Brocker.Org: US: Seemingly impulsive and transaction-driven affairs of state – BBH


In view of the analysts at BBH, the main risk to investors in the week ahead comes from the United States and the seemingly impulsive and transaction-driven affairs of state.  

Key Quotes

“Defection from the international agreements or regime seems to be a right claimed in deed, if not word, by both powerful and weak countries.”

“The US position at the G7 meeting on trade was along these lines.  Treasury Secretary Mnuchin reserved the right to protectionism if the US judged trade not to be free or fair.  Who is not for free or fair trade?”

“The practical problem lies in what these noble concepts mean.  Because of the inherent conflict, multilateral institutions, like the World Trade Organization define those concepts.  Is Trump posturing or is he defecting from the very international order the US, more than any other nation, envisioned and created?”

“Can Trump succeed to make the US the leading revisionist country, or will its national interests lie with defending the status quo?  The actions he authorized in Syria and Afghanistan as well as escalating rhetoric toward North Korea have received bipartisan support, though the Trump Administration’s response to the launch earlier today of two missile tests that may or may not have been intercontinental ballistic missiles remains to be seen.  Still, up until now, the Trump’s Administration’s actions have been well within American traditional foreign policy approach.”

“He also recommitted to NATO, after calling the treaty organization “obsolete.”  Though Secretary of State Tillerson gave members two months from the end of March to boost defense spending or present such plans.  Trump has backed away from campaign pledges to confront China via its currency and exports to the US.”

“Trump’s early trade moves were very much part of the mainstream.  He signaled intentions to renegotiate NAFTA, not leave it.  Trump noted when formally withdrawing from the TPP that Clinton had also opposed it.  Canadian lumber, steel, and aluminum were not picked randomly, but have long been areas of concern.”

“A new phase is about to begin.  Lighthizer was confirmed by the Senate and is now the new US Trade Representative.  Renegotiating NAFTA is thought to be the priority, though Lighthizer is better known for his criticism of China.  Soon it should be clearer to investors:  On one hand, Trump may be like the emperors of old and simply be demanding greater tribute from everyone else.  This seems negotiable and ultimately acceptable.  Several countries have made concessions, including China and Saudi Arabia.”

“On the other hand, the cross-border movement of capital, goods, and services has not returned to pre-crisis peak levels.  Some suggest that peak globalization is behind us.  Trump may be both an effect and cause of the de-globalization forces.  He may purposely seek to re-align US interests with anti-globalization forces.  Although the border adjustment tax has been rejected in its current form, some disincentives for the fragmentation of production and extensive supply chains cannot be ruled out.”

“The US behavior on the world stage has become somewhat less predictable, and the Trump Administration continues to make noises as if it were revisionist as opposed to a status quo power.  Barely an ally or trade partner has escaped criticism.  At first, other countries are trying to proceed without the US, such as TPP or if the US withdraws from the Paris Accord.  However, the risk is that US nationalism/unilateralism spurs others down the same path.  In game theory terms, the defection of the US from cooperation will encourage others to defect as well.”

“Some observers have been crying “currency war” for several years, and therefore do not fully appreciate the marked departure that is possible under the Trump Administration.  Similarly, many have been suggesting a hegemonic stability crisis since at least 2001 and may be slow to recognize the new threats along this line.”