Economists Brace for a Donald Trump Rewrite of Global Financial Diplomacy
Posted by hkarner - 28. November 2016
Source: The Wall Street Journal
If the president-elect shifts away from post-World War II international institutions, ‚chaos will rule the day,‘ one says
Leaders of the Group of Seven nations take part in a dialogue with other invited world leaders in Japan in May. Some economists worry a Trump White House will shift away from such international diplomacy forums.
Could Donald Trump upend seven decades of U.S. international economic diplomacy? That what some economists fear, taking the president-elect’s trade threats at face value.
In the wake of World War II, the U.S. and its allies established several global institutions to help stabilize the world economy and prevent spasms of interstate violence. Now, some political scientists and economists fear Mr. Trump risks turning more countries inward if he disengages from the World Trade Organization, the International Monetary Fund and other cooperative forums Washington has long relied on to help preserve world security.Mr. Trump’s threats to slap China and Mexico with hefty import tariffs, his snubbing of the North Atlantic Free Trade Agreement and his plan to label Beijing a currency manipulator are seen by many economists as a rejection of the WTO. But analysts also see in Mr. Trump’s comments signs he could shift away from global cooperation more broadly, including the Group of Seven industrialized nations and the Group of 20 largest economies, key forums for international collaboration.
“He’s not going to buy into the type of cooperative arrangements that have been the underpinning of the liberal world order since the late 1940s,” said Francis Fukuyama, a Stanford University political economist.
Mr. Trump reinforced expectations nationalist policies would define his administration after prioritizing a meeting with U.K. Independent Party leader Nigel Farage, a leading proponent of Britain’s exit from the European Union, soon after his election. He also fueled worries about a broader repudiation of multilateral diplomacy by questioning the utility of the North Atlantic Treaty Organization and U.S. military support for long-time Asian allies.
“A Trump administration might try to rewrite global architecture where he sees the American projection of power unduly constrained by convention or international rules,” says Robert Kahn, a senior fellow at the Council on Foreign Relations.
Combined with congressional Republican’s opposition to fresh funding for the IMF and its sister development institution, the World Bank, many economists envision Mr. Trump’s White House largely ignoring the two organizations.
If his administration does deprioritize the IMF and the G-20, Washington could lose the ability to shape foreign policy through those organizations, said Meg Lundsager, a former U.S. representative on the IMF’s executive board. “If the U.S. later seeks to use the institutions to push an initiative, no one will listen.”
Since its inception, the WTO provided a rules-based court for countries to vent trade frustrations. Over the years, it has kept some of the worst potential violations in check. Meanwhile, the IMF and the G-20 proved critical in stemming global losses in the wake of the 2008-09 financial crisis. The fund has also been a cost-effective conduit for U.S. soft power, encouraging economic changes in countries seeking bailouts that can bolster U.S. interests abroad.
Some analysts say the responsibility of the leading the world’s largest economy and a cabinet stocked with officials who take a more pragmatic and traditional diplomatic stance will moderate the president-elect’s policies, taming his fiery campaign rhetoric. While Mr. Trump may take a more combative approach to trade policy, they say, he may not turn his back on traditional channels of multilateral diplomacy and rules-based global order.
Still, many economists worry that a Trump-led White House, by disengaging or sidestepping global organizations such as the WTO, the IMF and the G-20, might abdicate a U.S.-leadership role that has fostered collaboration that supports global security.
“This is tremendously dangerous because there’s a lot of economic nationalism already out there, and the U.S. has played a role in keeping it under wraps,” Mr. Fukuyama said.
Britain in June upended decades of regional integration in a referendum to exit the EU. Along with Mr. Trump’s win, the Brexit vote boosted anti-euro parties ahead of key elections next year. Nationalism has also gained traction in Russia and China, two powers flexing their muscles on the global stage in ways that threaten U.S. and allied security.
“If the hegemonic power shifts sides to a populist nationalist platform, the impetus towards maintaining that liberal order is potentially going to collapse,” Mr. Fukuyama says.
Simon Johnson, a professor at the MIT Sloan School of Management and a former IMF chief economist, also paints a dim future. No country would fill the vacuum left by a U.S. abdication of international leadership, he argues.
“It’s G-Zero, and chaos will rule the day.”