US president-elect Donald Trump keeps pulling tricks out of his hat as “Trump fever” continues to spread, creating a new global political situation. Trump keeps issuing tweet after tweet, meeting with important people and talking to foreign leaders, setting the agenda and stirring things up. In particular, he has been bringing out the heavy artillery when it comes to the US’ main trading partner, China. He has held nothing back as he has adopted a carrot and stick approach to bring US businesses back to the US.
“Trumponomics” has become the latest trend, and governments around the world are thinking hard about how to respond to this. While Trump is not a typical politician, he is a very typical businessman. His actions following his election have made it clear that he will use business strategy to try to remold the US economy and restore its past glory.
No one is questioning that trade strategy is based on business expertise, and even politics, military and foreign affairs operate on business principles. Only from this perspective will it be possible to understand potential policy directions he might take.
Using Taiwan-related issues as an example, Trump said: “I don’t know why we have to be bound by a ‘one China’ policy unless we make a deal with China having to do with other things, including trade.”
This statement makes it clear that he is approaching foreign policy in the same way he approaches a business negotiation, which means that any issue can be dealt with as a bargaining chip to be traded. This approach leaves no room for universal values, and it means that there are no eternal friends or enemies. The traditional Chinese view is that running a country is like frying small fish, that is, it requires a delicate approach. However, Trump is approaching it in the same way as he approaches running a big business, by focusing on benefits: anyone who brings benefits to the US economy is a friend and a partner, and anyone who does not is an enemy to be punished — it is all about US interests and there is no gray area.
From the perspective of business logic, Wall Street, the high-tech industry and the US Federal Reserve are the pillars of the US economy. Their cooperation is crucial to restoring economic vitality. So although they were all criticized by Trump during his election campaign, they have become necessary allies now he has won the election. Trump is indeed gifted when it comes to converting foe to friend: he has recruited several big shots from Wall Street and the oil industry to serve in his administration, and he is also offering an olive branch to top leaders in the high-tech industry to gain the support of advanced industry sectors and stabilize the foundations of the US economy.
In addition, to address unemployment, he has announced that overseas US businesses that move back to the US would be given big tax discounts, and that if they do not, their products would be hit with a 35 percent import tax.
He also said that he plans to spend US$1 trillion over the next 10 years on infrastructure, bringing momentum to the US economy, expanding domestic demand and increasing employment. “Trumponomics” has created an atmosphere of hope and US share prices have been reaching record highs. The US has been presented with an opportunity to upgrade and renew itself.
The US-China trade relationship is the biggest stumbling block to Trump’s attempt to “make America great again.” China is the world’s factory and it is also the main overseas manufacturing base for US businesses, which meant massive job losses in the US, a widening wealth gap and a worsening situation for big manufacturing regions.
Trump’s most common Twitter tirades are tantamount to declarations of war on China, including his telephone conversation with President Tsai Ing-wen (蔡英文), questioning the “one China” policy, currency manipulation, stealing US jobs, North Korean nuclear arms and the South China Sea issue.
He is loud, he succeeds in setting the agenda and he is taking the initiative away from China. In addition, both the EU and Japan are refusing to accept China’s position as a market economy, and Chinese companies have suffered setbacks when they have attempted to take over sensitive high-tech companies, which has caused China’s growth to slow.
China is suffering from several potential bubbles caused by its real-estate market, bond market and excessive production capacity. When the US Federal Reserve raised interest rates, it caused the Chinese bond market to collapse and capital outflows to increase. The fear is that once China’s economic bubble bursts, it will set off a severe financial crisis.
Trump might hurt China by starting a trade war, but it will not necessarily be advantageous. Such a war could cause the world economy to contract. China is suffering from several economic and industrial problems, and it would have to rely on state subsidies and other non-market methods to resolve these problems. If the bubble bursts, the economic progress China has achieved in the past several decades could evaporate overnight, so it would not be able to withstand a trade war with the US.
However, globalization and technological progress has created a closely intertwined global economy, and it is no longer possible to turn back the clock on bilateral or multilateral trade. Avoiding a global trade war depends on mutual trust, communication and compromise between national leaders, and not on pushing on blindly regardless of the consequences.
Small nations, such as Taiwan, will likely have to rely on the intelligence of their leaders and their abilities to cautiously choose a safe trade position in order to be able to guarantee that they are not adversely affected by a big trade war.
Translated by Perry Svensson
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