Thematic Report

Trumponomics

by Edward Alden / Sep 1, 2018

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Even with President Donald Trump’s first term now well over its halfway mark, there is still uncertainty as to whether his trade bluster is largely a negotiating tactic or, rather, stems from a genuine protectionist bent. Speaking at last year’s CLSA Investors’ Forum in Hong Kong, Edward Alden, a senior fellow at the Council on Foreign Relations, offered some background and insight on Trump’s strategy, underlining why a resolution of the ongoing US-China trade dispute could prove elusive.

As Alden pointed out, for all the unpredictability of Donald Trump’s convictions in almost every area of policy, his approach to trade has been surprisingly consistent, anchored in a longstanding view of global trade: namely, that the US is losing and the rest of the world is winning at its expense.

A yen for tariffs
Trump’s first flirtation with running for president came as far back as 1987, when he ran a full-page ad in The New York Times attacking the Japanese for relying on the US to defend it militarily while they “have built a strong and vibrant economy with unprecedented surpluses.” At the time, the Reagan administration ultimately succeeded in using the threat of tariffs to persuade Japan to accede to its trade demands. This time, however, there seems to be more than a negotiating ploy afoot.

During the 2016 campaign, Trump delivered what was arguably his only truly substantive policy speech at the crumbling steel town of Monessen, Pennsylvania, where he outlined a 7-step plan to bring back jobs, including renegotiating or withdrawing from trade agreements and cracking down on China’s perceived trade violations. Growing frustration over the negative impacts of trade in such towns played a big part in Trump’s election, and he is delivering on his campaign promises. Tellingly, when Apple warned in September 2018 that China tariffs would push up its prices, Trump tweeted in response that the simple solution would be to shift production back to the US.

Why trade tensions are the new normal
It’s important to note that the current dispute also stems from an overarching US concern about China’s drive to move up the innovation ladder and become a leader in the technologies of the future. Whereas some of the US demands concerning tariffs, intellectual property and foreign investment could potentially be resolved through negotiation, Beijing is unlikely to accept broader measures designed to curtail its technological development and rise as a world power. This heightens the likelihood of the dispute grinding on for the foreseeable future – a probability the markets appear to have resigned themselves to.

And while Alden believes the global trading order will survive Trump, it will be significantly weakened, going from a system of broadly agreed trade rules to a looser, more transactional system whereby nations decide whether to comply based on their narrow national interests and the risks of protectionism and disruptive government intervention are higher than in any of our lifetimes.

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