China on the rise
roils Washington

Trump, the G7 and America’s fears

By Patrick Barnard

On the first day after the Quebec G-7 weekend summit at La Malbaie, leaders in Japan, Western Europe and Ottawa rubbed their eyes at the spectacle of a United States president who had angrily turned on his historic allies and trading partners.

The Financial Times of London’s front-page headline on Monday June 11th expressed the common mood: “Trump’s snubs at G7 summit leave closest allies in turmoil.” And the lead paragraph, by veteran journalist Chris Giles, conveyed the reaction of a western world “in disarray”:

“Relations between the US and its closest allies plunged to new depths yesterday after the most acrimonious Group of Seven summit in a generation ended with the American president lashing out at fellow leaders and backtracking on a pledge to sign the G7 communiqué.”

It should be noted that for more than six months every one of the Financial Times major commentators, like many financial journalists, have been urgently warning about the Trump administration’s abandonment of basic global commerce and “rules-based trade.” Nor should it be forgotten that Chrystia Freeland, before she became Canada’s Minister of Foreign Affairs, was the Russian-speaking Moscow Bureau chief of the Financial Times. Like her former press colleagues, she knows full well how dangerous a generalized trade war can be.

Now a triad of inter-connected fears looms large and influences the current political context in the United States.

What lies behind the Trump administration’s roiling of the very institutions, such as the World Trade Organization (previously the General Agreement on Tariffs and Trade) and the International Monetary Fund (IMF) that have underpinned United States power since World War II?

The answer to Washington’s turn of behaviour has less to do with Canada, or the European Union, and everything to do with China and its inexorable rise to the status of a rival world power. Now a triad of inter-connected fears looms large and influences the current political context in the United States.

First, at the national level, there is a geopolitical anxiety that China will outpace America. That prospect is especially galling because US corporations have made rapid, super-profits by trading within and out of China (Chinese exports) but not to the same extent out of the United States back to the Chinese mainland (American exports). American firms, in other words, have themselves helped create China’s wealth and its prodigious trade surplus.

The second fear inside America appears within local U.S. communities among the voting population, especially those who chose Donald Trump. Middle-class and working-class people worry about their personal perceived loss of status, and an apparent slippage of their country in the international world that seems to mirror their own individual worries.

‘Status threat, not economic hardship, explains the 2016 presidential vote.’

The University of Pennsylvania political scientist Diana C. Mutz has just published revealing research for the Proceedings of the National Academy of Sciences: “Status threat, not economic hardship, explains the 2016 presidential vote.” Mutz has found that “White Americans’ declining numerical dominance in the United States together with the rising status of African Americans and American insecurity about whether the United States is still the global economic superpower combined to prompt a classic defensive reaction among members of dominant (white) groups.”

There are also two recent documents that give a picture of current conditions in the United States. The IMF Staff Report in 2017 on the United States found that the U.S. economy, despite high per capita income, is “delivering better living standards for only a few” and “household incomes are stagnating for a large share of the population, job opportunities are deteriorating, prospects for upward mobility are waning, and economic gains are increasingly accruing to those that are already wealthy.”

In a May 4th, 2018 report to the United Nations, NYU Law professor and rapporteur, Philip Alston, delivered his findings on “extreme poverty and human rights on his mission to the United States of America.” Alston described the U.S. as “the most unequal society in the developed world” especially affected by “aggressively regressive redistributive policies” such as the Trump administration’s recent tax cut that “overwhelmingly benefited the wealthy and worsened inequality.”

Alston pointed to the fact that the U.S. has the highest youth poverty among members of the Organization for Economic Co-operation and Development (OECD), the highest infantile mortality rates, and the highest maternal mortality ratio among wealthy countries. “About 40 million live in poverty,” he reported, “18.5 million in extreme poverty, and 5.3 million live in Third World conditions of absolute poverty.” Amazingly, “the United States now has one of the lowest rates of intergenerational social mobility of any of the rich countries.”

Alston bluntly commented: “the American dream is rapidly becoming the American illusion.” These underlying conditions and the very real anxiety they create helped elect Trump because he was able to channel that mood, even though his domestic policies will only add to these problems.

‘Alston described the U.S. as “the most unequal society in the developed world”…’

A third source of “fire and fury” in America today lies within Donald Trump himself. Trump’s approach is to insult, hector, humiliate and then use sweet talk—all to throw opponents off-balance in order, at the end, to appear the dominant negotiator. He also bears the major responsibility for the new bitterness in trade discussions.

Here is a political leader whose own resentments, it seems, match and reflect a resentful electoral base. That symbiosis of the ireful leader and his angry followers can make for a toxic brew, as the world well knows from twentieth-century history.

And behind all these fears – of the political elite, of ordinary people, of the Chief Executive himself – lies the symbol of a China on the rise.

Fear of China

Anxiety about competing with the rising power of China pervades books, media reports, and government documents in the United States. In Washington D.C., the federal government’s National Intelligence Council produced a high-level 2012 intelligence report entitled Global Trends 2030: Alternative Worlds. The analysts described what they called the future geopolitical “ diffusion of power”:

“The diffusion of power among countries will have a dramatic impact by 2030. Asia will have surpassed North America and Europe combined in terms of global power, based upon GDP, population size, military spending, and technological investment. China alone will probably have the largest economy, surpassing that of the United States a few years before 2030.”

This shift, the report said, would largely reverse “the historic rise of the West since 1750, restoring Asia’s weight in the global economy.”

‘Anxiety about competing with the rising power of China pervades books, media reports, and government documents in the United States.’

A whole series of books have sounded this same theme, but probably the most aggressive and alarmist commentator has been Peter Navarro, author of The Coming China Wars (2006) and Death By China (2011). He is now Donald Trump’s Assistant to the President, Director of Trade and Industrial Policy. He is also the head of the newly created White House National Trade Council.

Among economists, Navarro is described as an outlier, a neo-mercantilist who wants to repatriate supply chains, who thinks that deficits are always inherently bad, and who would like to scrap NAFTA.

After the G7 summit it was Navarro, on Sunday June 10th, who publicly attacked Justin Trudeau on Fox News, saying “there’s a special place in hell for any foreign leader that engages in bad faith diplomacy with President Donald J. Trump.” Then on Tuesday June 12th, Navarro rapidly apologized for his remarks, on the Wall Street Journal’s CFO Network, admitting he had used “language that was inappropriate.”

Megan Cassella of Politico magazine has written a fascinating profile of Navarro – “Trump’s attack dog on trade: The California Professor behind Trump’s anti-China policy is a mini-Trump himself” (March 11, 2017). And her account tells of a man who ran five times, unsuccessfully, for office and whose career has been marked by ”his propensity for mudslinging” and a “near obsessive focus on China.”

Navarro is part of the nationalist faction in the White House that has advocated for Trump’s 25% tariff on steel entering the U.S. and 10% surcharge on aluminium imports. The current administration is also involved in ongoing tit-for-tat tariff sparring with Mexico, the EU, and China. Canada’s role in all this, from the White House viewpoint, is to act as the docile lever to help pry concessions from others, particularly China. Prime Minister Trudeau and Chrystia Freeland did not – could not – play along. Hence the aggression directed towards Trudeau that even the White House quickly realized was spoiling the game.

‘Prime Minister Trudeau and Chrystia Freeland did not – could not – play along. Hence the aggression directed towards Trudeau that even the White House quickly realized was spoiling the game.’

Trump may succeed in instituting a set of tariffs that will give the illusion that he is trimming the U.S. trade deficit. But at the same time, the recently passed tax cut will virtually ensure that the overall trade deficit will continue. All things being equal, consumption will rise, with people buying more of the very imports Trump dislikes.

What is happening here? How can one make sense of the manifold contradictions in U.S. policy?

MIT professor Barry Posen has published an illuminating article in the February issue of Foreign Affairs: “The Rise of Illiberal Hegemony: Trump’s Surprising Grand Strategy.”

Posen argues for his personal preference for a U.S. policy of great power “restraint” while acknowledging the various dangers his country faces. His assumption is that the “United States still faces all these threats, only with the added complication of doing so in a world in which its relative power position has slipped.”

According to Posen, past Republican and Democratic leaders have followed a global policy of “liberal hegemony,” seeking “to transform the international system into a rules-based order regulated by multilateral institutions.” Trump “still seeks to retain United States’ superior economic and military capability and role as security arbiter for most regions of the world,” Posen says, “ but he has chosen to forego the export of democracy and abstain from many multilateral trade agreements.” Posen claims that Trump has “ushered in an entirely new U.S. grand strategy: illiberal hegemony.”

“Not confident that Washington can sufficiently dominate international institutions to ensure its interests, the president has withdrawn from the Trans-Pacific Partnership, launched a combative renegotiation of the North American Free-Trade Agreement, and let the Transatlantic Trade and Investment Partnership wither on the vine. In lieu of such agreements, Trump has declared a preference for bilateral trade arrangements, which he contends are easier to audit and enforce.”

Withdrawals from both the Paris Climate Accord and the Iranian nuclear agreement fit into the same pattern of undoing multi-lateralism. But the extremely vague communiqué signed in June with North Korea indicates that the Trump team has just exchanged a rigorously verifiable Iranian protocol for a nebulous Korean arrangement that paradoxically acknowledges North Korea as a nuclear power. For the moment, this outcome is the very opposite of what Trump and Secretary of State Pompeo claimed they intended.

‘… the “United States still faces all these threats, only with the added complication of doing so in a world in which its relative power position has slipped.’

Prof. Posen put his finger on one of the central weaknesses of “illiberal hegemony” – this “grand strategy is primacy without a purpose.” The Trump people are reacting against an increasingly multi-centered world, but they have no overall plan or purpose in which to embed their various unilateral actions.

Martin Wolf of the Financial Times is the English-speaking world’s foremost economic commentator. For months now, Wolf has been very worried about the United States and Western societies repeating the mistakes of the 1930s with identity politics and widespread protectionism. Wolf went to China in April and wrote extensively about how the United States must come to terms with China’s economic success. Then he filed a column at the very end of May citing a book by the Singaporan expert of international relations, Kishore Mahbubani, Has The West Lost It? The thesis of the book is that the west “won” by successfully spreading its ideas, but is now “losing” because global domination by one eighth of the world’s population is now coming to an end – so western countries must adapt.

“But powerful countries in relative decline,” Wolf commented, “resent their change in position. Countries that contain substantial populations in relative domestic decline are consumed by the politics of rage. Yet, if progress is to be sustained, and the dangers are to be managed, peaceful co-operation is necessary.” The way to achieve this “is to adhere to the multilateral rules and agreements they [the west] created (such as the Paris accord on climate) in order to encourage China to do the same. That is the opposite of what the US is now doing.

These thoughts are exactly what are in the mind of Canada’s Chrystia Freeland. Not only does she know Martin Wolf—in one of her tweets she calls him “the great Wolf” — she also certainly reads her old paper every day.

‘… the Trump team has just exchanged a rigorously verifiable Iranian protocol for a nebulous Korean arrangement that paradoxically acknowledges North Korea as a nuclear power.’

Ever since the end of World War II, Canada has had a deep commitment to multi-lateralism but now we are at a true testing point. China is not in any way our enemy, since we are a middle power, not a reigning hegemon. Canada’s trade negotiating team has the background and training to uphold our traditional position of co-operative politics in the modern era, but the task will certainly be difficult.

On June 15th 2018, the American administration suddenly slapped $50 billion dollars of tariffs on China, ending a month of negotiating truce, and the Chinese immediately announced an equivalent charge of their own on U.S. exports. The generalized trade war is, unfortunately, escalating, and Washington appears to deliberately wish to disrupt certain global supply chains to compel reinvestment in the United States. Economists warn, however, of possibly major unintended consequences.

Beijing has come to the conclusion it is said that Donald Trump is both unpredictable and undependable, so the Chinese are determined to play out this long game. At the same time, other Asian countries worry about China’s own hegemonic ambitions, such as their territorial claims to most of the South China Sea.

In the June 16-17 weekend edition of Montreal’s Le Devoir an article gave readers a picture of the view from Canada, a trading country par excellence, that sends 75% of its exports to the U.S.

The piece carried the title “Un partenaire capricieux, mais vital” — “A capricious partner, but an essential one.” Richard Ouellet, a professor of international business law at Laval university, underlined that there has never been a Golden Age for trade negotiations with the United States: “That is where we are coming from, the Americans are super-tough negotiators.” But he added that what is different now is the acrimonious tone of trade discussions.

Canada’s own negotiators certainly understand that the new U.S. acrimony is a displacement of anger and fear about China’s inexorable economic rise. So the challenge for the Canadians is to steer clear of the acrimony—but to stand strong in defense of our interests.

Image: Jeremiah Tran via StockPholio.com

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