Trump Or Dare and Trade War Games
The legendary writer James Joyce once said, “I’ve put in so many enigmas and puzzles that it will keep the professors busy for centuries arguing over what I meant.”
The legendary writer James Joyce once said, “I’ve put in so many enigmas and puzzles that it will keep the professors busy for centuries arguing over what I meant.” He was discussing the character Penelope, in Ulysses. He could well have been characterizing Trumpism—US President Donald Trump and his politics. The cliché about Trump is that during the elections those who opposed him took him literally but not seriously, while his supporters took him seriously but not literally. In power now for 14 months, Donald Trump continues to befuddle—what is to be taken seriously, what must be taken literally, when is he to be taken seriously and literally, and the when is he not to be taken seriously or literally. The interpretation of Trump is virtually a cottage industry spawning columns and books. To paraphrase what Churchill said of, well, Russia, Trumpism is a riddle wrapped in a mystery inside an enigma.
In the past three weeks, the US President has sacked three of his top advisers—on the economy, on foreign affairs and on national security—Gary Cohen, Rex Tillerson and H R McMaster. Since the inauguration, nearly two dozen significant staffers have departed. The theme song invariably is about affiliation and loyalty, acquiescence and devotion to the desires of the president.
On Thursday, Trump took to Twitter, that go to medium for narrative management. He tweeted, “As a candidate, I pledged that if elected I would use every lawful tool to combat unfair trade, protect American workers, and defend our national security”, and announced punitive duties on Chinese products worth over $50 billion. It was not unexpected. His March 2 tweet said it all: “When we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” Neither was the Chinese response—imposing its own set of tariffs.
Predictably, the financial markets went into a shiver. Just in two days, the Dow Jones Industrial tanked by over 1,100 points. Indeed, in just the month of March, investors in the US, Japan, South Korea, China and India have lost trillions of dollars. The headline interpretation was that this was about steel, aluminium and products—by one estimate, China supplies less than 5 per cent of US steel consumption. The US imported, in 2017, goods worth over $506 billion, including computers, electronics and electrical equipment worth over $205 billion—and its trade deficit with China is a whopping $375 billion. It is not a linear story.
Trump deployed section 301 provisions—a section Indians are familiar with since Carla Hills—to address a wholly different segment. The USTR notification said: China uses foreign ownership restrictions to “pressure technology transfer from US companies to Chinese entities”; uses restrictions to “deprive US technology owners of the ability to bargain” and set market-based terms for technology transfer; facilitates through investments in and acquisition of US companies access to cutting edge technology; supports “intrusion and theft” into computer networks of US companies to gain unauthorised access to intellectual property, trade secrets and confidential information.
The angst seems reasonable. The Chinese could equally argue that they simply leveraged the supply chain paradigm. In 2000, when China agreed to enter the WTO, it had a GDP of roughly $1 trillion. It rode the waves of global growth, dovetailed policy to deploy its capital and manpower, to acquire market share and income. Its exports rose from around $250 billion in 2000 to over $2.25 trillion in 2018—and in the process took its reserves to over $3 trillion and GDP to over $12 trillion.
The question is, can the threat of tariffs deliver? There is a great deal of scholarship on the history of trade and trade wars. The lessons are instructive, particularly the one wrapped around the Great Depression. Herbert Hoover believed raising import tariffs would protect the US and pushed the Smoot-Hawley Tariff Act. The nuanced opinion is that while this in itself did not cause the Depression, it certainly prolonged and aggravated it. The question in 2018 is not just whether the results will be different, but whether it is possible to invert the existing value and supply chain paradigm.
Trumpism revolves around the theology of Trump or Dare, which is an adult version of the adolescent game truth or dare. Quintessentially, it rests on the idea of might or professed and accepted might, if you please—both at the individual and institutional levels. Trump seems to believe, or at least is betting that the $20 trillion economy can call the shots. Bets are never one-sided. Higher tariffs will have consequences at home—on jobs, on the dollar, on Treasury bonds, on consumers—and abroad. There is the known—that action precipitates reaction and retaliation by other economies. And there is the unknown—how this will play out globally.
Globalisation is fundamentally political—guided by enabling theories of trade, technology and economic growth. Much through the post-war world, corporations in America engineered policy, arguing the case for productivity and growth. This resulted in the export of capital in savings and investments, of technology, of jobs, growth and taxes. It didn’t matter while the going was good—till the end of the baby boom years. In the new millennium, the paved economies are ageing, the centre of economic gravity is shifting east, and individual and institutional distress is on the rise.
Global trade has produced both winners and losers—domestically and globally. The inability of politics to find ways to ease the pain triggers the quest to rearrange history and economic policies. This frequently produces unintended consequences. And the world is wary that this may well come to be.