US President Donald Trump’s promise to pursue policies based on the principle of “America first” is threatening to disrupt the world economy, and the signs were on display last week.
Trump, during his inauguration speech on Friday, pledged to American citizens that “We will bring back our jobs. We will bring back our borders. We will bring back our wealth. And we will bring back our dreams,” Nikkei reported.
During an interview with European media, held shortly before the speech, he lauded British Prime Minister Theresa May for her decision to pull out of the European Union’s single market. Trump and May are both eager to conclude a free trade agreement between their two countries.
That is a reversal of the stance of Trump’s predecessor, Barack Obama, who opposed Britain leaving the EU.
The conventional global economic order is being turned upside down. The US and Britain, both of which have been at the vanguard of democracy and free markets, are steering toward policies that prioritize their own countries—while nondemocratic China is acting like a champion of globalization. During the annual meeting of the World Economic Forum in Davos, Switzerland, last Tuesday, China’s President Xi Jinping stressed the importance of free trade.
Key Concerns
The world is bracing for the new US administration amid three key concerns.
First is the concern that the new administration lacks tolerance. Trump has shown intolerance for the US trade deficit with other countries, pointing the finger at China, Mexico and Japan. His countermeasures under consideration include imposing higher tariffs on imports from those countries and forcing companies to increase investment and create more jobs in the US while ramping up purchases of US-made products.
Concerns are spreading in Europe over Trump’s protectionist trade policies. Clemens Fuest, who heads the Ifo Institute, is wary that Trump may demonize Germany, which earns huge profits from trading with the US.
The second concern is that Trump is inconsistent. He appears keen to destroy Obama’s legacies, having moved on his first day as president to repeal his predecessor’s health care law, known as “Obamacare,” and drop out of the Trans-Pacific Partnership.
If the US unilaterally raises tariffs and restricts imports, it would violate the rules of the World Trade Organization. However, Trump, who sees the multinational framework as having deprived many Americans of jobs and wealth, may disregard the existing rules and international institutions in which the US has been actively involved.
The third concern is a lack of clarity, due to Trump’s unpredictability.
Financial markets have been buoyed amid hopes for an active fiscal policy under Trump, but they need to take into account the negative effects that could arise from his protectionism.
As long as there is a risk of disruption of supply chains for raw materials and parts that keep products cost-effective and ensure their quality, companies cannot formulate their investment strategies.
If the US places limits on imports, exporting countries are likely to respond tit-for-tat. The Organization for Economic Cooperation and Development estimates that a 10% rise in trade costs, including tariffs, would decrease US exports by nearly 15%. The damage is larger than what China and Europe are expected to incur.
Trump’s protectionist vision is based on his assumption that the US would be better off economically under these scenarios. But such inward-looking policies would shrink the global economy, and the cost of a smaller world economy is immeasurable.
Lowest Rating in US History
Trump’s first job-approval rating is in, and they are the lowest an incoming president has ever received. Only 45% of Americans approve of Trump’s job performance over the first three days of his presidency, according to a Gallup survey released Monday.
It’s the first time a president has received an initial approval rating under 50% in the history of the poll, which dates back to Dwight Eisenhower’s first term in 1953.
The survey affirms the findings of other polls conducted before inauguration day that showed Trump was a historically unpopular incoming president.
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