Trump's Chinese Puzzle

What is Donald Trump's policy towards East Asia? We can view this thorny question through the twin lenses of trade and security. On the campaign trail, Mr Trump espoused his views on East Asia mainly in terms of trade. He expressed the view that China had gained an unfair advantage over the US through currency manipulation, and that China had stolen jobs from the manufacturing heart of America.

There are grounds to suggest that both of these statements have a grain of truth in them. The Chinese Yuan has been pegged to the US Dollar for many years. It currently enjoys a managed float against the US Dollar, and has helped to maintain a large trade imbalance between the US and China. The Chinese trade surpluses with the US have been largely used to amass holdings in US Federal debt. Mr Trump says that he wishes to take action against this.

In his statements, Mr Trump appears to be a mercantilist at heart. He speaks against trade arrangements with China that he sees as 'unfair', and he feels that American trade partners - mainly located in East Asia - enjoy a situation that is too much to the detriment of the US. This has led him to state that, on his first day of office, he will cancel the participation of the US in the Trans-Pacific Partnership (TPP).

The TPP was an attempt by the US to create a free trade area in the Pacific Rim in it's own image. It would allow America to dominate the conversation on trade well into the twenty-first century. By being such a large part of the TPP, and by making, perhaps, the most concessions on trade, Washington would have created a Pacific economic zone in it's own image, much to it's long term benefit. President Elect Trump is unwilling to pay that price. He, along with the American people, have opted for the short term gain from protectionism.

Cancelling US involvement in TPP, however, also has a number of spin-off effects because TPP is not only about trade. Whilst much can be said against President Obama, his administration does have a firm grasp that trade provides the mortar that binds the building blocks of security. Not only would TPP have established a free trade zone in the Pacific Rim, it would form the modern basis of a security counter-weight against more aggressive Chinese expansionism in the area. Those East Asian countries who are parties or interested parties to TPP must now be wondering exactly how much their security guarantee from the US is worth.

There are two ways of looking at this. From the perspective of China, ought this withdrawal of the US from it's 'Asian Pivot' embolden China in expanding it's influence in the region? From the perspective of the East Asian nations, ought they become more accommodating to an expansionist China and less accommodating to a withdrawing America? There is a good case for both to occur, for China to be encouraged and for the other East Asian nations to be less accommodating to a protectionist US.

This creates Trump's Chinese Puzzle. How can President Trump, when inaugurated, maintain both a protectionist trade stance whilst maintaining the East Asian security guarantee?

Stephen Aguilar-Millan

© The European Futures Observatory 2016

Has Europe Been Trumped?

To say that the election of Donald Trump as President of the USA was unexpected would be something of an understatement. Throughout the long election process - a good 18 months - he was dismissed as a joke candidate with no real hope of winning. And yet, he won. As the President Elect, he is now being taken seriously - perhaps for the first time - as the world tries to work out what President Trump might mean for them. We intend a series of pieces looking at this issue. We start with Europe because Europe has the potential for being the more immediate problem President Trump will face on inauguration in January.

One of the slogans from the Trump campaign in the election was to 'Make America Great Again'. We have to take this as a serious intention of policy, to the degree that a US President can influence the matter, in order to tease out what that might mean in policy terms. If we could assume, for the moment, that making America great again consists of restoring American power and authority in the world, then we are on a firmer footing.

Leaving aside the contentious question as to whether or not there has been a diminution in American power in recent years, we can draw upon models of international power to guide us along the road ahead. Traditionally, a nation is seen to draw power from three pools - military power, economic power, and cultural power. These act together to provide a nation with enough authority to shape events to it's will.

We can set aside the question of cultural power because this takes decades to manifest itself and we are concerned solely with the impact of President Trump for at least one, or possibly two, terms. There is little that a President Trump can do today to have an impact on the cultural power of the USA over his term that is not already under way. President Trump, when inaugurated, will be able to influence American military power and American economic power almost immediately. It is with these two pools of power that we will be primarily concerned. It is over the use of this power that Europe is currently concerned.

As the Trump Presidency commences, Europe is not in a particularly good shape. A number of fissures are starting to emerge in the fabric of Europe. The most obvious one is the decision of the United Kingdom to leave the European Union. At present, nobody quite knows what this means or how it is likely to play out. Or even when it will occur. There are a number of Eurosceptic tests that the EU will face in coming months, starting with the Italian constitutional referendum in December 2016, but also including popular votes in Holland, France, Germany, and Italy in 2017. If the Eurosceptic parties do well in any one of these election, it has the potential to seriously de-rail the European project.

Whilst Euroscepticism may be one fissure, there are two others that need to be accounted for - the economic and the military. The two are linked, but it is more convenient to consider them separately at first. The economic fissure between northern Europe and southern Europe is well documented. Southern Europe is mired in policies of fiscal austerity at a time when fiscal expansion is needed. What draws our attention less is that northern Europe is mired in policies of monetary expansion when policies of monetary contraction are needed. The vulnerability of northern European banking systems - especially those of Germany - at a time of ultra low interest rates is an issue that has the potential to widen the economic fissure even further and has yet to fully run it's course.

In the arena of diplomacy, defence and security, a fissure has started to emerge between the United Kingdom and France on the one hand, and Germany and Brussels on the other. The latter seek to establish a common European framework in this area, whilst the former are adamant that this should be retained at the national level. In some respects, this feeds into the Eurosceptic agenda of resisting the efforts of Brussels to ever extend it's brief, but, more importantly, it extends into the American criticism of Europe over defence in general and NATO in particular.

The goal in NATO is for the member states to spend a minimum of 2% of GDP on defence. In recent years, only four European members of NATO have achieved this goal - the United Kingdom, Estonia, Poland and Greece. The rest of Europe has slacked on their commitments. During his election campaign, Mr Trump called attention to this fact and asked why US taxpayers should pay for the defence of European nations who were not prepared to defend themselves. He suggested a weakening of US resolve to defend Europe.

This potential weakening of the NATO commitment has set off alarms across the continent. Many Europeans consider the possibility of an expansionist Russia as a real prospect. The nations considered to be particularly vulnerable are the Baltic States. Latvia and Lithuania have responded by proposing to raise their defence spending to 2% and 1.5% of GDP respectively. Of the three largest shortfalls in defence spending, Spain (shortfall $US 15.98 billion) and Italy (shortfall $US 18.35 billion) are hemmed in by fiscal austerity. Germany (shortfall $US 30.28 billion) has the fiscal capacity to meet the 2% target, but lacks the political will to do so. If President Trump keeps to his word, then we can expect the US commitment to NATO in Europe to be compromised in the years ahead.

This is a policy bind - to improve the US security commitment to Europe will involve greater defence expenditure on the part of the European nations. Greater defence expenditure will either mean reduced social welfare programmes or a weakening of fiscal austerity. Either case has an unattractive consequence. One way of squaring the circle would be for Europe to find growth again. Since 2010, economic growth in Europe has been quite sluggish. Could this prove an opportunity for President Trump to exercise US economic power?

It is customary to exercise economic power through trade and investment policies. The European Commission and America are currently negotiating such a deal - the Transatlantic Trade and Investment Partnership (TTIP). Even before the election of Donald Trump, TTIP was in trouble on the European side. There are serious reservations about the agreement at the national and regional levels in Europe that question whether European ratification could be achieved. After his inauguration, it is likely that President Trump will not advance TTIP from the American side. The long and the short of it is that Europe can expect little help from American economic power in the immediate future.

So where does that leave us? We can reasonably expect a weakening of European influence on the world stage at a time when the US becomes less engaged in the world, partly as a result of the internal fissures within Europe and partly as the result of a desire in America to become less engaged . It may be that President Trump may not go through with the policies exposed by candidate Trump. It may be demonstrated to him, once in office, that the NATO security blanket may be worth keeping, even if the European partners don't pull their weight, that America's security depends upon the security of the European nations. It may be that President Trump rows back a bit on the rhetoric of candidate Trump over trade with Europe. After all the US and the EU are each others largest trading partners. Prosperity in the US is intrinsically linked to prosperity in Europe. However, in all of this Europe will be on the back foot.

Candidate Trump promised to 'Make America Great Again'. If this lessening of American influence is the result of other nations developing (the 'Rise of the Rest' argument), then one way to achieve this would be to do down other nations. It seems that President Trump will have to do very little to weaken Europe. It is perfectly well doing that of its own accord. All he would have to do is to nudge Europe further along the path it is already upon.

In that sense, Europe has been Trumped.

Stephen Aguilar-Millan

© The European Futures Observatory 2016

How Did We Get To Where We Are?

This has been a shocking year for the Establishment. First, there was the Brexit vote in June. Neither the Establishment in the UK, nor in Europe, could conceive of the impossible - the British public voted to leave the European Union. Now we have the election of President Trump, who had to overcome two sets of established figures - the Patrician Republicans to secure the nomination, and then an established Democratic Washington insider to secure the office. To the urbane liberal elites, their world appears to be ending. But is it?

In many respects, both of these events were relatively predictable, as they represent the convergence of a series of long term trends. Over the past 20 to 30 years, we have seen a huge transfer of wealth in the global economy. The rise of the middle class in Asia - predominantly in India and China - has been at the expense of the stagnation of living standards of the middle class in Europe and North America. For a long while, the middle class in Europe and North America could disguise this stagnation by incurring ever greater levels of household debt to maintain their living standards, but that bubble burst rather abruptly in 2007.

This has had a number of unfortunate consequences. The course of this decade has been to expose the precarious nature of middle class prosperity in Europe and North America. It has been blamed, with a good deal of cause, upon globalisation. It has been exacerbated by the apparent indifference of those who have done well from globalisation in Europe and North America - those characterised and demonised as 'the 1%' - and it has now reached a point where people are angry enough to want to do something about it.

In many respects this was quite foreseeable. Since 2009, policy has been to return the economy back to 'business as usual'. To a very limited degree, this has been successful. However, 'business as usual' cannot deliver the levels of prosperity to placate an angry middle class - a point that is important when we think about going forward. In many communities, the standards of living are still worse than they were in 2006 - a lost decade of reduced living standards. In the face of this, the established political structures seem unable to do anything about it, and electorates are now turning to those who they believe can - the disestablished political fringes.

We are concerned about the future rather than the past, so what does this mean going forward? There are two key uncertainties that we currently face. Will Brexit occur? And will President Trump deliver his campaign promises? We can look at the worlds in which one occurs and the other doesn't, but that isn't entirely interesting. We can look at a world in which neither occurs, but that would imply a continuation of current trends. That might be an exercise worth pursuing as an alternative future.

Or we could look at a world in which Brexit does occur, and where President Trump delivers his campaign speeches. This is the world where we ought to focus our attention at the moment because this is the world in which our expected future appears. We are planning a series of pieces on how this future might unfold in coming weeks.

As always, people want to know immediately how the future might unfold. It is, however, worth taking our time over this. After all, it is not easy to divert a long term trend, which is what Brexit and a Trump Presidency both promise to do.

Stephen Aguilar-Millan

© The European Futures Observatory 2016

We're back!

After a break of some time, we have decided to re-start our futures Blog. We have two sources for out back catalogue:

Our previous Blogger site: http://eufo.blogspot.co.uk/

And our blog page on our web site: http://www.eufo.org/the-futurist-blog

In the coming months, we plan to add content on this blog on a regular basis. Most of the posts will be about global geo-politics and the global economy, which is where our interests lie.

I hope that you enjoy our thoughts, even if you might not agree with them.

Stephen Aguilar-Millan

© The European Futures Observatory 2016