Category: United States

After the bomb: The changing world order 75 years on.

This analysis for Monash University in Australia examines three indicators of a changing world order on the 75th anniversary of the end of World War 2. Each of the indicators have their origins in the war and are used as barometers of how much the world order has changed since their inception.

Pandemics, great power rivalries and political upheaval

An op-ed I wrote for Monash University Lens. As Covid-19 starts to inflict serious economic chaos political chaos will follow. In the past, such conditions have provided fertile ground for nationalism and extreme-right ideologies to flourish. World leaders must set aside their geopolitical competition to co-operate and avoid the pitfalls of the past.

Bad for business! Trump’s trade policies and the fracturing Transatlantic Alliance.

Image courtesy Jonathan Ernst/ Reuters

There is a lot riding on the current G7 Summit in Canada. It will show the obvious and further erosion of the Transatlantic Alliance resulting from the trade policies of the Trump administration. On June 1, Trump’s highly contentious steel and aluminium tariffs came into effect. The EU will soon be retaliating with measures of its own. This bodes ill for international relations and global trade. It is imperative that business considers the implications of this.

A quick look back.

Let us briefly consider the history. The Transatlantic Alliance was a construct of the Allies that dates back to the Bretton Woods conference of July 1944. It came from a common belief that the postwar world needed to prevent a recurrence of the sorts of conditions that gave rise to the crippling depression of the 1930s, destructive nationalism and a second world war.

A key pillar of the alliance was a trade and monetary regime (World Bank, IMF, GATT etc). This was largely defined by the United States and Britain. Since the end of World War Two, the United States and Europe, in general, have been on the same page in their commitment to freer trade and market liberalization. This is no longer the case.

Trump and Transatlantic turbulence today.

Today, President Trump appears to be bent on breaking what has been a fundamental pillar of American foreign, economic and strategic policy for 74 years.

To be fair, he is fulfilling the promises he made during the 2016 election campaign. As the president he is doing what he was elected to do. He is making America great again. However, it is important to consider the wider implications of his policy objectives.

Many of America’s closest allies in Europe are losing faith in the relationship and in Washington’s credibility as a reliable partner. Trump is testing some key constructs on which transatlantic relations, and indeed world order, have rested. Very real cracks are starting to appear.

Key leaders of the European Union have openly declared a frustration over the policy choices taken by President Trump. Angela Merkel of Germany openly stated that the United States could no longer be seen as a credible partner and that Europe had to be bold enough to pursue its own interests.

Emmanuel Macron of France has also been explicit in declaring that the time had come for the European Union to chart a course independent of the United States. Importantly, Macron warned in September 2017 of the dangers of protectionist policies and about the withdrawal of the United States from the transatlantic relationship.

These pointed observations by Europe’s most powerful leaders are increasingly gaining currency.

The result of American policy under Trump is a further erosion of Washington’s ability to influence world events. American credibility is rapidly waning. This will assuredly create opportunities for aspiring challengers to impose their own influence, for better or worse, on Europe and the wider international system. Trump’s statement today that Russia be reinstated as a G8 (G7+1) member will only have further destabilizing effects on the transatlantic relationship. Furthermore, it will embolden Russia and will exasperate many Republicans and Democrats on the US domestic front.

 The Iranian nuclear complication

The fracturing transatlantic relationship will further be tested by the politics of nuclear weapons. In this context the trade card is already being played. On May 8, the United States withdrew from the so called Iran nuclear deal ( formally known as the Joint Comprehensive Action Plan).

Subsequently, the White House and the US Ambassador to Germany pointed out that sanctions may be imposed on those nations and businesses who continue to trade with Iran. This riled the Europeans. It has added to the wider trade dispute with Europe as many businesses in European Union member states, in particular France and Germany, want to do business with Iran.

This development is something to monitor carefully as it may have further destabilizing consequences in transatlantic relations.

Where to next? US-EU division means bad news for business…

The current G7 Summit seems to be demonstrating how the United States and Europe are moving apart. The President of the European Council, Donald Tusk, said as much himself.

On the eve of the G7, White House leading trade advisor Larry Kudlow dismissed the trade dispute, especially in relation to Canada, as family bickering.

I disagree with Kudlow. This is going beyond a mere squabble. It is evident that the growing divide between the US and Europe is becoming serious. The apparent atrophy of the Transatlantic Alliance should not be taken for granted. There are many implications that go beyond trade. The most important being strategic and defense related.

The Transatlantic Alliance has been essential to the creation and maintenance of the international order under which so many nations have benefitted. Business has benefitted greatly from the liberal, rules based international order. That Trump, and some of his key advisors, shows scant regard for its history and the importance of what the alliance has facilitated is truly astonishing.

With the United States mid-term elections only months away trade will continue to be an important issue. I do not expect Trump to soften his position. He needs to energize his base to have a reasonable chance of maintaining a Republican majority in the House. He will continue to argue that by snubbing some of Washington’s closest allies he is putting America first and creating American jobs.

As the Transatlantic Alliance continues to diverge, the global business community will find itself operating in an uncertain and increasingly chaotic international political environment. History shows repeatedly that politics wins out over economics. If there is one thing business leaders do not like, it is uncertainty.

Trump’s confrontational attitude at G7 serves to further undermine transatlantic relations and, ultimately, American interests. In the medium to longer term Trump’s policies, and the tit-for-tat protectionist responses that are likely to follow, will become a major problem for business.

 

 

 

 

 

White House to revisit steel and aluminium tariff exemptions

Author: Daniel Steedman

May 1 will be an important day for the business community because the United States will decide whether or not to maintain its tariff exemptions on steel and aluminium. This will signal the next development in the so called emerging trade war.

Australian producers will be impacted. So will producers in other nations allied to Washington. They include Canada, Mexico and the European Union.

The exemptions were announced on March 22, however nobody can be sure what happens after May 1. It is up to President Trump to decide.

Some sources in Washington indicate that the exemptions will be extended. Each nation will be considered individually. Canada and Mexico have made some progress with the talks to renegotiate NAFTA so they are likely see an exemption granted.

What does this mean for Australia?

I believe Australia will also be granted an exemption. Let me qualify this by stating that, under the present administration, there will be a quid pro quo somewhere down the line.

Australia is looked upon favourably and is a highly regarded partner by many in Washington. Nevertheless, those who have a stake in Australian steel and aluminium will be watching nervously. The questions for industry leaders in preparing a strategy are twofold. For how long will the exemption be extended ? What comes after that?

Taking a broader view, all Australian industries that rely on significant export driven revenues should be closely watching how the steel and aluminium tariffs unfold. Either way, Trump is changing the field on which the game of international business and commerce is played. In doing so he introduces more volatility into the market.

Competition with China

But there is more to the story. Trump was clear, his tariff measures were aimed squarely at China. This was an oft repeated theme in his election campaign. It is how he has sought to implement them that needs to be understood.

The tariffs were implemented under Section 301 of the Trade Act. That means they were imposed unilaterally by the President. This is permitted in circumstances, among others, where the actions of foreign governments may restrict or hamper the commerce of the United States. Trump is free to act as he sees fit on this matter without the need for the support of Congress. It is this degree of independence Trump has that is a concern.

Another crucial point to understand is that these tariffs have an inherent national security element under Section 232 of the Trade Expansion Act. This too is a cause for concern. It suggests that the Trump administration is looking to use trade, or economic statecraft, to impose its will on other states in strategic terms.

Under the auspices of Section 301 Trump has found room to move independent of Congress and in a manner that may well have implications beyond international trade. This goes to elements of foreign and strategic policy which can, and do, change the nature of international relations. The present state of Sino-U.S. relations is a telling example.

Domestic politics at play

Trump has been adamant since his election campaign that China has ripped America off. This was an important pillar in his narrative to “Make America Great Again” and to bring jobs back for U.S. industries. It plays to those who voted for him.  Trump’s position on international trade is about domestic politics. Don’t forget, the mid-term elections are not far away. Trump’s future legislative agenda relies on the Republicans maintaining the House majority. The recent tariffs make him look tough and show that he is fulfilling his promises to those who voted for him in 2016.

Changing the game of international trade and commerce

President Trump is going firmly against more than 70 years of foreign and economic policy tradition. This has been upheld by Democrats and Republicans alike. A fundamental pillar of this is a commitment to freer markets and greater international trade. In seeking to strengthen his domestic base it could well be that Trump is undermining not only America’s standing in the international system, but the international system itself. Trump’s apparent zero sum approach to trade, and international relations more broadly, means more challenges lie ahead for the business community.