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Last weekend’s meeting of the G7, the leaders of the USA, China and five other powerful countries in Biarritz, had a familiar agenda: the full list of impending economy-wreckers, including the US-China trade war, Brexit, the conflict with Iran and paralysis on climate action.
In Hamlet, Claudius laments that “when sorrows come, they come not single spies but in battalion” and the list of threats is enough to sustain fears of a major international slowdown. But the threats are manifestations of a single underlying cause, namely the withdrawal of the United States from its traditional role in international affairs and especially in the international economy.
Protectionism
The trade war with China would be trouble enough, but Mr Trump has also opened hostilities with Europe.
Last year, he told CBS News that “I think the European Union is a foe, what they do to us in trade. Now you wouldn’t think of the European Union but they’re a foe”.
“They make business impossible. In a trade sense, they’ve really taken advantage of us and many of those countries are in NATO and they weren’t paying their bills and, you know, as an example a big problem with Germany,” he said, referencing Germany’s reliance on gas from Russia, another foe.
Trump has since extended the tariff war to the European Union and the list of ‘foes’ includes neighbours Canada and Mexico, which have had to endure revisions, under duress, to their free trade agreement with the US.
Trump’s focus on bilateral, country-by-country, trade imbalances has attracted deserved ridicule from economists
Trump’s protectionist mindset has captured the Republican party, traditionally more committed to free trade than the Democrats, and America has chosen, for now, to abandon an open trade policy.
Trump’s focus on bilateral, country-by-country, trade imbalances has attracted deserved ridicule from economists, such as Paul Krugman, who happily identify as Democrats.
But just about every prominent US economist of the Republican persuasion also thinks this stuff is for the birds and will damage the American economy.
US businesses are mostly opposed to higher tariffs and some farm interests are already suffering from the spat with China.
But the departure from a rational trade policy is now US doctrine.
Trump’s attitude originates from the rise of China as an industrial power, and the likelihood of an end to American dominance.
The Chinese economy is already bigger on some measures than that of the USA and projections see it dominating world trade in due course, including in several high-tech sectors.
Rather than accommodate Chinese success, which commenced forty years ago and is irreversible, Trump appears to believe that America has one last chance to interrupt history and that Europe could get in the way, mediating a middle course as an unreliable ally in his trans-pacific trade wars.
In Trump’s mind, anything which weakens the EU is good for America, hence his support for Brexit
This is a profound reversal of traditional US policy, which has long encouraged European integration and the expansion of the EU’s membership.
In Trump’s mind, anything which weakens the EU is good for America, hence his support for Brexit. Trump’s encouragement of Boris Johnson’s no-deal with promises of a ‘super-duper’ trade agreement, is viewed as a hostile act from Brussels.
Climate change
This lining-up of foes around the world is the worst possible outcome for those hoping for early concerted action on climate change. More than half the world’s emissions are down to the USA, China and the European Union.
Only when these three adopt a common strategy, enforced if needs be against foot-draggers like Brazil, will there be a coherent universal policy capable of minimising the costs of adjustment.
Trump declined at Biarritz to join in any condemnation of the accelerating destruction of the Brazilian rain forest. Welcoming Brazil’s new leader to the White House in March, he predicted the two would have “a fantastic working relationship” and had “many views that are similar”.
Mr Bolsonaro, responded in kind: “We share a great deal in common. I see a new chapter of co-operation.”
In the here and now, the US resorting to protectionism has been identified by the IMF and the OECD as an immediate dampener on world trade
The refusal of people like Trump and Bolsonaro to countenance international action on climate (both are explicit climate change deniers) threatens the world economy, since it ensures higher costs of adjustment when action is finally taken.
In the here and now, the US resorting to protectionism has been identified by the IMF and the OECD as an immediate dampener on world trade.
A critical ingredient in Irish economic performance over the last five decades has been access to markets in Europe, including Britain.
But equally important has been direct investment from America, and Trump has berated US firms over foreign expansion, demanding curtailment of job-creation in China.
Ireland is an atlantic, rather than a continental European economy, and this combination of hostility from Brexit to the east and Trumpism from the west is the most threatening external environment the country has faced in modern times.
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