Sunday, June 10, 2018

Trump vs. China and the EU

It was no deal in Quebec. Six members of the G-7 issued a communique at the end of their summit, but the seventh, the United States refused to sign on. One should keep in mind that the GDP of all six nations combined is smaller than that of the United States.

So, Trump wanted to show who was boss, who was the alpha male. He dismissed Canadian Prime Minister Justin Bieber as “weak,” and did not throw very much respect in the direction of Angela Merkel or even his friend Emmanuel Macron. You will note, Trump referred to all of them by their first names. It does not show respect. Macron’s tough guy handshake notwithstanding, he is not in as strong a position as he believes. Trump knew it and acted accordingly.

The European Union was formed as a counterweight to American power. Now that it seems to be disintegrating, the leaders of the individual nations no longer have a strong hand. Even when it was united, the EU was never capable of defending itself militarily. It has been an American protectorate….

As it happens, and as I have suggested, President Trump is forging a new world order. He is upgrading some alliances and downgrading others. We have, in all objectivity, tried to follow the moves and to understand what is going on.

We do not do it as well as Niall Ferguson, so we turn to his analysis in today’s Times of London. Ferguson explains that Trump, either because he knows no better or because he likes to disrupt, has defied the conventional wisdom:

For two years the People with At Least Two University Degrees (Paltuds) have been gnashing their teeth about Trump’s every utterance and move. To the foreign policy experts he is a bull in a china shop, trampling the “rules-based international order”. To the economics establishment he is a human wrecking ball, smashing more than half a century of consensus that free trade really works better than protectionism.

No, no, no, the international-relations types exclaim. Don’t upset your European allies. Don’t walk out of the Paris climate accord. Don’t threaten North Korea. Don’t agree to a summit with Kim Jong-un. Don’t scrap the Iran deal. This will all end in disaster — either the Third World War or a peaceful Chinese takeover of the world. Or a Russian takeover of Europe. Or something terrible, horrible, no good, very bad.

Stop, stop, stop, wail the economists. Don’t impose tariffs on anyone — especially not your allies. Don’t demand reductions in the US-China trade deficit. Don’t pass huge tax cuts. This will all end in disaster — either a Great Depression or galloping inflation. Or something terrible, horrible, no good, very bad.

Sorry to say, Ferguson continues, the Cassandras have been wrong… up to now:

Despite all the Cassandra talk, America could still meet its Paris target for reducing carbon dioxide emissions. Europeans have largely accepted that they need to spend more on their own defence. Kim has halted his missile and warhead tests and come to the negotiating table (if not quite on his hands and knees, as Rudy Giuliani claimed last week). And Iran is reeling from the reimposition of sanctions and a concerted US-Israeli-Arab military pushback.

Despite all the trade war talk, the US economy is at full employment, the dollar is rallying, the stock market is up 30% since Trump’s election and the only countries in any trouble are the usual suspects with their usual problems (such as Turkey). It is not that Trump is an underrated genius, or an idiot savant. It is just that his intuitive, instinctive, impulsive way of operating, familiar to those who have done business with him, is exposing some basic flaws in the conceptual framework of the Paltuds.

Ferguson proposes that we see the world divided into three empires competing for status and even hegemony:

The strong in today’s world are the United States, China and Europe, in that order. Each empire is evolving in a different direction. The American empire, having experienced overextension in Afghanistan and Iraq, has not retreated into isolation but continues to exert lethal force and still dominates the world’s oceans. Its latest step down the road to empire is domestic: Trump’s claim that he can pardon himself is part of the fundamental challenge he poses to the formal and informal rules of the republic.

The risk to American ascendency comes from Robert Mueller and the prospect of a Democratic takeover of the House of Representatives in November.

The Chinese empire has been showing signs of weakness, what with Xi Jinping’s intrusive surveillance and his crackdown on dissent:

Meanwhile, the Chinese empire becomes ever-more centralised, ever-more invasive of its citizens’ privacy and ever-more overt in its overseas expansion. The western world regards Xi Jinping as an almighty potentate. Few observers appreciate the acute sense of weakness that has motivated his tightening grip on party and state and his surveillance of his own people. Few see the risks of imperial ventures such as the Belt and Road initiative, which is drawing Chinese investment into economically unpromising and strategically dangerous locations.

For my part I do not think that it’s a return to Communist despotism. I believe that Xi is trying to shield China from American cultural decadence. He understands that a decadent nation is a failing nation. He does not want China to catch the same disease.

As for the EU, it is the weakest of the three:

The weakest of the three empires is the EU. True, its institutions in Brussels have the power to impose rules, fines and taxes on the biggest US and Chinese corporations. But Europe lacks its own tech giants. Its navies, armies and air forces have melted away. And the political consensus on which it has been based for the past 60 years — between social democrats and moderate conservatives in every member state — is crumbling under a nationalist-populist assault.

This explains why Trump has no reason to kowtow to Angela Merkel, Emmanuel Macron and Theresa May.

Trump is competing hard against the other two empires. He is in the arena…with precious little domestic support from the media and academic intelligentsia:
The logic of Trumpism is simply to bully the other empires, exploiting the fact that they are both weaker than the United States, in order to extract concessions and claim victories. The Chinese fear a trade war and will end up buying a very large amount of American produce in order to avoid one. The Europeans dare not stand up to Trump over his Iran sanctions and secretly agree with him about China, and so are reduced to impotent seething (Angela Merkel) or sycophancy (Emmanuel Macron, until last week). If they unite against him (as on the eve of the G7), he brings up Russia and divides them again.

 I suspect that Trump wants to cultivate cordial relations with China, at least. He shows more respect for President Xi than for the other world leaders and would probably prefer to do business with him than with the crown princes and princesses of weakness in Western Europe and Canada.


Ares Olympus said...

Stuart: One should keep in mind that the GDP of all six nations combined is smaller than that of the United States.

That's an interesting assertion. Let's check. Google shows for 2016, and looks true!
US $18.57T
G6: $16.87T (Japan 4.939T, Germany 3.467T, UK 2.619T, France 2.465T, Italy 1.85T, Canada 1.53T)
And for comparison: China 11.2T, South Korea 1.411T, Russia 1.283T, Saudi Arabia 0.646T, Iran $0.404T, North Korea 0.0124T

Everything looks good for the US to be the boss of G7, as long as we don't need the G6 to cooperate when it comes to China, or Russia, or Iran.

Can Canada, Japan, and EU compete without US. Clearly they should try and find out!

Anonymous said...

Simply question. Why would Trump state that he would like free trade without any tariffs?

You have just demonstrated who you really are.

Anonymous said...

Didi you ever wonder why everyone (?) states that tariffs are bad, but every country utilizes them and much to the detriment of the US? The trade war exists and because of both democrat and republican presidents we have been losing both companies and jobs. Even in this situation governments are trying to maintain their tariffs on the US.

Unknown said...

The US has been trading away some portion of US GDP, jobs, trade, etc. for political favors ever since WWII. Given strength of the post WWII economy this was good move. This type of trade becomes increasingly bad as the US economy normalizes.