Donald Trump’s ego could trigger a worldwide financial crisis of record proportions whose geopolitical fallout is wholly unpredictable!
Since his accession to the presidency of the United States, the behavior of the tenant of the White House has been subject to endless deciphering. Some contend that he is rude, uncouth and totally unfit to hold the office of President; others recognize his business acumen, his capacity to implement his campaign promises and his ability to cater to the disenchantment of public opinion with the “Washington swamp”. But as far as he is concerned, he hasn’t the slightest doubt regarding his own “exceptional abilities” and never misses an opportunity to attribute to himself alone the success (?) of reestablishing America’s primacy, the focus of his campaign slogan “America First”.
From abroad, one follows aghast this bewildering performance of the President implementing policies essentially through un-vetted “tweets” which seem to take his own administration as much by surprise as the rest of the world. Trump’s self-satisfaction is based first on an excessive perception of his own abilities and secondly on the (real) usage of the powers that are conferred on the President of the world’s greatest economic and military power, endowed in addition with the only credible world reserve currency.
Over time, however, one can begin to see patterns emerging that are far from reassuring. One has the feeling that Trump is so totally convinced that he holds all the “trump” cards ensuring victory in every confrontation, that he ignores that, at any time, he is liable to lose control of events and draw the planet into the most devastating crises.
This impression stems from the repetitive use of the same negotiating tactics which seem to be the President’s hallmark: alternating unpredictably between aggression and appeasement keeping his interlocutors constantly wrong-footed in order to exact unilateral concessions. He is only prepared to reverse his position under pressure of his domestic public opinion as was the case concerning the separation of children from their parents at the Mexican border.
In this bullying approach, Trump has not the slightest qualm about wielding what I have previously described as his favorite weapon of mass destruction – the US Dollar – which, deployed in conjunction with the threat or the implementation of “sanctions”, gives him a considerable leverage in the commercial negotiations with China, Mexico, Canada, the EU, Turkey, Russia, Japan or Iran.
Let us examine more closely three current cases: Turkey, Russia and China, and attempt to draw potential ramifications:
The collapse of the Turkish Lira is undoubtedly primarily due to the authoritarian orientation of the regime, but this perilous situation, which under normal circumstances could have been managed, has evolved into a deep crisis of confidence; it has been aided and abetted by the unprecedented public approval of President Trump which has panicked foreign investors and lenders whose support is vital to Turkey. But the consequences do not stop at the country’s borders: the EU’s banking sector is being severely tested by financial markets because of a perceived increased risk of default on the country’s foreign currency denominated public and private debt. Despite considerable progress made since 2008 in the resilience of the financial sector, banks remain laden with an excessive amount of non-performing loans and indebtedness while the mechanisms of solidarity within the “Banking Union” are still lacking, increasing the risks of contagion. It will not have escaped President Trump’s attention that this situation gives him additional leverage in his negotiations with the EU in which President Junker had appeared (momentarily) to have won a reprieve.
The hardening of the United States position towards Russia, as evidenced by the imposition off new sanctions, comes at a particularly difficult moment for the Russian economy and has had as immediate consequence a weakening of the ruble. Plagiarizing his predecessor’s, Ronald Reagan, star wars, Trump is undoubtedly convinced that announcing the establishment of a new “space force” as a component of the military establishment will have the same effect and will bend the Russians (and the Chinese) to his will. The geopolitical danger resides in the possible error of appreciation regarding Russia’s capacity to face further austerity as well as fostering a closer ties between Moscow and Beijing, another target of Trump’s ire. The EU, powerless because divided, remains once again confined to the sidelines.
Regarding the trade war with China, the current escalation will impact immediately the latter’s export markets; it will severely undermine a progressive and orderly transition towards an increased dependency on the home market and would considerably increase the likelihood of triggering an domestic financial meltdown in an already over indebted domestic market. Once again, the United States will use the argument of currency manipulation to justify their retaliatory measures.
Thus, through the analysis of different parallel trade disputes, one is led to believe that Trump’s overriding aim is to maintain the exclusive privileged position of the US dollar which gives him exorbitant and unrivalled power; combined with its current military superiority, it aims at entrenching the US world leadership over the medium term.
However, a financial crises, whether originating in China, the Eurozone or elsewhere, is likely to spread to the entire world putting at risk the global economy and in particular the prosperity of the developed countries who have by far the most to lose. In its aftermath one must fear an increase in violent confrontation whether in the form of social unrest or terrorist activity with a real possibility of witnessing local armed conflicts if not a world war (an unthinkable alternative until recently). In such a context, one can only imagine that the major urgent challenges posed by climate change and its attendant migratory consequences, or the establishment of an international economic, financial, ecological and judicial order, etc., will go by the boards leading to disastrous and possibly irreversible consequences for humanity at large.
A first step in order to forestall such an outcome is to stop President Trump’s pyrotechnics as he revels in the role of the Sorcerer’s Apprentice. It is high time to revert to sensible multilateral negotiations to face the huge challenges that are facing us.
Brussels, August 12th 2018