Per Trump’s inauguration speech the main theme seems to be a dedication to pure, unbridled “America first” nationalism. OK … so let’s take POTUS Trump at his word on that. Trump has not bent to the powers that be so far and seems quite serious about overturning the current applecart.
How does that play out in terms of practical governance in terms of NATO, international trade, US Military presence overseas etc.? What are the potential risks and benefits of that stance?
If we pull out of NATO and signal that we are not going to intervene in other countries wars and political uprisings any more what’s the real world downside?
If he gets aggressive with US companies moving manufacturing jobs out of the US will they keep them here?
If he initiates a trade war with China will we get badly damaged?
How much power does he have to get his way on these things?
Nation states act in their own interests. This is nearly always true, and it’s true right now of America - any actions that America takes internationally are ones that benefit America either directly (ie trade agreements where both countries benefit) or indirectly (NATO membership or the Peace Corps gives America a lot of international influence, and the ability to tell other countries what to do)
I think it very unlikely that any of these arrangements have benefits that flow more to the other parties than to the US - that’s not normally what happens when a larger entity interacts with a smaller one, and ALL other governments in the world are smaller than the US, though if you take the EU as a whole, I guess they’re working as equals. So probably what will happen is that he’ll be trying to move the needle from something like 70/30 in favour of the US to 90/10.
I don’t think it will work - other heads of state have egos too, and aren’t going to enter into any arrangements that are seen too much as giving away the farm to the US. There’s certainly an element in Australian politics that when America says ‘jump’ we say ‘how high’ - that’s already under criticism from the lefter side of politics, and when your head of state is Trump, it’s going to be a whole lot less popular.
One thing that he’s about to do is rip up the TPP - I’m personally all in favour of that, I think it disposessed Australian interests in favour of US ones (particularly corporate US ones). I don’t think “doing good for Australia” is what he’s trying to accomplish with that action but hey, I’ll take it.
In other cases such as NATO - well, South Korea’s not going to be very happy. Europe will be fine - they actually can afford their own armies, they may have to spend somewhat more money - but then again, they may not think that US bases is what’s keeping peace in Europe, and they may be right.
US world dominance was never going to last for ever anyway. We might has well have a dry run now where you’re not wielding influence because you won’t, before we get to the stage where you’re not because you can’t.
I think isolationism won’t work today for the same reason a state (Texas, for instance) can’t secede from the Union.
Of course a state can legally secede, in that there’s a legal process for it, but as I learned on another board about the discussion, how would it work? It wouldn’t be easy to dismantle the interstates, set new rules for everything from taxes to passports. The energy infrastructure of Texas is awfully entwined with other states, so how do you free that up?
Then, Texas would have to have trade agreements with foreign countries. That didn’t work out well for the South during the Civil War. Texas would mostly likely be all alone.
Virtually every country on Earth is dependent to one degree or another on every other country. If the US became isolated, the world might call our bluff, and change from the dollar as the main form of currency. I’m not an economist or political scientist, but if we pissed off the rest of the world to that extent, they might just say “See ya.” Then we’d end up decades behind everyone else. And for what? To satisfy the ego of some two-bit never-was-a-real-billionaire reality TV star dictator?
IIUC a lot of the market going up recently was because many in Wall Street were hoping that Trump also did lie like Pinocchio on this and many other matters. And that very little about getting into trade wars or renegotiating treaties was going to take place.
If Trump indeed wants to reach for big time protectionism, I do think that what many did fear will come to pass.
Good post overall. Agree with all of it. Ref the above specifically …
The challenge we (the entire world) face is not that Trump will pursue policies more tilted to America’s benefit. It’s that he won’t recognize what’s to America’s benefit and what isn’t. He’ll buy into shiny generalities and wishful thinking rather than actual consequences as demonstrated by years and decades of practice.
Another challenge is that he’s far more likely to favor short-term bumps over long term stable gains. He’s a classic pump-and-dump artist.
As a result, we don’t have an uber-nationalist at the wheel. We have a clueless fact-blind ultra-shorttermist at the wheel. He may well destroy the domestic US economy while claiming (and perhaps even intending) to boost it yuugely.
US policy on anything is always a bit schizophrenic because the Executive branch isn’t totally monolithic and Congress always gets their hooks in the outcome as well. The near future may resemble the typical US schizo … after he’s totally off his meds and on a cocaine-fueled bender.
The investor community hates uncertainty and reacts within a couple minutes. The business community hates uncertainty and reacts within a few weeks. The international community of governments hate uncertainty and react over a period of months.
It seems pretty obvious to me how to keep score on this wild ride.
I don’t know much about it, but doesn’t China has more protectionist policies than the US?
If so, doesn’t that show a major economy can engage in protectionism and have it work?
However the problem is that I think a lot of Trump’s voters believe immigration and trade are the root cause of their economic issues, when it is probably more due to automation, growing expenses and income inequality.
China – and many of our other trading parties – have a huge built in “protectionist” factor: their workers are willing to take a fraction of the amount of pay our workers are.
That gives them a gigantic advantage in exporting goods.
Even so, we need them – and they need us! – and so just cutting them off, or penalizing them, hurts us and them both. Some compensatory tariffs might make sense, to counterbalance their low wages and to help subsidize our own. Otherwise, we imperil our own service economy, which depends on our workers having enough money on hand to go to Walmart to buy exercise equipment.
Which the Chinese manufacture and sell to us…
We’re all on the same ship; you can’t only let part of it sink!
Are wages set by the Government of China? Not a Min Wage, but a Max Wage? If not, then that is not what economist mean when they use the term “protectionism”. A lower market rate for a wage often reflects other factors that are related to lower productivity or higher business risk. That is not protectionism.
Absolutely. The great strength of American outward-focused foreign policy of the mid century - Marshall Plan and so on - wasn’t so much that it was guided by altruism (though there was a higher than usual level of altruism around at the time) but that it was a result of long-term thinking. Pumping money into war-ravaged parts of the world didn’t just help those countries who were recipients. Ultimately it helped America too - world stability and world prosperity is good for everyone. But the current occupant of the Whitehouse is clearly not the kind of guy with the patience to pursue those sort of long term policies and wait for the good results. Especially in a world where patience and long-term thinking are in short supply anyway.
And even more than that, the manufacturing community reacts over a period of years. The Trump Tarrifs might be successful for a while in persuading manufacturers who haven’t left yet to hold off for a while. But nobody’s going to invest a bunch of money, planning time and resources on building American factories Because Tariffs, unless they’re persuaded that those tariffs are going to be around for a long time. Longer than four years. Otherwise it makes much more sense for them to simply take the hit, look for markets in other countries, and ride it out.
Agree with posters above; the world is too small and too interconnected for a major economy to just isolate itself, let alone start trade wars.
Trade with China is a good example; it’s not just cheap consumer goods; many areas of US industry benefit from buying raw materials and basic equipment from China. Tarriffs will hurt a lot of US industry a great deal.
It will hurt much more profitable service-based industry to try to scratch back a few undesirable manufacturing jobs.
And things like making the iPhone in the US: that’s a fine aspiration, but the reality is the iPhone is only assembled in China; a very low value part of the process.
Making the parts for an iPhone is a higher margin enterprise but those parts are made all over the world right now because those places just happen to be where company X made technical breakthrough Y.
How could we make all those parts in the US tomorrow? Corporate espionage? Break patent law?
The problem is, as the US is such a big market, the most likely effect of extreme protectionist policies is that the whole world suffers. In which case Trump et al can just say “Everyone is doing badly. And the worldwide recession shows what a horrible place rest of the world is, let’s isolate ourselves further!”
Low wages are one thing. But China does things like the following:
Demand that foreign companies that invest in China share their technology secrets with China (which are then used to start up Chinese competitor companies using the stolen technology).
Subsidies for domestic manufacturers (the US does this too though)
Making it hard to take investment money out of China
Currency manipulation
Tariffs
Attempting to corner the market in rare earth metals to gain an advantage in R&D and manufacturing of consumer electronics and renewable energy
etc.
Both true to an extent. But they both hurt China by deterring investment.
To my mind, that’s also bad for the American worker, but according to the logic of there being finite jobs that countries compete over, I don’t see how this makes sense as a negative.
Most economists think the currency is now being kept artificially high and would fall significantly if floated tomorrow (although to be fair probably by not much against the dollar).
Generally-speaking, poorer countries enact higher tariffs and wealthier countries drop them. While China has tariffs on more goods than the US does, China’s rate is actually relatively low for a country with its GDP per capita, and the US’ is quite high cite
Doesn’t even make sense as “corner the market” here means sell the most, not hoard the most.
As do many other countries.
Plus of course it seems the US is all set to increase such subsidies ala Carrier
Many of Trump’s bluster and outrageous comments are a negotiating skill.
NATO comments, are an intended message for the NATO partners to spend more of their own money on defense and carry their weight. Not that we are going to abandon them.
Anti-globalism is another message. much like Brexit was, a push back against wealth redistribution. Because that it what globalism is, a redistribution of money from the richer countries into the poorer countries.
The Wall between the US and Mexico. Another negotiation tactic. The US is Mexico’s biggest customer. They need to talk to us. Talks will be held, agreements will be formed. And in the end the modification of NAFTA will benefit both counties.
The same with all the other America First bluster. Negotiating tactics.
Agree with your points about bluster, but this part I wanted to pick up on because it’s the fundamental misconception many have.
Globalization is not only (or even mostly) money moving from rich countries to poor countries. It’s also rich to rich, poor to poor and, yes, developing countries importing goods and buying services from wealthier countries.
And, in many cases, complex goods and enterprises involve many such transactions, and it’s not meaningful to say “This was made in <country>”. But we keep a sentimental attachment to the idea of final assembly being the critical part, hence the whole “iPhone is made in China” thing.
I did say “built in,” having to do with the existing wage-scale available and accepted in China. It isn’t a government policy, but simply the way things are.
It is very good for China’s balance of trade, and a large cause of American job loss. China benefits from it; it tilts the playing field.
Presidents do very little themselves; instead they have political appointees who make most of the decisions. The President’s national security people share the same fundamental worldview as in previous administrations (with minor differences). So don’t expect anything to happen differently with respect to issues like NATO.
On the other hand his international trade people seem to have somewhat different views–so there is the possibility of trade wars.
My understanding is that China’s goal (which they failed to achieve) was to have a global monopoly on rare earth minerals. They would then impose strict export quotas on these minerals, which would force any company that wanted to do R&D or manufacturing in consumer electronics (cell phones, laptops) or renewable energy technology to relocate to China, giving China a big advantage in these growing fields.
Perhaps corner the market is not the right term, but China tried to control global supply to benefit their own economy.
I don’t see any evidence that the Chinese tried to do anything, only people worried by the fact that china is by far the biggest exporter.
And I still maintain this idea of selling rare earths cheaply to “control” rare earths makes zero economic or strategic sense.
Or, to put it another way: what’s stopping the US, or any other country, from keeping a strategic reserve of these elements? Buy it now while it’s cheap as chips, to cover the unlikely case of the Chinese one day deciding to stop selling, and thereby have time to reopen our mines (because of course rare earths aren’t actually particularly rare). Problem solved.
??? Have you not read anything about this guy over the last 30 years???
His bluster is the reality. There is no negotiating “skill” here. What you see is what you get. The threats and bullying is how he gets what he wants. No subtlety.
He is incredibly naive, childish and uninformed. These do not sustain a good negotiating stance in international relations.