The world gets scarier

Mr Trump's actions on trade, foreign policy and global public goods pose a new kind of threat to the liberal international economic order

A year ago I wrote a piece (A scary new world?, Business Standard, June 19, 2017) on the new world ushered in by Donald Trump in the first five months of his presidency of the United States. In it I argued that the 70 years following the Second World War saw the rise and dominance of a liberal international economic order (LIEO) for trade, capital flows and some skilled labour, which helped drive the sustained expansion of world trade, cross-border capital flows and globalisation, which, in turn, were key ingredients for unprecedented world economic growth. Moreover, the LIEO was underpinned by an international political order dominated by the US-led “Western Alliance”, including Western Europe nations and Japan. Over the past decade or so this international economic and political order had encountered growing stresses and strains from various factors and forces, such as the long wars in Afghanistan and Iraq, the extraordinary rise of China as a global power, a massive refugee crisis in and from the broken states of West Asia and North Africa and persisting economic and financial damage from the Global Financial Crisis and the associated Great Recession. However, Mr Trump’s actions (and neglect) on trade, foreign policy and global public goods pose a new kind of threat to the LIEO and the Western Alliance, a startling one of repudiation of this order by its leader, the United States, after spending 70 years building and nurturing the system.

Many had hoped that, as the Trump administration settled down and more “grown-ups” took charge of key positions, such heretical, election campaign driven undermining of past US policies would be dialled back and some form of policy continuity would resume. In the turbulent year since last June, it has become crystal clear that such fond hopes were largely misplaced. Consider:

• The US exit last June from the 2015 Paris accord on climate change, thus reducing substantially any hope of limiting carbon emissions to manageable levels in the decades ahead.
• The recent, unilateral withdrawal of the US from the painstakingly crafted 6-nation 2015 nuclear deal to contain Iran’s nuclear programme and the imposition of strong (and complex) new American economic sanctions on Iran.
• The levying of higher tariffs on steel and aluminium on national security grounds, made applicable also to close allies, such as G7 partners and Mexico. Former Treasury Secretary Larry Summers has pointed out that the US has fewer steelworkers than manicurists (Financial Times, June 5)!
• The pursuit of an aggressive, yet confused (and confusing) mercantilist trade policy with repeated threats of more tariffs and trade restrictions, with special focus on China and the European Union. This has provoked, predictably, counter threats of tariff hikes from these trading partners and increased the likelihood of damaging trade wars.
• The decision to renegotiate the North Atlantic Free Trade Agreement (NAFTA), with an expressed preference for bilateral negotiations with Canada and Mexico separately!
• The undermining of the World Trade Organization’s multilaterally agreed disciplines, including weakening the dispute settlement procedures by blocking the appointment of judges to fill vacancies in the Dispute Settlement Body.
• The pursuit of hard-line, pro-Israel and pro-Saudi policies in West Asia, which have deepened extant divisions and raised tensions in the strife-torn region.

All this was capped by the extraordinary and unprecedented rupture of G7 unity and amity at its summit conclave in Canada last week. After an obviously difficult meeting and the publication of a seemingly reasonable communiqué, Mr Trump withdrew his endorsement from on-board his flight to Singapore for his summit with Kim Jong-un. “Fiasco” would be an understatement to describe these events. The annual G7 summit and the preceding G7 finance ministers meeting have been the core mechanisms of the Western Alliance for coordination and decision-making (especially on economic and financial matters) for over four decades. The very public display of chasms between the leading nation and the other six could have serious and lasting adverse consequences for the West-dominated international economic and political order. It is also difficult to fathom how any of this serves the interests of the United States, whose capricious and wilful president has precipitated these strains and fissures. As this paper editorialised last week, the current chain of fractious events may lead to a situation of America Last rather than America First. 

Illustration by Binay Sinha

The first 17 months of Mr Trump’s presidency, with his belligerent, personalised and unpredictable style of decision-making and governance, has sown considerable confusion and disquiet among allied nations and others. Basically, when the hegemon of an established economic and political order displays erratic and unpredictable behaviour, it is bound to shake up the system seriously. When such behaviour includes a high degree of unilateralism and trampling on the interests of close allies, the resulting disorder and uncertainty are greater, as seems to be the case now. It is no surprise that all significant countries are in the process of reassessing their international economic and political relations in the present context. Judgements have to be made as to whether the current Trumpian phase in American international behaviour is a temporary aberration or the shape of things to come. Either way, individual countries have to make their informed assessments and act accordingly. Some form of hedging has to be a part of each country’s international strategy.

India is no exception. Indeed, it could be argued that some recent warming of relations with respect to China and Russia is part of the ongoing adjustments to the new American behaviour patterns.

Mr Trump’s unilateralism and unpredictability have, paradoxically, benefited two major countries: China, the fast-rising challenger power in the global world, and Russia, an old adversary. Both have gained in relative power and influence as America ignores or hurts allies and devalues major multilateral agreements.

Since January 2017, we clearly live in a scarier and more uncertain world.

The writer is honorary professor at ICRIER and former Chief Economic Advisor to the Government of India. 

Views are personal