Trump disruption is a one-way street with no road map

Donald Trump has blinked. His 90 days’ reprieve was triggered by events on the bond market, according to analysts. But then, these were predictable events. It remains to be seen how sustainable would be the strategy with regard to China. President Xi Jinping is not one for blinking. After having yielded ground to rest of the world, President Trump needs to find a way to re-engage China, even if on altered terms.

Disruption is a one-way street, with no roadmap. To suggest that Trump and his advisers are working on a plan is at best a statement of hope, at worst a downright lie.

The medium-term impact of the Trump disruption is to increase uncertainty. Economic activity is based on expectations. Uncertainty alters expectations, making firms and households cautious.

The 90-day reprieve that Trump has announced only extends the period of uncertainty; it does not in any way end that uncertainty. Caution replaces animal spirits. Expect a global slowdown, irrespective of what corrective measures countries may take.

There are two objectives that Trump hopes to achieve through his disruptive tariff policy. First, the restoration of American manufacturing, with lost blue-collar jobs being reclaimed.

Second, punishing China for taking undue advantage of the global trading system that it was let into by the United States a quarter century ago. For Trump’s domestic political support base, the former is more important, the latter is a secondary objective.

Of what use is hurting China if at home more jobs are not being created and only prices are going up? The problem is that Trump will find achieving the first goal, of reviving the home economy, more difficult than scoring some goals on the second front, of hurting China. China is, of course, prepared for Trump.

Since all the strategies for the so-called ‘geo-economic containment’ of China have been written about in books and papers published over the past two decades in the US, the Chinese have a good idea as to what they should expect and be prepared for.

Is the US prepared for the fallout? After all, reviving manufacturing is not like hosting a potluck party. There are time lags involved. If Trump’s unemployed supporters have to wait for a couple of years for jobs, will they not become restive? Pain in short term, gain in long term is not politically sustainable.

If domestic support for Trump slumps, what should one expect in terms of his external policy response? More disruption?

The focus of much global commentary over the past week has largely been on trade and tariffs and it is economists who have been at the forefront of much media commentary.

As the dust settles, geopolitical analysts will step in to understand what the long-term consequences of the Trump disruption would be for international relations. One major consequence is likely to be a loss of global trust in the US.

Even if Trump rolls back all his actions and eats all his words — like claiming that world leaders were lining up to ‘kiss his arse’ — few heads of government around the world would any longer trust the Trump administration. Consider the countries that Trump has openly targeted and visibly alienated — Canada, Mexico, Denmark, South Africa. Then there are countries whose leaders have been willing to be publicly critical of Trump — Brazil, Colombia, Germany, France, Singapore, Namibia, Australia and so on.

This, however, does not reveal the full extent of global dismay and disapproval of Trump. The European Union is divided, but a majority will no longer trust the US.

The President of the European Commission, Ursula von der Leyen, has welcomed Trump’s retreat and called for greater internal market integration within the EU. The EU will maintain trade relations with China and reach out to India and others.

Japan has publicly behaved like a supplicant, led as it is by a politically weak prime minister, but it may well have queered the pitch for the 90-day retreat by selling on the US bond market. Japan will try to stabilise trade relations with China.

The Indian political leadership has tread warily. It is delighted that the focus of Trump’s attack is on China. It is hoping to strike a deal with Trump by offering to buy more, including more defence equipment. Even so, would Prime Minister Narendra Modi feel as comfortable today in dealing with Trump as he did during Trump’s first term? After all, Trump has directly snubbed him and repeatedly referred to India in not very friendly terms.

While large sections of the Indian elite, the media and the political class have not made a big deal of Trump’s badmouthing of India, and some have even tried to explain it away, a political leader like Modi, with his ego and his self-image, must surely have resented in private the many slights that came his way.

The US and India have many shared interests and India would like to sustain and stabilise its strategic partnership with the US. However, no Indian leader would like to be seen supplicating before a Trump in the manner that Japan’s Shigeru Ishiba has done or Italy’s Georgia Meloni is willing to.

Prime Minister Modi’s silence so far, perhaps awaiting further indications on the progress of a bilateral trade agreement, has left the field open to others to be the ‘voice of the Global South’.

Beijing has been forthright in speaking on behalf of the Global South, expressing solidarity with developing economies against the disruption of global trade, and inviting India to get on board, conveying the concerns of developing economies.

The leaders of both Brazil and South Africa have expressed their solidarity with other developing countries. The Global South awaits India’s Voice.

Comments