critical comments also contained a promise: If you improve access to your markets, we can make a deal.
For the moment, there are frequent disagreements between Beijing and Brussels, centered on cheap Chinese steel and on the country's imposition of an electric vehicle quota. But following President Xi Jinping's passionate speech at the World Economic Forum in Davos advocating free trade and the market economy, European economic representatives believe the climate could soon improve. "We will take him by his word," said a source in the German government. On Wednesday, the German chancellor spoke with Chinese Prime Minister Li Keqiang on the phone, with Merkel suggesting that the two countries take joint action to confront the "elements of uncertainty" in the global economy: "China and Germany should send signals of stability to the global markets and safeguard the international system together via the liberalization of trade and investment."
It is exactly these sorts of developments that have for months been the subject of warnings from opponents of Trump's anti-free trade policies. Withdrawing from TPP, argues Michael Froman, the U.S. trade representative under Obama, would "basically hand the keys to China and say we're withdrawing from our leadership position." This, he noted, "is geostrategically damaging."
China policy isn't the only core element of Trumponomics that could end badly for the Americans. With his aggressive approach, Trump often also ignores broader economic implications. His economic stimulus plan to generate growth through tax cuts won't just provide a boost to the stock markets. It will also drive up interest rates and, as a consequence, the strength of the dollar. That makes the U.S. more attractive for foreign exporters while at the same time making American exports more expensive and thus less attractive overseas.
Ultimately, the economy could even overheat. The American economy is already almost at capacity and if growth spikes, monetary policy would have to be normalized. "If that doesn't take place, we could be faced with a boom-bust scenario of the kind we have seen in developing economies where a period of strong growth is followed by a violent slump," warns Philipp Hildebrand, vice chairman of the world's largest investment management company BlackRock. One trigger for such a scenario, he says, would be if the Federal Reserve failed to react timely enough to strong growth and raised interest rates abruptly to counter inflation.
The Fed is concerned that Trump might try to pressure it to keep interest rates low and the dollar weak. There is even a possibility that Trump could start a currency war. Some at the Fed believe that Trump could seek to exert pressure on other central banks around the world should the interest rate difference between the U.S. and Europe or Japan become too large and the dollar too strong. "In such a situation, he could issue a demand that the European Central Bank raise its interest rates," says one Federal Reserve official.
A New Dynamic
The decisive question will be how cohesive and self-confident Europe might react to such pressure coming from Washington. And not just when it comes to interest rates.
European Commissioner for Trade Cecilia Malmström, for her part, has proven combative in recent days: "Trump or no Trump, we have a long list of countries willing to deal with the EU," she said in a speech on Tuesday.
Currently, the EU is involved in free trade talks with around 60 countries, with CETA, the controversial deal with Canada, the furthest along. Then in March, Japanese Prime Minister Shinzo Abe is coming to Brussels. The EU has been negotiating with Japan, the third largest economy in the world, since 2013 over a far-reaching market liberalization package. Now, Malmström hopes, the deal could soon be finalized.
Negotiations for a treaty with Vietnam have been completed; in South America, the EU is presenting itself as an alternative to the U.S.; and in February, a delegation from the European Parliament's International Trade Committee is heading for Mexico, Trump's favorite target.
Europe has offered Mexico a new, comprehensive trade pact. "An entirely new dynamic in the negotiations can suddenly be felt," says Bernd Lange, head of the International Trade Committee in Brussels.
It could very well be that the attacks from Washington will provide exactly the push that the crippled European project needs so badly. For the German economy, in particular, the greatest potential still lies in trade with its oldest and closest trade partners: with companies in France, the Netherlands, Austria and Italy. Around 56 percent of all German exports go to other EU member states.
As such, Germany doesn't have to come up with a completely new business model, says Hamburg-based economist Peter Straubhaar. But there is one particularly important consequence of Trump's vision of an isolated America: "Even more than before, we are dependent on a prosperous Europe.
The internal market is more important than ever before."
By Dietmar Hawranek, Martin Hesse, Alexander Jung, Christoph Pauly, Michael Sauga, Thomas Schulz, Gerald Traufetter and Bernhard Zand
The Shape of US Tax Reform
CAMBRIDGE – Major tax reform is high on the agenda for the United States in 2017. The Republican-controlled House of Representatives has been preparing for this for years, creating detailed plans for overhauling how corporate and personal income are taxed. Now, with a Republican majority in the Senate and a Republican president in the White House, those plans can provide the basis for legislative action.
Will Donald Trump Reverse the War on Cash?
by Nick Giambruno
I recently sat down with my friend Jason Burack from Wall St for Main St.
Jason and I had an in-depth discussion on the decline of globalism, the War on Cash, and more.
I think you’ll enjoy our conversation.
Until next time,
Jason Burack: It seems that globalism may be on the retreat. What’s your opinion about that, in light of Brexit, Donald Trump winning, and the Italian referendum failing?
Nick Giambruno: I think you’re right, Jason. Right now globalism is on the decline. But let’s define “globalism” before I explain why. This word gets thrown around a lot. But most people don’t really know what it means.
It’s very simple. Globalism is the centralization of power into a couple of global institutions: the EU, the United Nations, the IMF, the World Bank, NAFTA, NATO, and so on. It’s really just a polite way of describing world government, or what George H.W. Bush termed the New World Order.
I think globalism and the centralization of power is always a bad thing. People who value individual freedom and economic freedom… really, freedom in general, should oppose it.
It’s an interesting moment in history. Those three things you just mentioned—Brexit, Trump, and the failure of the Italian referendum—are clear signs that globalism is losing steam.
Whether it’s a sort of one step back, two steps forward thing or the ideology of globalism is really on its way out remains to be seen.
Jason: Look at what’s going on with Brexit. The elites in London and Brussels are still fighting it. You had your boots on the ground in Italy. How angry were the people you talked to there about the referendum? Are they actually serious about leaving the EU?
Nick Giambruno: Well, here’s the thing. Most Italians didn’t know what the referendum was about. They just knew a “Yes” vote was a vote of confidence in Matteo Renzi’s pro-EU, pro-globalist government.
In short, the referendum was about taking power away from Italy’s regional and city governments and concentrating it more in the country’s central government. So it was worth opposing on that basis alone.
Most Italians didn’t understand the complex and arcane constitutional changes written into the referendum. So it took on a life of its own when Matteo Renzi promised to resign if it failed.
That’s a vote everyone can understand.
When Renzi made that promise, he thought it was a safe bet. It’s similar to what happened to David Cameron with the Brexit vote.
But after I spent a few weeks in Italy—I’m also an Italian citizen—it was clear the referendum was no slam dunk. That’s why I predicted it would fail, and that Renzi would resign, months in advance.
Jason: So, what happens next, now that Renzi’s government has collapsed?
Nick Giambruno: There’s a rising populist party in Italy called the Five Star Movement. It’s actually led by a comedian. The party basically started out as a joke a few years ago.
Italians are so frustrated with so-called “mainstream” political parties that they’ve deserted them en masse for the Five Star Movement and other anti-establishment populist parties like the Lega Nord.
The Five Star Movement is basically leading the polls as the most popular party in Italy.
All of Italy’s populist parties want a referendum on ditching the euro for Italy’s old currency, the lira.
I think it would pass.
Italy hasn’t had any real economic growth since it joined the euro in 1999. That’s pretty profound.
The Italian economy is in the same place it was 17 years ago. A lot of that is because the euro makes Italy uncompetitive with countries like Germany.
The next Italian government could be a coalition of anti-EU populist parties. If that happens, there’s an excellent chance Italy could leave the euro.
Keep in mind that Italy is a core member of the euro. If it leaves, France would probably leave, too.
And if that happens, the euro is finished.
Jason: Without the euro, what’s left holding the EU together?
Nick Giambruno: Almost nothing. The euro is the main glue. Without it, the whole EU could unravel.
We’re still early in the process. But it doesn’t look good for the globalists and the Eurocrats. I think historians will look back at the failure of the December 4 Italian referendum as a crucial tipping point.
With globalism failing, I’m not sure what happens next. No one does.
We could see a rise of nationalism, which wouldn’t be a good thing. Or political power could diffuse even further, which would be a better outcome. Decentralization is good for individual and economic freedom.
So, instead of a rise of nationalism—which would strengthen the existing nation-states—European countries could split apart. Italy, for example, has only been a “country” since the mid-1800s. There are a number of serious secessionist movements in Italy and other European countries. I think there’s a very good chance some European nation-states will break apart—not just in our lifetimes, but in the intermediate future.
Jason: If Italy returns to the Italian lira, do you think it would prevent bailouts of the troubled Italian banks?
Nick Giambruno: The Italian banking system is a mile-high house of cards that’s getting wobblier by the day. As I mentioned, the Italian economy has stagnated for years. It hasn’t really grown since it joined the euro. This has translated into big problems for Italy’s banking system.
Italian banks have made hundreds of billions of dollars’ worth of loans to Italian individuals and businesses—loans that have soured along with the economy. They’re like an insatiable black hole that’s swallowing all the capital in Italy’s banking system.
Returning to the lira wouldn’t herald an era of sound economics. It just means the Italian government could recapitalize the banking system by turning on the printing press. It can’t do that with the euro.
On a somewhat related note, this example relates to the seemingly eternal inflation/deflation debate. I think it shows that ultimately, in a fiat money system where the government can create as many new currency units as it wants, deflation will always lose out to inflation.
Things are very different than they were in the 1930s. Back then, the last remnants of the gold standard meant most governments couldn’t print money to bail out failing banks. This limited their ability to create new currency units. Of course, that’s not the case today.
It’s completely predictable what any government with its back against the wall will do. They always choose the easy option, the option that preserves their own power… money printing on a massive scale.
That’s why inflation always wins out in the end.
Jason: That brings me to my next point. It seems like the elites are really pushing for a cashless society. Do you think Donald Trump is able to or would even want to stop this?
Nick Giambruno: I think the War on Cash is directly related to the world’s unsound banking systems.
Thanks to the magic—or more accurately, institutionalized fraud—of fractional reserve banking, most banks only keep a small fraction of their depositors’ money on hand. It’s a very unstable, shaky situation.
One of the biggest mistakes the average person makes is thinking the money he puts in his bank account is his. It’s not.
Once you deposit money in the bank, it’s no longer your property. It belongs to the bank. What you own is a promise from the bank to repay you. Technically, you’re an unsecured creditor.
That means you’re on the bottom of the totem pole if the bank goes bust. And you’re very likely to get burned if the bank gets in trouble.
Money in a bank is a very different beast than cash stuffed under your mattress. Yet 99.9% of people conflate the two.
Many people think the FDIC or some government safety net will rescue them if and when their bank fails. But the FDIC has only a couple of pennies for every dollar it supposedly insures. It wouldn’t take much to wipe out all of their reserves. So it’s really a false sense of security.
The average person is not even dimly aware of the enormous risks inherent in the banking system.
Jason: How does this all relate to the War on Cash?
Nick Giambruno: The War on Cash is a prop. It forces people out of cash and into banks. So it’s no surprise the war is ramping up as banking systems deteriorate.
Then you have what Nassim Taleb would call the “Intellectual Yet Idiot” from Harvard—people like Ken Rogoff and Larry Summers who’ve made a cashless society their mission. And it all starts with eliminating the $100 bill.
These people get prominent space in the mainstream financial media. They create an echo chamber of calls for a cashless society. It’s creepy and totalitarian. I mean, what kind of a person wakes up in the morning wanting to do things that would extinguish many of our remaining liberties?
Privacy is a fundamental human right. It's necessary to protect human dignity, which is essential to a free society. But unfortunately, a lot of people have forgotten that.
Also, in a cashless society, the government can concoct an unlimited number of new ways to confiscate your wealth.
The War on Cash is a mortal threat to individual and economic liberty. I think its advocates are clearly sociopaths and enemies of the common man. Unfortunately, I don’t see the war slowing down. I see it heating up.
Just look at what happened in India recently. On the day of the US election—when the whole world was distracted—the Indian government ambushed its citizens. Instantly, and without warning, it declared certain high-value currency notes invalid.
They said, “Oh, well, tax evaders, drug dealers, and terrorists use cash so we have to get rid of it or make it harder to use.”
It’s completely ridiculous. Anybody who can think critically and independently can see right through this. It’s simply a clumsily executed power grab. It’s done nothing but create chaos and harm the Indian economy.
Yet, when I read about it in the mainstream financial media, I often come across articles praising the Indian government for its bold reforms. It’s quite strange, like we’re living in a bizarro world.
Instead of resisting, the Indian people sheepishly accepted their government’s blatant power grab.
This will likely embolden other governments… and the Intellectual Yet Idiot class, of course.
It means we should expect the War on Cash to accelerate in 2017. I haven’t seen any evidence suggesting Trump would reverse any of this.
Trump’s Grand Strategic Train Wreck
Believe it or not, the president has a grand strategy. But it's a nightmarish mess.
By Colin Kahl, Hal Brands
Grand strategy is the conceptual architecture that lends structure and form to foreign policy. A leader who is “doing grand strategy” is not handling global events on an ad hoc or case-by-case basis. A grand strategy, rather, represents a more purposeful and deeply held set of concepts about a country’s goals and orientation in international affairs.
At a minimum, a grand strategy consists of an understanding of the basic contours of the international environment, a country’s highest interests and objectives within that environment, the most pressing threats to those interests, and the actions that a country can take in order to address threats and promote national security and well-being. Grand strategy, then, is both diagnostic and prescriptive. It combines an analysis of what is happening in the world and how it impacts one’s country, with a more forward-looking concept of how a country might employ its various forms of power — hard or soft, military or economic — to sustain or improve its global position. Every grand strategy has a “what” dimension, a notion of what constitutes national security in the first place, and a “how” dimension, a theory of how to produce security in a dynamic international environment and given the tools at hand.
Threats and Fears
The fundamental grand strategic interest of the United States today is precisely the same as it has been for the past 240 years: to ensure the country’s physical security, economic well-being, and way of life. The really interesting part of a particular president’s grand strategy, therefore, often begins with his or her perception of the nature of the international environment and the main threats to these basic interests. For Trump, the principal threats to the United States stem primarily from what might be called “intermestic” challenges — that is, powerful external forces that reverberate directly into the American domestic arena, threatening homeland security, disrupting the U.S. economy, and contaminating our society.
In particular, three dangers dominate the new president’s worldview. The first is the threat from “Radical Islam” — which, for the president and many of his closest advisors, poses an existential and “civilizational” threat to the United States that must be “eradicated” from the face of the Earth.
Trump and his team see this threat as emanating not only from Sunni jihadist groups such as the Islamic State and al Qaeda, but from all Islamists. Michael Flynn, Trump’s national security advisor, has described all forms of Islamism as a “cancer,” a “political ideology” that “hides behind being a religion,” and a “messianic mass movement of evil people.” (K.T. McFarland, the new deputy national security advisor, also appears to share these views.) The Trump worldview draws no distinctions between Sunni, Shiite, or other Islamic sects and traditions. Consequently, the description of the threat extends to Shiite Iran, which is a deeply problematic actor in the Middle East, but one that frequently finds itself at odds with radical Sunni jihadist groups such as the Islamic State. And, perhaps most troubling of all, the perceived threat also includes many devout Muslim-American citizens in the United States, who — in Trump’s view — are a potential fifth column of homegrown Islamic extremists.
Second, Trump portrays unfair trade deals and the trade practices of key competitors as grave threats to the U.S. economy and therefore a national security priority. In Trump’s view, “disastrous trade deals” like the North American Free Trade Agreement (NAFTA) have gutted American manufacturing and depressed wages for millions of American workers. Trump has described the recently negotiated (but not ratified) Trans-Pacific Partnership (TPP) along similar lines, labeling it a “rape of our country” on the campaign trail.
In Trump’s eyes, however, Enemy No. 1 in the economic domain is China — which is not, contrary to what he often said during the campaign, a party to the TPP. Just as Trump often accused Japan of waging a campaign of economic predation against the United States in the 1980s, today Trump has gone so far as to declare that “we already have a trade war” with China — one that Beijing is winning. For years, Trump has accused China of devaluing its currency, dumping steel and aluminum, stealing intellectual property, and exploiting other unfair trade practices vis-à-vis the United States, especially since China’s entry into the World Trade Organization in 2001. The purported goal of this Chinese campaign is to cripple American manufacturing and advance Beijing’s goal of economic and military dominance over the United States.
Trump has delivered warnings about China’s geopolitical behavior as well, including its militarization of the South China Sea and failure to do enough to rein in North Korea. But these issues are ultimately secondary to the dagger China has allegedly stuck into the heart of the U.S. economy. Trump’s pick for U.S. trade representative, Robert Lighthizer, has expressed a similar zero-sum view of the economic competition with China, as has Peter Navarro, the head of Trump’s newly created National Trade Council. And the view also extends to Trump’s top national security aides, Flynn and McFarland. Indeed, in White House meetings during the recent presidential transition period, a number of incoming Trump officials made it clear that the new administration viewed the economic war with China as perhaps the defining issue of the 21st century.
Third, and finally, Trump has consistently railed against illegal immigration, arguing that the pace and scale of migration has cost American jobs, lowered wages, and put unsustainable strains on housing, schools, tax bills, and general living conditions. He has also consistently framed immigration as an issue of personal and national security, arguing that illegal immigration is associated with crime, drugs, and terrorism — and claiming, without providing supporting evidence, that “countless Americans” have died as a consequence. And, tying the issue back to his diagnosis of the terrorist threat, Trump has consistently portrayed Muslim refugees, immigrants, and the children of immigrants as a “Trojan Horse” for the spread of radical Islam in the United States.
The Trump Doctrine
To address these perceived threats, Trump has put forward an “America First” grand strategy with four key pillars.
The first is what White House chief strategist Stephen Bannon proudly calls “economic nationalism.” Trump has signaled a willingness to embrace a protectionist and mercantilist foreign policy more familiar to the 19th and early 20th centuries than to the 21st. In his inaugural address, for example, Trump declared: “From this day forward, it’s going to be only America first, America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our product, stealing our companies and destroying our jobs. Protection will lead to great prosperity and strength.”
To enact this vision, Trump, in one of his first executive actions as president, withdrew the United States from the TPP. He has also pledged to renegotiate NAFTA, and to withdraw from that accord if Canada and Mexico do not meet his terms. He has threatened stepped-up trade enforcement actions and the imposition of tariffs as high as 45 percent against China and others engaged in unfair trade.
And he says he will impose “consequences” on U.S. companies that move jobs overseas, perhaps by enacting heavy border duties on the importation of goods manufactured abroad. If you think that the foreign economic policies of the 1920s and 1930s worked well for the United States, then Trump’s economic statecraft is for you.
A second key pillar is what might be called “extreme” homeland security. This includes the infamous wall along the U.S.-Mexico border and other investments in stepped-up border security. It includes Trump’s threat of mass deportations of illegal immigrants, starting with those with a criminal record. And his approach calls for an indefinite ban on Syrian refugees, a temporary ban on all refugees, and a suspension of legal immigration from several Muslim countries until such time as “extreme vetting” procedures can be put in place to ensure that entrants to the United States “share our values and love our people.” Last week, Trump signed an executive order putting all of these measures in motion. Trump has also expressed openness to a registry of all Muslims living in the United States, and threatened punitive action against those who fail to report friends or family members suspected of holding extremist views to law enforcement.
What we call “amoral transactionalism” represents the third, and perhaps most central, feature of Trump’s grand strategy. In Trump’s view, the United States should be willing to cut deals with any actors that share American interests, regardless of how transactional that relationship is, and regardless of whether they share — or act in accordance with — American values. In the battle against radical Islam, for example, Trump has said: “All actions should be oriented around this goal, and any country which shares this goal will be our ally.” The biggest perceived opportunity, in this regard, is for a strategic realignment with Russia — a country Trump and some of his advisors see as a natural partner in the fight against Islamic extremists and perhaps in countering China too.
Trump’s grand strategy is transactional in another sense as well. It contends that those allies and partners that gain from U.S. assistance should “pay up” — and, if they don’t, that the United States ought to cut them loose. Since the 1980s, Trump has consistently characterized U.S. allies as wealthy freeloaders who disproportionately gain from American commitments and expenditures, to the detriment of U.S. security and the American economy. He has argued that NATO is obsolete and questioned the wisdom of the U.S. commitment to Japan and South Korea. For Trump, America’s treaty alliances in Europe and Asia are not sacred commitments; U.S. allies are no better (or worse) than any other states, and, accordingly, our relationships with them should be conditional rather than special. As Trump argued in April: “The countries we are defending must pay for the cost of this defense, and if not, the U.S. must be prepared to let these countries defend themselves. We have no choice.” Trump put it even more starkly in his inaugural address, arguing that the United States had “subsidized the armies of other countries while allowing for the very sad depletion of our military” — in essence, that America’s alliances have made the country weaker and less secure.
The final pillar of Trump’s grand strategy is a muscular but aloof militarism. For decades, Trump has advocated “extreme military strength.” On the campaign trail and during the transition, Trump called for larger U.S. naval, air, and ground forces, and significant new investments in cyber warfare capabilities and nuclear weapons. (On January 27, Trump announced an executive order to follow through on this commitment, but the details remain unclear.) Yet Trump’s stated purpose is not to engage in military adventures, or to bolster U.S. alliances, but rather to deter potential adversaries and defeat those who attack the United States. Trump has pledged to intensify the military campaign against the Islamic State and other terrorist groups — but he has consistently criticized both regime change and nation building. In the campaign against the Islamic State, it is clear Trump hopes to depend heavily on local and regional “Muslim forces” to carry on the fight on the ground while the U.S. military’s role is primarily to “bomb the shit out of them” — and perhaps, if Trump is taken literally, to take Iraq’s oil once the Islamic State is defeated. Past U.S. presidents wanted an America that was strong enough to shape global affairs; Trump seems to want an America that is strong enough to eradicate terrorism and then simply be left alone.
Taken together, Trump’s “America First” grand strategy diverges significantly from — and intentionally subverts — the bipartisan consensus underpinning U.S. foreign policy since World War II. American presidents in the postwar era have generally seen a world of expanding democracy and free markets as safer and more prosperous. They have also believed that the modest investments the United States makes in protecting its allies and supporting international institutions are bargains, because they prevent adverse geopolitical developments that might ultimately require far higher costs — in both lives and money — to address.
Not so for Trump. He simply doesn’t subscribe to the long-held belief that “American exceptionalism” and U.S. leadership are intertwined — that the influence of the United States on the world stage is rooted in the idea of America and the values it represents, not just its material power.
Moreover, as Thomas Wright notes, “Trump believes that America gets a raw deal from the liberal international order” it helped construct seven decades ago and sustain to this day. He is therefore hostile to that order, institutionalized through alliances with other democratic states and international agreements that promote an open, rule-based international economy, and refuses to invest blood and treasure to maintain it.
Trump’s Grand Strategic Dilemmas
Trump’s grand strategy is thus at odds with longstanding traditions in American foreign policy and poses an acute threat to the liberal international order that has underwritten U.S. security and prosperity for the past seven decades. Yet, even on its own terms, Trump’s grand strategy is plagued by internal tensions and dilemmas that will make it difficult to achieve the president’s stated objectives. There are many problems, but here we emphasize six.
First, it will be difficult for Trump to reconcile his policies toward Russia and Iran on the one hand with his desire to defeat the Islamic State on the other. Trump’s apparent desire to go all-in with Russian President Vladimir Putin — and perhaps Syrian President Bashar al-Assad — to fight the Islamic State in Syria is likely to backfire. President Barack Obama conditioned the prospect of counterterrorism cooperation with Russia in Syria on Moscow enforcing a nationwide cease-fire and ensuring humanitarian access for the U.N. — conditions the Kremlin was ultimately unable or unwilling to meet. Moreover, during discussions with Moscow last fall, Obama insisted that the United States would have a veto over Russian targeting, that Assad’s air force would be grounded over much of the country, and that the parties should return to the negotiating table to discuss a political transition. If Trump chooses to cooperate with Russia with no strings attached, it will make the United States complicit in Russia’s indiscriminate bombing campaign and its efforts to prop up Assad. This is a recipe for fueling the civil war and jihadism, not combating it, and it is likely to alienate precisely the Sunni states Trump hopes to join his anti-Islamic State coalition on the ground.
Then there is the issue of Iran. In practice, backing Russia and Assad means aligning — whether openly or tacitly — with Iran, its surrogate Hezbollah, and Iranian-backed Shiite militias in Syria.
This would effectively strengthen Iranian influence in Syria and the broader region — the very opposite of what Trump and his advisors desire. Consequently, if Trump means what he says about taking a harder line against Iran — both in the context of the nuclear deal and vis-à-vis Iran’s destabilizing behavior across the Middle East — he will have to try to convince Moscow to sever its partnership with Tehran and attempt to box Iran and Hezbollah out of Syria. That is easier said than done. Iran and Hezbollah’s tentacles in Syria run deeper than Russia’s, and they have a far greater stake in the outcome of that conflict than Moscow does. The Iranians are, therefore, likely to react to any overt effort to push them out by playing an active spoiler role that undermines the campaign against the Islamic State and, potentially, puts at risk U.S. special operations forces supporting counter-Islamic State opposition forces on the ground in Syria.
A similar dilemma will face Trump in Iraq. The United States should work to balance and minimize Iranian influence in Iraq, in particular by encouraging the Baghdad government to work overtime to rein in Shiite popular mobilization forces (PMF). But an overtly hostile posture toward Iran (not to mention continued rants about taking Iraq’s oil) would put Iraq’s Shiite Prime Minister Haider al-Abadi in a jam, empowering his rivals who seek to distance Iraq from the United States. It could also incentivize Iran to unleash Shiite PMF to attack the approximately 5,000 American forces supporting the counter-Islamic State campaign in Iraq, something Iran has refrained from doing over the past two-and-a-half years. The result could be dramatically increased U.S. casualties and reduced American influence in Baghdad.
A second dilemma is that Trump’s extreme measures to protect the homeland could further complicate the fight against the Islamic State. At home, Trump’s expansive definition of radical Islam, his apparent belief that many American Muslims harbor secret sympathies for the Islamic State, and his threats to profile, register, and collectively punish entire communities, could poison ongoing efforts to forge better relations between American Muslims and law enforcement.
Meanwhile, Trump’s executive orders banning refugees and immigrants casts the United States as deeply Islamophobic, making it much less likely that Muslim-majority countries will step up their support for the U.S.-led fight against the Islamic State overseas. This will be doubly true if Trump follows through on other actions he has repeatedly pledged, including resuming torture, expanding Guantánamo, and moving the U.S. embassy in Israel to Jerusalem.
Third, Trump’s approach to Europe and Russia — at least as he has outlined it so far — is equally self-defeating and contradictory. Trump’s warm embrace of Putin; intimation that he will throw Ukraine (and potentially the Baltic states) under the Russian bus and lift Ukraine-related sanctions on Moscow; repeated trash-talking of NATO, the European Union, and committed Atlanticist leaders such as Germany’s Angela Merkel; and celebration of Brexit and European populist movements will all drive a deep wedge between America and its most important democratic allies. These steps will also embolden Moscow’s attempts to divide and coerce its European neighbors, and incentivize countries like Italy and Hungary, which are eager to get back to “business as usual” with Moscow and lift sanctions against Russia.
Meanwhile, although Trump’s threats to abandon U.S. allies might lead to greater European defense spending in the short term, it will radically undercut the organic solidarity and cohesion that make NATO so exceptional, and lead Washington’s European partners to consider whether the United States is a dependable partner after all.
As problematic as these outcomes would be for European stability and security — the preservation of which has been a fundamental objective of U.S. policy since World War II — Trump might not find any of them particularly objectionable on their own. But what he appears not to understand is that weakening Europe will cut across his other policy objectives.
Losing the support of U.S. allies will make it harder for Trump to cut “good” deals with Moscow: On issues from Ukraine to arms control to sanctions, the Kremlin will take advantage of every opportunity to play the United States and its estranged allies off one another. More broadly, the transatlantic alliance is the primary vehicle through which the United States tackles nearly every world problem, from the Islamic State to financial crises. Undercutting that alliance will therefore make for a more dangerous world, and more onerous American burdens of the sort Trump so often laments.
Fourth, Trump is likely to have difficulty taking punitive action against China while also contending with the growing threat from North Korea. Pyongyang already has a fairly robust nuclear arsenal, and according to news reports, it could field test its first nuclear-capable intercontinental ballistic missile in the coming months. Two new U.N. Security Council resolutions passed last year imposed unprecedented sanctions on Pyongyang, including a strict limit on coal exports. These represent the best hope for a nonmilitary solution to the North Korean problem, but they will curb Pyongyang’s programs only if China faithfully implements them, something Beijing regularly holds at risk depending on the tenor of the U.S.-China relationship. At times, Trump has suggested that he intends to use economic leverage to pressure China to play ball on North Korea. Most recently, in early January, Trump tweeted: “China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won’t help with North Korea. Nice!”
Yet, consistent with Trump’s view that the main axis of U.S.-China conflict is the zero-sum economic contest between Washington and Beijing, he seems more likely to try to use geopolitical leverage to change China’s economic behavior. Trump has explained his threats to re-open the “One China policy,” for example, as a negotiating tactic to force Chinese concessions on currency and trade. The net result is likely to be a policy that is so antagonistic toward China — an approach that puts Beijing’s most important interests at risk, and actively seeks to harm China’s economic prospects — that it cannot generate or sustain a working relationship to help address North Korea (or any other global challenge). Trump’s tendency to diss and dismiss America’s key Asian allies, Japan and South Korea, will further complicate his efforts to address the North Korea threat.
Fifth, in a bid to supposedly help American workers by withdrawing from the TPP (a pact creating a free-trade zone among a dozen countries representing 40 percent of global GDP), Trump is in fact helping China by ceding the economic battlefield in Asia to Beijing. He is also undermining America’s geopolitical position in the world’s most dynamic region. Seven of the 12 TPP countries (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam), as well as eight other countries (Cambodia, India, Indonesia, Laos, Myanmar, the Philippines, South Korea, and Thailand) are already in negotiations with Beijing on a Regional Comprehensive Economic Partnership. This partnership would promote trade with China, and offer new opportunities for China to expand its political influence, without any of the requirements for economic liberalization or labor and environmental protections built into the TPP.
Economists disagree about how much the TPP would or would not help the U.S. economy. But what is indisputable is that the Asia-Pacific region views the TPP as a bellwether of U.S. geopolitical commitment, and key states are likely to make decisions on non-economic issues like the South China Sea based on perceptions of retrenchment by the Trump administration.
After all, if the United States is willing to abandon them on the TPP after many years of difficult negotiations, they may justifiably ask: What guarantee do they have that a Trump administration will actually show up when a major security threat emerges?
Finally, Trump’s proposal to “build a wall” and somehow force Mexico to pay for it (perhaps through a 20 percent border tax), his threat to deport millions of illegal immigrants, and his pledge to renegotiate or even withdraw from the North American Free Trade Agreement, could create a train wreck in the U.S.-Mexico relationship — as evidenced by the abrupt cancellation of Mexican President Enrique Peña Nieto’s planned visit to Washington. A diplomatic crisis with Mexico would deeply complicate cooperation on a host of issues, including immigration, that are top priorities for Trump.
Since 2009, migration from Mexico itself has fallen dramatically. Nevertheless, Mexico has served as a “land bridge” for tens of thousands of migrants from other parts of Latin America seeking to make their way to the United States, especially those fleeing poverty, corruption, and crime in Central America. In recent years, Mexico has cooperated with the United States to address this challenge by improving security along the Mexico-Guatemala border and repatriating migrants back to their home countries before they reach the United States. The Obama administration also worked with the U.S. Congress to allocate nearly $1.5 billion since 2014 to address the economic, governance, and violence-related drivers of Central American migration — and it will be essential to partner with Mexico on these efforts if they are to succeed. Trump could put all this cooperation at risk with his shortsighted approach toward Mexico. And if actions on trade that contribute to a free fall in Mexico’s economy compound Trump’s approach, providing fresh incentives for Mexicans to once again move north, the migration crisis will worsen even further.
No Purpose Without Process
Every new president, of course, faces dilemmas to confront and strategic contradictions to resolve.
But what is remarkable about Trump’s “America First” grand strategy is the number, pervasiveness, and centrality of such contradictions. In other words: Trump has consistently articulated a set of basic grand strategic concepts, but the policy implications of those concepts add up to a Gordian knot of conflicting initiatives.
This raises the question of why Trump’s grand strategy is so tangled and internally contradictory.
And the answer has to do with the process — or rather, the lack thereof — through which these ideas are born, as well as, shall we say, the unique personality of the president himself.
It is hard to think of a presidential campaign, or a presidential transition, that has been more haphazard about translating ideas into a cohesive, practical, and implementable body of policies.
Trump’s campaign had virtually no foreign policy apparatus to speak of — many of his senior advisers had little foreign policy experience and little contact with or influence on the candidate himself. The Trump team produced no meaningful white papers during the campaign — compared to those produced by Republican candidate Mitt Romney’s team in 2012, for instance — that undertook the task of turning ideas into policy proposals and seeing how various themes might, or might not, fit together.
The transition was similarly shambolic and disorganized. Even nominees for top posts have apparently had few substantive conversations on issues such as Russia or alliances with Trump, although Rex Tillerson, the president’s pick for secretary of state, has assured us that he has the president’s phone number should the need for such a conversation arise. Moreover, the mechanics of transferring power from one presidential team to another — and thus the mechanics of actually starting to grapple with the real world challenges and contradictions of policy — were painfully slow to start moving. Add in a candidate (now president) whose core ideas are strongly held but often poorly considered, who likes bold proposals but disdains the nitty-gritty of turning them into workable courses of action, and for whom intellectual coherence does not seem to be a top priority, and you have a recipe for the grand strategic contradictions we see in Trump’s approach.
What all this means, in practical terms, is that the implementation phase of Trump’s grand strategy — the period in which the ideas upon which one campaigns are translated into the day-to-day initiatives by which one governs — is likely to be far messier than is normally the case. The Trump administration will have to determine how to proceed on those issues — such as Russia, Iran, alliance relations, trade, and homeland security — where key advisers have staked out positions very different from those of the president. More fundamentally, the Trump administration will have to determine how to reconcile the president’s various promises and impulses — and where those things cannot be reconciled, how to prioritize among them.
This could be good news for the country and the world. As the Trump team realizes how intractable the contradictions are among the president’s various policy pronouncements, it may see the wisdom in backing off of some of the more problematic or dangerous ones. And the fact that there are so many profound disconnects between what Trump says and what is wise may create space for the president’s more sober advisers — such as James Mattis, James Kelly, Rex Tillerson, and Nikki Haley — to shift policy and even influence the president’s thinking. We can hope that this is the scenario that ultimately unfolds. But in the meantime, both the content and contradictions of Trump’s grand strategy make it seem likely that U.S. foreign policy and the international order are in for a rough ride.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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