US Sending the Wrong Message

Trump will take some time to realise that his actions cannot revamp a system which is so intimately related to his own country. Revoking agreements and enforcing controversial bans belie what America has historically stood for, in decades since the Second World War

US President Donald Trump’s first few days in office have witnessed a profusion of apocalyptic predictions for the world economy.  His unabashed move to encourage protectionism in the world economy does not augur well for the future of the trading regime. The contours of the world trade may have suffered damage. In some cases, this is irreparable, such as the fate of the Trans-Pacific Partnership agreement after the US withdrawal.  Going by his recent conversations with Prime Minister Malcolm Turnbull of Australia or his Mexican counterpart Pena Nieto, citizens around the world appear disgruntled and anxious. Power in the vagaries of international relations is a complicated subject, since it is the outcome of a labyrinth of diplomatic ties and bilateral issues.

President Trump’s moves have will have a lingering impact on global trade which will cause wrenching changes in the structure and pattern of trade. But the United States will continue to remain the dominant power.

The US enjoys a unique position in the world because of the ideological leverage it commands and the unswerving faith people have in its systems. It’s the beacon of liberal values which countries around the world hope to emulate. America may not be straddling the global economy as it did in the past, but it is unarguably the preeminent power of today. It has a rich history which extends beyond the immediate. 

America’s economic fate is inextricably linked to a globalised world which underpins growth and development. The US would not have thrived economically had it engaged in protectionist policies in the decades post the Second World War. Sooner or later the world’s only superpower and its commander-in-chief will understand the benefits of a liberal international world order. These hawkish policies are bound to be toned down in the months to come.

America is a land of immigrants. Educated and ambitious immigrants, who believed in innovation, fuelled the technology boom in Silicon Valley. American universities are also institutions where thousands of international students aspire to enroll in, and they also contribute a substantial amount to the revenue stream. An inward looking policy stance is simply not feasible.

The power vacuum, if it emerges, will not be filled by the likes of China, Russia or the European Union (EU). China simply does not command the respect and support to provide a semblance of support to countries in the world economy.  It may have made remarkable strides in recent decades but its economy is no match for the behemoth. China’s legal system is in shambles, its institutions are opaque and not subjected to public scrutiny, and it is highly unlikely its currency will ever be accepted as a global one like the US dollar.

Vladimir Putin’s Russia also does not enjoy the credibility and the idea of a world led by a suspicious Russia sounds. Memories of an aggressive Soviet Union propagating its failed communist agenda are still etched in the collective consciousness of countries around the globe. The EU is a fractured union today and its longevity is debatable in a post Brexit world.

A world where global powers are vying for supremacy will be chaotic. President Trump must recognise this reality. Charles Kindleberger, an eminent economic historian, postulated the Hegemonic Stability Theory. Quite simply, it says that a vital prerequisite for stability in the international financial regime and trade regime is a hegemon (superpower) which induces stability and balance in a world fraught with national self-interest. It guides the tenor of international relation. Without the existence of a hegemon the world would plunge into a rudderless era fraught with diverging concern and inherent conflict.

Prior to the First World War, the United Kingdom played the role of a hegemon and dominated the economic sphere. It also proved to be a ballast in a fragile international arena. But the war left its economy crippled. The ensuing political instability and economic disruptions in the inter-war years, and America’s reluctance to assume the mantle of leadership during this period, led to financial chaos; the great Depression and two failed World Economic Conferences (1927 and 1933) which intended to mitigate the extent of wildly fluctuating exchange rates. The Smoot Hawley Act of 1930, raised US duties to historic highs. When other nations retaliated, world trade fell by an alarming two-third by the mid-1930s.

It was only when America asserting itself on a global scale after the second war that the international political economy resumed to a degree of normalcy.  The Bretton Woods Conference of 1944 firmly entrenched the liberal values in the international trading and financial system. The International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF) promoted stability in an uncertain world. Countries relied on the General Agreement on Tariffs and Trade (Gatt) in place of the International Trade Organisation because the US Congress did not ratify the agreement.

In every step of the way, the US provided support to the global system — be it the trading system or acting like the global police of the world by launching proxy wars at the height of the Cold War to promote democracy in an environment where the Soviet threat could have easily swallowed the newly independent countries. The Marshal Plan was part of its strategy to resuscitate Europe from the ruins of war, destruction and prevent it from being swallowed by the specter of communism. Security concerns were rife during the Cold War and other countries knew that is was in their best interest to adopt a liberal system and align with the US.

America has continued to be a vital cornerstone in international politics since then. It has always assumed the moral responsibility of conforming to and promoting a liberal ideology. Abdicating this crucial responsibility is certainly going to vitiate and bruise the international system it played a paramount role in enforcing. President Trump will take some time to realise that his actions cannot revamp a system which is so intimately related to his own country. His meteoric rise from a pompous — some may call it imperious — social personality to the most important office in the free world was astonishing but he must not forget that revoking agreements and enforcing controversial bans belie what America has historically stood for and what its citizen will relentlessly continue to advocate in the decades to come.

(The writer is a freelance political commentator)

First Published in The Pioneer