Washington signals U-turn on globalisation
WASHINGTON: On free trade, globalisation and multilateral organisations, the United States has done an about-face on international engagement, calling the vaunted ‘Washington consensus’ into doubt.
During a meeting of G20 finance ministers and central bankers over the weekend in Germany, the new Trump administration blocked the longstanding resolution opposing protectionism and qualified its commitment to the multilateral trade system including the World Trade Organisation.
“This is obviously a very significant change,” said Edward Alden, senior fellow at the Council on Foreign Relations and an expert on trade.
“Donald Trump quite explicitly is the first president in more than 75 or 80 years who has outspokenly said he believes protectionism could make sense for the US.”
Since the start of the post-war era, the United States has driven global economic integration, relying on the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade, which preceded the WTO, to promote rules-based international trade.
But President Donald Trump clinched the White House on a promise to redress the inequity in US trade.
He has vowed to renegotiate the North American Free Trade Agreement binding the United States, Mexico and Canada and has spoken of slapping import duties on certain goods.
The chronic US trade deficit stood at US$502.2 billion in 2016, widened by deficits with China (US$347 billion), Europe (US$146.3 billion) and Mexico (US$63.2 billion).
Eswar Prasad, a former IMF economist, told AFP the US may regret its recent ideological turn.
“The omission of even a ritualistic paean to free trade in the G20 communiqué may be a victory for Trump’s protectionist agenda, but it comes at the cost of weakening US leadership on global economic issues,” said Prasad, a professor of trade policy and economics at Cornell University.
“The US may find itself increasingly isolated on issues such as promoting free trade and tackling climate change as other major economies begin to collaborate more closely with each other in response to US disengagement.”
But others say the United States has less to lose in a trade war than its trading partners, giving it added heft in bargaining.
Mohamed El-Erian, chief economic adviser at the German insurer Allianz SE, said the damages the US suffers from the ‘America first’ policy will be less than the harm inflicted on “many, many other countries.”
“As such, others are faced with an unpleasant lose-lose situation in which accepting a bad outcome is better than risking a much worse one,” El-Erian wrote in a Bloomberg column on Monday.
Alden said the consequences will depend on the scale and nature of policies that Washington ends up adopting. For the moment, these are just ideas.
“If they involve small changes to NAFTA or trade agreements, if they involve some modestly increased pressure on China... all of those could be benign outcomes potentially consistent with administration philosophy,” he said.
“But if they take a much harder line, imposing tariffs on imports or actually walking away from agreements like NAFTA, it would be far more damaging I think to the other countries and the US.”
For China and Mexico, the United States is by far the largest export market, so those countries could be the most vulnerable to aggressive policies by Washington.
“I think Europe is less vulnerable and I also think Europe is less of a target,” Alden said.
This is obviously a very significant change.
Edward Alden, senior fellow at the Council on Foreign Relations
Still, Peter Navarro, director of the White House’s National Trade Council, has accused Germany of exploiting the weakness of the euro to swell its trade surpluses.
And while Alden said Navarro is on the ‘extreme’ end of economic views held in the administration, he may be joined by others in hardening US policies toward international organizations.
Two of Trump’s nominees for key posts at the Treasury Department – David Malpass for undersecretary for international affairs, and Adam Lerrick, for undersecretary for international finance – are known sceptics of the IMF and World Bank, where the United States is the largest shareholder and financial backer.