Asia Greets a Rejuvenated Donald Trump

An America with diminished room to maneuver

Regardless of what policies newly-returned President Donald Trump follows when he takes office again in January, his election has significantly eroded America’s soft power. There are several reasons for this. His criminal record, sexist and racist remarks, and general record of dubious business dealings, crudeness, and boorish behavior have been noted around the world. These things matter, particularly for a world accustomed to being lectured by the US on standards of governance.

Despite his evident faults, or perhaps because of them, the fact that Trump was elected by a clear majority is unlikely to be seen as an advertisement for democracy, to be noted with satisfaction in Beijing. Second, his reputation, already shown in his first term, of erratic and unpredictable policy-making is unsettling, especially for America’s allies. Third, he rejects the open trade and investment agenda which the US has preached and generally practiced since 1945, enhancing its standing in an internationalist world.

As for specifics, there are radical moves on his economic and social agenda that are unlikely to be mutually compatible: tax cuts, deportation of undocumented migrants, a general tariff increase, China-specific tariffs, reduction in inflation, attempts to improve the US trade balance, etc.

The Trump fixation on tariffs is worrying because of the danger that it will spark not merely retaliation against the US but broader protectionism, a chain reaction leading to 1930s-type global depression. That said, there is clearly a need for the US to reduce its trade deficit and reliance on the continued global acceptance of enormous quantities of US dollar bonds to finance it.

One possibility may be that the tariff barriers are just a threat, partly to open up other markets and to persuade countries such as China to restrain exports of specific products, for instance electric vehicles, whose pricing would play havoc with an inefficient car industry. Another possibility may be that Trump takes leaves out of the books of fellow Republican presidents Nixon and Reagan, both of whom faced the problem of excessive US current account deficits. Nixon’s shock solution was the ending of dollar convertibility into gold, which led to dollar devaluation and eventually to the floating of all major currencies. Reagan’s Treasury Secretary James Baker, faced with an over-strong dollar sucking in imports, engineered the Plaza Accord which saw the US dollar decline sharply, particularly against the Japanese and German currencies. Given how much the dollar has risen, notably against the yen, in the past two years, a sharp devaluation might do more for its trade balance than tariffs

But US room for maneuver is now much less given the role of a resurgent China and others less susceptible to US pressure. There are already efforts being made by several holders of dollar assets to diversify their reserves elsewhere out of concern the dollar’s international role is too often used as a political weapon, as has been the case with sanctions on Russia. The shortage of alternatives partly explains the strength of the gold price. US interest rates have already risen in response to Trump’s election, showing the incompatibility of a strong dollar with reducing the trade deficit.

For East Asia, Trump’s apparent lack of an overall strategy and reliance on deal-making on specific topics leaves friends and foes alike unsure of where they stand. The threats to China trade may prove less than they seem due to the influence of billionaires such as Elon Musk on policy. Where Taiwan stands is particularly uncertain given its massive trade surplus with the US, yet its importance to US strategy to prevent China from dominating the western Pacific at US expense. In theory, the Philippines should not need to worry due to its strategic importance and not being seen as a trade problem.

But other countries in the region such as Vietnam and Indonesia which had been drawing closer to the US out of fear of China may worry about the consistency of US policy as well as the impact of tariffs at a time when China remains a major source of capital for much-needed infrastructure. India however may find itself favored as a counterweight to China and the Islamic world.

Trump’s policy towards Israel will be closely watched, at least by Muslim-majority countries already unhappy with US failure to restrain the Israeli assault on Gaza and its continued colonization of the West Bank. The Netanyahu government is clearly opposed to a two-state solution which can only mean that seven million Palestinians of the West Bank, Gaza, and Israel itself will remain under the thumb of seven million Israelis. It seems likely that Trump will underwrite Netanyahu and possibly give him freer rein to attack Iran, which may have few friends internationally but is clearly of strategic importance to Russia and India. Saudi Arabia reasonably fears the consequences of humiliating Iran. However, just possibly Trump now has the ability to spring a surprise and put Netanyahu back in his box.

For Europe, fear of Trump’s trade agenda and his determination to do a deal with Putin at the expense of Ukraine and its European allies may persuade the EU to seek better relations with China. The rest of the world may not care much about Ukraine’s territorial integrity but how Trump treats NATO will be a signal to other nations with defense pacts or informal arrangements with the US. The election of an “America First” Trump has happened just at a time when countries in groupings such as BRICS are questioning western dominance of institutions and ideas. Possibly this more multi-polar world will be fairer. But it is also likely to be messier.