Of course, policy ambiguity about economic governance of the US, which is after all the largest economy in world, reverberates internationally. It has a direct impact on the effectiveness of the world’s multilateral financial institutions, including the ability to use their tool kits — whatever one may think of them — to quell macroeconomic upheavals and maintain global growth.
It also surely clouds the economic calculus on a bilateral basis, that is, of other countries’ heads of state, their economic ministers and central bank governors. Nowhere is this more profound and pernicious than in the area of trade policy, where the threat of protectionism is exceedingly ripe.
Once unleashed, such threats exact significant damaging consequences for all involved.
It is on this front that the Trump team’s economic policies have been especially chaotic. Its dealings with China epitomise the point, with Mexico and Canada not far behind.
Throughout his campaign, Trump threatened that once in office he would impose a 45 per cent across-the-board tariff on US imports from China. As a legal matter, a President does have the statutory authority to set in motion a formal process to engage in such an action.
But it would appear that someone explained to the President that not only would such a case end up in extended litigation never to see the light of day, but that some of the largest US businesses are invested in China, and, as exporters to the US, they would be sideswiped.
In fact, such an import tariff would only motivate such firms to export the products they manufacture in China to third-country markets. In both cases, the action would be a lose-lose proposition for the US. If those were not enough, the President probably also got word that the Chinese would not hesitate to retaliate with its own across-the-board tariff.
By the same token, for a year or more Trump has been intent on naming China a “currency manipulator” (as defined under US statute) once he got to the White House. One small wrinkle, however. The facts simply do not bear this out: if anything China’s renminbi has been appreciating not depreciating.
It took someone from outside the White House to set him straight on this.
Trump now seems to have put these ideas on ice, perhaps hastened by his understanding following President Xi’s visit to Mar-a-Lago in April that he actually needs China’s support for de-escalating tensions with North Korea.
Ah … not too fast. A week after Xi’s visit, Trump signed an executive order mandating an investigation of China’s dumping of steel, and a week after that, an investigation of China’s dumping of aluminium.
In late July, Trump re-upped the ante by announcing additional trade sanctions against China would be forthcoming immediately precisely because the Chinese are not handling North Korea in a way satisfactory to the US president. Guess what?
Only a few days later, Trump left for a 17-day vacation and White House staff leaked that these “new” China trade measures were “postponed”.
The Chinese are not stupid; they’ve caught on to Trump’s tactics. One day, President Trump will wake up to find the Chinese have pre-empted him with a trade offensive of their own. That will really test what Trump is made of and the logic and resiliency of his policymaking.
Mexico’s President Pena Nieto has had a similar experience with the White House. In his first few days in office, Trump, in trying to make good on a campaign promise, signed an executive order initiating the construction of a wall along the US-Mexican border. Within hours, Pena Nieto cancelled his upcoming visit to meet with the new US president at the White House.
In turn, Trump announced he would impose a 20 per cent tariff on US imports of goods from Mexico, which is the second largest destination in the world for US exports.
Once again, Trump must have been informed that his threat would backfire: since 40 per cent of US imports from Mexico’s actually embody US exports to Mexico, it would be US workers---presumably Trump’s constituency — who would be harmed by his actions. Moreover, someone must have gotten to him explaining that if the Mexicans were to be unhinged from their preferential trade relationship with the US — through an unwinding of the North American Free Trade Agreement (NAFTA) or through other policies the White House is considering — Mexico City would likely have an incentive to entice Chinese investors to establish plants just South of the US border.
If antagonising our neighbours to the South wasn’t enough, Trump then let it be known that he was planning on abolishing NAFTA. The threat did not fall on deaf ears; both Mexico City and Ottawa swiftly responded with their own threats against the US.
What happened? Trump backed down and said he was interested in only renegotiating portions of NAFTA.
But in the same breath he announced he would take action against Canada, charging its lumber firms with dumping imports on the US market. To the uninitiated, lumber disputes between the US and Canada are hardly new; indeed, there has been almost a regular periodicity of such cases over the last three decades or more, with mechanisms established to assess the extent of aberrations.
It remains to be seen whether there is a need for Trump to take wholly new actions against the Canadians or whether the existing dispute apparatus is sufficiently effective in resolving the current allegations and provide whatever remedies are called for.
If Trump wants his Presidential performance in the economic policy arena measured in terms of how effective he is in keeping US businesses, workers and consumers up at night and US economic allies and trading partners on their toes throughout his administration he is on the “right” track.
But if instead he is interested in enhancing US global competitiveness, he seems to be on track to quickly leading us down a dead-end.
This is the second of a two-part column.
The writer is CEO and Managing Partner of Proa Global Partners LLC and a faculty member at Johns Hopkins University.