Monday, July 23, 2018

Monday Note - President Trump

Just over a month since my last post discussing President Trump. Since then, he has continued to flutter the dovecotes.A lot of the commentary that I have read as well as the reactions on social media has been very stereotyped. I see little point in getting my nightie in a knot over the man. He just is, a somewhat random element on the international stage stirring things up for worse or, maybe, better in some cases.

We cannot forecast, well at least I can't, just what he might do, although there are consistent themes. When faced with a somewhat random variable that we cannot control, the only thing that we can do is to manage our own reactions.

From a purely Australian perspective, the brewing trade war poses clear threats. Australia depends upon trade and indeed trade to those countries likely to be most adversely affected by the war. I think that we should maintain our efforts to support the freer global trading order. The US's share of the global economy has dropped below 20%. We should focus our efforts on the remaining 80%. I also think that we should become involved in China's Belt and Road Initiative since this is the largest global initiative focused on global economic development.

The strategic scene is obviously more complex. Australia wants the US to maintain its global role because this has provided a stable framework that has, to my mind, helped maintain global order despite mistakes. However, the US has had a long history of isolationism that President Trump seems to be playing too.

The US did over-extend. The withdrawal began under President Obama and seems to be continuing under President Trump.We have to deal with this in increasingly clouded circumstances. This creates problems from a narrow Australian perspective,  We are a wealthy country, but a small player by global standards outside narrowly defined economic measures. Crudely, we count, but only in a smallish way.

 I think that Australia has to do five things. we need to maintain the relationship with the US while recognising that the world is changing; we need to focus on maintaining the world economic order; we need to build new relationships, including supporting our neighbours;and we are going to have to continue to build our defence capabilities. In many ways the last is a waste of money because money spent on defence means that we cannot spend money on other things that will yield greater returns, but I think that it is necessary; and we need to extend what is often called soft power.

In doing these things, I think that we also need to adopt a low public profile. Australian political leaders cannot help but lecture, perform, playing to the domestic political marketplace. They also like telling people what to do.I wish that they would shut up, talking quietly while carrying the biggest stick that we can manage.        


2 tanners said...

I'm not sure why we need to continue to cosy up to the US. Under ANZUS, we continue to be dragged into their wars, while they refuse help to us on the few occasions we ask. The TTP looked like a great deal for the US at our expense and I was grateful that Trump sank it.

China is a threat to us and will continue to be treated that way, although as you say hopefully with a bit more temperance and respect. That is the right atmosphere to negotiate trade, especially avoiding sucking up to friends who aren't planning to help you.

As for Trump, he's a lying egomaniac. Not really sure how that differentiates him from many others in his profession, except that he puts it on public display so regularly. He's done us the signal favour of being able to negotiate knowing that he doesn't mean a word he says.

If the trade war comes, it'll hurt us, no question. It will hurt the US too, but not in time to really impact the first Trump presidency, so Trump will probably have a second swing (i.e. get the Republican primary nomination). I may be wrong there.

Jim Belshaw said...

Hi 2t. Mr Trump is as he is, I guess.

The trade war, and it is a trade war, carries the risk of tipping the global economy into recession. Unlike the 1930s when all countries retaliated with universal tariff increases thus accentuating the pain, this one looks like the US on its own with retaliation restricted to the US. This will re-balance trade, but won't have quite the same consequences.

I don't properly understand what Mr Trump expects to achieve. Perhaps he doesn't. My knowledge of trade theory is rusty, but if Mr Trump wishes to reduce the US trade deficit he will need to increase US savings. Then because the US is seen as a safe haven (at least at present) continuing financial flows will keep interest rates down.

Bilateral tariffs will reduce US imports from certain countries, but with retaliation will also reduce US exports to those countries. Given existing capacity levels, now surplus capacity in both the US and its targets will flow into increased import competition in other markets. At the same time, US target countries will increase imports previously provided by the US from other countries. I'm not sure how all this will work out.

2 tanners said...

Trump has looked and seen that the US imports more than it exports in $US terms. Therefore, he reasons, he has more ammo than anyone else.

There are a several problems with this. Some of the things the US exports (steel) it reimports (cars). The tariff on cars should reduce the demand for steel, and particularly US steel exports if it is subject to reciprocal tariffs. Second, reciprocal tariffs will be targeted at the areas most critical to electoral support for Trump - agricultural products to China, high value iconic exports to the EU and so on. Third, as you point out, world surpluses in some goods (the source of real damage to the US) will mean that where the US is competing in world markets it will be targeted - other countries can supply the shortfall (soybeans as an example). Fourth, mobile businesses may choose to relocate if they can - Harley-Davidsons being built in Europe saves no American jobs. And last, there will be markets to whom the US exports more than it imports (Canada, Mexico) who therefore can hit harder in retaliation than Trump, or who can instruct businesses to ignore the bottom line (China, Russia) putting up a higher effective wall against the US than it can manage to impose against them.

And then there's us who no matter what the situation will try to buy our way out of a situation of Trump's making; that's what he anticipates from everyone, but in the case of the larger markets, I think he find that he is sadly mistaken.

Anonymous said...

The Chinese are wary of Donald Trump’s creative destruction:

Jim Belshaw said...

Hi kvd. I couldn't access that link because of the paywall. 2t, you draw out some of the complications in a world of integrated supply chains and multiple inputs as well as the capacity to retaliate in a targeted way. There is also a real risk that it will bring on a global recession.