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Trump: Ripping Up the Rules (Based Order).

US President Donald Trump managed yet again to cause upset among allies at the recent G7 meeting this time by not backing the pledge to fight protectionism. His wish to plough on with his America first agenda and introduce trade tariffs, threaten a trade war not only with China but European allies and its own neighbour Canada too. Trump supporters may celebrate their champion’s steadfastness on doing what he said he’d do on being elected however it’s more unnerving for the rest of the world.

Has Europe got a powerful ally or adversary in the Trump led US? Many are wondering and out loud too with very vocal critics within the US media, Democratic Party and increasingly in foreign capitals. The Trump presidency has in its first 500 days of office withdrawn from the Trans Pacific Partnership, the Paris Climate Accord, and the Iranian denuclearisation deal and now discord within the G7 over trade and protectionism.

Trump has however managed engage with North Korea over its nuclear ambitions whether anything materialises over the long term remains to be seen and there is plenty of scepticism over the latest or any agreement’s durability.

The US remains by far the world’s largest economy with a GDP over $19 trillion, the most powerful military and the dollar is world’s reserve currency. The post-1945 world order is based on institutions it helped create. The US still dominates at the World Bank, WTO and the IMF also it’s the largest donor for the UN. The US also benefits and prospers from their influence in these institutions and from the global trade it helps to foster.

The Trump administration is playing a high risk economic game in pursuing its America first strategy. It could backfire and reduce its economic prosperity, through punishing allies or competitors alike, along with creating a dollar squeeze by reducing the size of the Federal Reserve balance sheet after the ending of QE. This could cause a slow in global trade, through import tariffs and a rise in the value of dollar in emerging markets, combined with issuing treasury bills in lieu of government spending and lower US tax receipts from Trump’s tax cuts. The US must be hoping China will maintain support for its bond sales to avoid a coming slump in its own exporting sectors. It may get very interesting indeed.

The US will need to examine imposing restrictions on countries which trade with Iran after its withdrawal from the sanctions lifting for nuclear enrichment limiting deal. This will further complicate and hamper relations with its closest allies including France, Germany and the UK, who still support the Iranian deal which took 12 years to negotiate, unless a messy comprise is made.

The old saying of be careful what you wish for as it just may happen springs to mind. Disgruntled emerging Asian economies may move closer to China as financing and trade deals come less appealing with the US. The EU may be forced to treat the US more in terms of an economic rival than a reliable ally. It could seek further trade deals and co-operation with China, India or even Russia over energy resources like the Nord Stream gas supply project as an example of a huge energy deal involving Russia.

This will create a more multi-polar world of competing powers exactly the opposite of what the America first and foremost nationalists wish to achieve with their economic and military superpower status.

America remains great so no there’s need to terminate what it has achieved by trade tariffs and political disputes of questionable long term merit that will diminish US standing in the world. Notably once it’s gone it is all the harder to win back.

Progress never ceases and these could be the decisive events that once again switch the world into an era dominated by the East. It’s not too late for the US to change tack and the Trump presidency can only last for another 7.5 years longer. However introducing ever more tariffs and protectionism in to the world’s trading systems are definitely not the answer. There’s a special place in Hell for trade protectionism.

LDC

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