Chaos won’t make America great again
The Editorial Board
Published Yesterday
[url]https://www.theglobeandmail.com/opinion/editorials/article-chaos-wont-make-america-great-again/[/url]
Donald Trump’s destruction of the United States’ alliances since retaking office has been rapid and erratic. His tariffs come and go and come again. His justifications for them shift so constantly as to be meaningless. He says Russian President Vladimir Putin is a friend, while Canada and the European Union have been “ripping off” the U.S. and are going to get what’s coming to them.
America’s putative allies are rightfully stunned by Mr. Trump’s undoing of the postwar order. “It’s like there’s a horse loose in a hospital as the American comedian John Mulaney once joked about Mr. Trump’s first term in office. “No one knows what the horse is gonna do next. Least of all the horse!”
And yet the U.S. has an argument for recalibrating its relationship with its postwar allies – an argument they might listen to were it presented to them in a less unbridled fashion.
That argument can be found in an essay ([url]https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_T[/url] rading_System.pdf) written last fall by Stephen Miran, the chair of the White House Council of Economic Advisers, the agency that tries its best to guide Mr. Trump on complex economic matters.
In a nutshell, the world has changed in the eight decades since the creation of NATO, which effectively made the U.S. the democratic world’s defensive shield, and the signing of the Bretton Woods agreement, under which the U.S. dollar became the reserve currency of the major economies around the globe.
Being the world’s reserve currency gives America a lot of influence and the added benefit of lower borrowing costs, but it also means the U.S. dollar is overvalued. That makes American exports more expensive and imports much cheaper, a burden that contributed to the decline in U.S. manufacturing that Mr. Trump laments.
Meanwhile, with China on the rise militarily and Russia invading its neighbours, U.S. defence obligations are being stretched in two directions.
This has all happened over the same postwar period during which Canada and the EU have spent their so-called “peace dividend” – the money not needed for national defence because of U.S. power – on social support programs.
And it coincides with a relative decline in U.S. economic power. In 1960, the U.S. share of global GDP was 40 per cent. Today, it’s 26 per cent.
Its once greater share of the wealth allowed the U.S. to tolerate tariffs imposed by other countries. The U.S. is the lowest tariffing country in the world, according to the World Trade Organization, with an average rate of 3 per cent. The figure for the EU is about 5 per cent, for Canada around 6 per cent and China 10 per cent.
With its relative decline in wealth, it would be fair ball for the U.S. to raise the issue of tariffs with its allies, and also to ask them to contribute more to their own defence. Maybe hold a summit on it, or impose low but ever-increasing tariffs to get people’s attention.
It ought to be self-evident that any attempt to remake the global trading and financial systems would require, in Mr. Miran’s words, “careful planning, precise execution, and attention to steps to minimize adverse consequences.”
But that does not describe a horse loose in a hospital. Mr. Trump’s actions seem unconnected to sophisticated economic policy. His see-sawing on tariffs is causing huge uncertainty. North American stock markets have fallen dramatically, U.S. growth is faltering and inflation has become stubborn, a situation often referred to as stagflation.
The dollar, meanwhile, is right where it was one year ago, and it is likely to stay high if inflation doesn’t drop.
By being aggressively incoherent, Mr. Trump also risks losing the best asset the U.S. has when it comes to containing China and Russia – its democratic allies.
It is impossible to guess what Mr. Trump’s goal is. What is clear is that Canada, the EU, Britain and others intend to no longer remain so dependent on American might, and are furthermore rethinking their trade relationships with a partner that has become unreliable and belligerent.
America’s allies might have listened to a rational argument for tweaking an 80-year-old system that has brought them relative peace and great prosperity. In doing so, Mr. Trump could have reinforced America’s standing as the leader of the free world while improving his country’s finances.
Instead, he is in the process of leaving the U.S. weaker than it was before his return. Weaker, less respected and alone.
?
The Editorial Board
Published Yesterday
[url]https://www.theglobeandmail.com/opinion/editorials/article-chaos-wont-make-america-great-again/[/url]
Donald Trump’s destruction of the United States’ alliances since retaking office has been rapid and erratic. His tariffs come and go and come again. His justifications for them shift so constantly as to be meaningless. He says Russian President Vladimir Putin is a friend, while Canada and the European Union have been “ripping off” the U.S. and are going to get what’s coming to them.
America’s putative allies are rightfully stunned by Mr. Trump’s undoing of the postwar order. “It’s like there’s a horse loose in a hospital as the American comedian John Mulaney once joked about Mr. Trump’s first term in office. “No one knows what the horse is gonna do next. Least of all the horse!”
And yet the U.S. has an argument for recalibrating its relationship with its postwar allies – an argument they might listen to were it presented to them in a less unbridled fashion.
That argument can be found in an essay ([url]https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_T[/url] rading_System.pdf) written last fall by Stephen Miran, the chair of the White House Council of Economic Advisers, the agency that tries its best to guide Mr. Trump on complex economic matters.
In a nutshell, the world has changed in the eight decades since the creation of NATO, which effectively made the U.S. the democratic world’s defensive shield, and the signing of the Bretton Woods agreement, under which the U.S. dollar became the reserve currency of the major economies around the globe.
Being the world’s reserve currency gives America a lot of influence and the added benefit of lower borrowing costs, but it also means the U.S. dollar is overvalued. That makes American exports more expensive and imports much cheaper, a burden that contributed to the decline in U.S. manufacturing that Mr. Trump laments.
Meanwhile, with China on the rise militarily and Russia invading its neighbours, U.S. defence obligations are being stretched in two directions.
This has all happened over the same postwar period during which Canada and the EU have spent their so-called “peace dividend” – the money not needed for national defence because of U.S. power – on social support programs.
And it coincides with a relative decline in U.S. economic power. In 1960, the U.S. share of global GDP was 40 per cent. Today, it’s 26 per cent.
Its once greater share of the wealth allowed the U.S. to tolerate tariffs imposed by other countries. The U.S. is the lowest tariffing country in the world, according to the World Trade Organization, with an average rate of 3 per cent. The figure for the EU is about 5 per cent, for Canada around 6 per cent and China 10 per cent.
With its relative decline in wealth, it would be fair ball for the U.S. to raise the issue of tariffs with its allies, and also to ask them to contribute more to their own defence. Maybe hold a summit on it, or impose low but ever-increasing tariffs to get people’s attention.
It ought to be self-evident that any attempt to remake the global trading and financial systems would require, in Mr. Miran’s words, “careful planning, precise execution, and attention to steps to minimize adverse consequences.”
But that does not describe a horse loose in a hospital. Mr. Trump’s actions seem unconnected to sophisticated economic policy. His see-sawing on tariffs is causing huge uncertainty. North American stock markets have fallen dramatically, U.S. growth is faltering and inflation has become stubborn, a situation often referred to as stagflation.
The dollar, meanwhile, is right where it was one year ago, and it is likely to stay high if inflation doesn’t drop.
By being aggressively incoherent, Mr. Trump also risks losing the best asset the U.S. has when it comes to containing China and Russia – its democratic allies.
It is impossible to guess what Mr. Trump’s goal is. What is clear is that Canada, the EU, Britain and others intend to no longer remain so dependent on American might, and are furthermore rethinking their trade relationships with a partner that has become unreliable and belligerent.
America’s allies might have listened to a rational argument for tweaking an 80-year-old system that has brought them relative peace and great prosperity. In doing so, Mr. Trump could have reinforced America’s standing as the leader of the free world while improving his country’s finances.
Instead, he is in the process of leaving the U.S. weaker than it was before his return. Weaker, less respected and alone.
?
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