Donald Trump’s Candidacy Is The Third Biggest Risk To The Global Economy. Here’s Why.
In March, the Economist Intelligence Unit, a research and intelligence firm, listed the possibility of a Donald Trump presidency as the sixth greatest risk to the global economy. By June, Trump’s candidacy had climbed up the ranking. He now stands at third place, ahead of the break-up of the European Union, a Grexit (Greek exit from the EU), jihadi terrorism, global growth surges, the Brexit, military conflict in South China Sea due to Chinese expansionism, and a future oil price shock prompted by a collapse in investment in the oil sector.
The prospect of Donald Trump being president is less of a global risk, apparently, than just two scenarios: a sharp economic slowdown in China, and a global emerging markets crisis prompted by the U.S. federal reserve raising interest rates.
1. Trump v. Free Trade
“[Trump] has been exceptionally hostile towards free trade, including notably NAFTA, and has repeatedly labelled China as a ‘currency manipulator’ … In the event of a Trump victory, his hostile attitude to free trade, and alienation of Mexico and China in particular, could escalate rapidly into a trade war – and at the least scupper the Trans-Pacific Partnership between the U.S. and 11 other American and Asian states signed in February 2016.” — The Economist Intelligence Unit’s Global Forecasting Service
Trump has said NAFTA “was a disaster for this country,” and while any experts would agree with regard to free trade’s impact on the American middle class, most agree that for all of its faults, NAFTA expanded America’s economy and lifted global standards of living.
The North American Free Trade Agreement came into effect in 1994 and was designed to relax trade and other relations among the United States, Canada and Mexico.
In an April article for the libertarian Reason magazine, Nick Gillespie observed that when NAFTA was passed into law, U.S. unemployment was at 6.7 percent, and by 2008 – before the financial crisis – it had dropped to below 5 percent. Between 1994 and 2008, the U.S. created a net total of 25 million jobs, and according to data from Harvard economist Robert Z. Lawrence, the average wages and benefits of blue collar workers, when adjusted for inflation, increased by 11 percent.
The argument against free trade is that it incentivizes outsourcing, costing millions of U.S. manufacturing jobs.
On Tuesday, during a speech at an aluminum scrap metal factory in Monessen, Pennsylvania, Trump announced that if elected president, he will tell U.S.’s NAFTA partners that he intends to “immediately renegotiate the terms of that agreement to get a better deal for our workers,” and if they don’t agree to said renegotiation, Trump will “submit notice under Article 2205 of the NAFTA agreement that America intends to withdraw from the deal,” The Hill reports.
Withdrawing from NAFTA would trigger an increase in tariffs on imports from partnering countries and exports from the U.S. abroad: a “trade war.”
As Politico noted, Trump’s criticism of NAFTA is based on U.S. companies’ outsourcing of jobs; he has vilified Carrier Corporation, which is sending 1,400 manufacturing jobs to Mexico.
Trump has proposed using tariffs to discipline companies moving operations overseas and to encourage other countries to lift restrictions on U.S. exports. For instance, Trump threatened Carrier Corp. with a 35 percent tariff on all products shipped back to the U.S. He would deal with China similarly, by declaring the country a currency manipulator and imposing high “countervailing [anti-subsidy] duties” on their exports to the U.S.
Such moves would require congressional approval that he probably wouldn’t get from Republicans, as such a drastic measure would likely draw volatile protest from businesses and consumer groups alike – and although Democrats are more cautious of new trade deals, there isn’t any evidence to suggest they’d be open to dismantling 70 years of trade regulations, which could result in a recession and trade wars.
Politico reports Kathy Bostjancic, head of U.S. macro investorservices at Oxford Economics in New York, wrote in an April research brief that Mexico and China would likely respond to Trump’s punitive tariffs by imposing their own on U.S. goods, which would drive the inflation rate up to 3.5 percent, and would “lower both the level of real GDP by 1.6 percent and employment by 1.4 million by 2020” – numbers less than current forecasts.
Trump said “The TPP, as it’s known, would be the death blow for American manufacturing.”
2. Trump v. the Middle East, and pro-ISIS blowback
“[Trump] has also taken an exceptionally punitive stance on the Middle East and jihadi terrorism, including, among other things, advocating the killing of families of terrorists and launching a land incursion into Syria to wipe out IS (and acquire its oil) … [Trump’s] militaristic tendencies towards the Middle East (and ban on all Muslim travel to the US) would be a potent recruitment tool for jihadi groups, increasing their threat both within the region and beyond.”
In December, Trump told Fox News he would “knock the hell out of” ISIS, and criticized the current administration for “fighting a very politically correct war.” Trump said “when you get these terrorists, you have to take out their families. They care about their lives, don’t kid yourself. When they say they don’t care about their lives, you have to take out their families.”
In an email, EIU analyst Robert Powell told The National Memo that Trump’s brash approach would add a major spending burden to the U.S. budget and radically destabilize the Middle East, which would likely drive oil prices way up.
Less immediate effects involve strengthening the enemy.
Almost everyone agrees that U.S. military intervention is necessary in the war against ISIS and the virus of jihadi terrorism. However, Donald Trump’s proposed solution differs from that of most experts, in terms of “thuggishness.”
Boaz Ganor, a leading Israeli counter-terrorism expert and former consultant to Israeli Prime Minister Benjamin Netanyahu, told CNN that “Any deliberate attacks aimed against civilians is a war crime, regardless if they are family members of terrorists or presidents or presidential candidates.”
Ganor argued Trump’s endorsed tactics would defeat “one of the most important pillars of counterterrorism: the differences of morality.”
“Adopting this policy is immoral and against the common liberal democratic values,” said Ganor, adding that, “Deliberate attacks against the terrorist families is blurring the moral differences between the terrorist organizations and the state which is fighting terrorism. This by itself might benefit the terrorists which are trying to claim that they are fighting a moral war against relentless and immoral entity.”
During a December speech to the Republican Jewish Coalition, CNN reports South Carolina Sen. Lindsay Graham remarked “what Mr. Trump’s saying about how to handle this war is empowering the enemy.”
“ISIL loves Donald Trump because he is giving them an opportunity to bring people their way,” Graham said.
In March, terrorism expert Malcom Nance told MSNBC “Donald Trump right now is validating the cartoonish view that they tell their operatives … that America is a racist nation, xenophobic, anti-Muslim, and that that’s why you must carry out terrorist attacks against them.”
3. Trump V. NATO: Russian Fallout
“[Trump’s] vocal skepticism toward NATO would weaken efforts to contain Russia’s expansionist tendencies.”
Trump has said he would “certainly look at” pulling the United States out of the North Atlantic Treaty Organization, because, he said, the international security alliance is “obsolete” and “costing us a fortune.”
NATO was created in 1949 by the U.S., Canada and 10 Western European nations as a means of common defense against the former Soviet Union. NATO now includes 28 member nations.
Trump thinks NATO doesn’t serve its founding purpose and detests that the U.S. contributes more funding than any other member. He would like to see the alliance restructured to shift its focus to Islamic terrorism, with other members picking up more of the bill.
Over the past few years U.S.-Russian relations have drastically deteriorated in the face of a Russian expansionist movement – which ignited the Ukrainian civil war – that runs counter to NATO regulations. The U.S. and its NATO allies have imposed sanctions on Russia, deployed anti-ballistic missile systems in Romania and Poland, broadened military exercises on Russia’s borders and increased land, air, and sea forces.
Russia has responded by building up forces along the country’s Western borders – measures that include adding more nuclear capable missiles – which heightens the risk of escalation due to accident or miscalculation. In the meantime, the Washington Post reports, France and Germany have not compelled the Ukrainian government to honor the Minsk accords, written to negotiate an armistice.
Currently, in an effort to ease qualms of eastern members in the midst of tensions with Russia surrounding the Ukrainian crisis, NATO is further reinforcing forces on Russia’s borders and Russian defense minister Sergei Shoigu says his military will respond with equal measures, the Associated Press reported.
4. Trump vs. the Asian Nuclear Arms Race
“Elsewhere, and arguably even more alarmingly, his stated indifference towards nuclear proliferation in Asia raises the prospect of a nuclear arms race in the world’s most heavily populated continent.”
In March, Trump said he might permit Japan and South Korea to build nuclear weapons arsenals to ease U.S. defense commitments.
Experts say this would be incredibly dangerous.
Jeffrey Lewis, the director of the East Asia Nonproliferation Program at the Middlebury Institute of International Studies, told Business Insider that Japan developing nuclear weapons would be a “total catastrophe for Japan and US nuclear power programs.”
Lewis said Trump’s reasoning is an outdated pretense under which the U.S. used to operate. “Everybody has a friend,” Lewis said. “And so if you can give them the path of saying it’s good when our allies have them and bad when our enemies have them, you get to the point where everybody has them. It’s better to have a system … in which we say no more nuclear-weapons states and try to maintain that.”
Kingston Reif, director for disarmament and threat-reduction policy at the Arms Control Association, said “This idea that this would bring more security to Japan and South Korea than the U.S. troops deployed there and the U.S. defense commitment to those countries is not borne out by the evidence.”
It could even encourage China to bulk up its own nuclear arsenal.
Reif said China’s “doctrine regarding when it might employ nuclear weapons might be described as one of minimum deterrence,” but the country “right now is believed to have no more than 300 total nuclear weapons, which is a small arsenal relative to what the US and Russia possess.”
“But in the event that South Korea and Japan acquire independent nuclear weapons, it’s highly likely that China would revisit its minimum deterrence posture and likely accelerate its ongoing nuclear modernization efforts and consider increasing the overall size of its nuclear arsenal.”
Lewis said “It would be a free-for-all.”
“It would be a giant science experiment that I would not want to see.”
Photo: Republican U.S. presidential candidate Donald Trump speaks at a campaign rally in St. Clairsville, Ohio June 28, 2016. REUTERS/Aaron Josefczyk