The unintended genius of Donald Trump

Year: 2019

President Donald Trump has been widely criticized for initiating a number of trade wars, most notably with China, but also with America’s historical allies — the European Union and Canada.

There are many, such as economist and New York Times columnist Paul Krugman, who question whether President Trump understands the complexities of trade economics. By proxy, they suggest that his decisions can only lead to damage to both the US and global economy. But even Trump’s most trenchant critics must accept a few realities.

First, Donald Trump, whatever one’s opinion of his character, motives or intelligence, is the President of the United States. This makes him a if not the consequential person of the day.

Second, Trump must be treated seriously because he has demonstrated a willingness to make controversial and hard decisions. Many commentators thought that his threats to raise and extend tariffs on imports from China were merely a negotiating tactic, but he has proceeded to do so when he perceived that China was proving intransigent.

Third, Trump has demonstrated that he is his own man. When Trump assumed office, commentators and analysts, noting his inexperience in foreign and trade relations, sought comfort that ‘adults in the room’ such as Gary Cohn — who served as the administration’s first Director of the National Economic Council — would advise and guide him on a safe course. Instead, his list of departed advisors and officeholders is long and only shows signs of lengthening.

His aggressive language, flamboyant nature, propensity for making policy by tweets, and political grandstanding for his base make him a colourful and controversial persona. It also makes him difficult to predict or to understand within the conventional model of trade relationships and multilateral diplomacy. His goal is clearly not stability, but supremacy for America. His methods are not aimed at being respected but being impactful.

It is important to look beyond Trump’s antics, and even beyond Trump himself or his term of office, to consider the structural implications of the trade wars, especially with China. Taking the long-term view can reveal insights into how what seem like disruptive, even destructive, policies in the short-term may, in the longer term, potentially lead to a revival of American economic strength and a broader resurgence of economic growth.

First, Trump has reset the terms of international relations. The US has framed China as a strategic rival in all respects – economic, military, political and even cultural.

The Chinese have become more assertive and projectionist in their exercise of influence under President Xi Jinping. They calculated that the US would accommodate their rise by abiding by a ‘rules-based’ order, while they maintained the flexibility of selectively complying with the rules, using the excuse of still being a developing nation. Certainly, that was true under the Obama administration, which treated the international order and America’s historical alliance framework with Western Europe as an inherent good that should be maintained and nourished.

What the Chinese did not count on was Trump ascending to the Presidency. Trump has no truck for the past, for alliances or for allies – his doctrine of American First is simple, even simplistic, and yet it has profound consequences for America’s trading and security partners. It is not that Trump does not believe in a ‘rules-based order’, but rather that those rules must be his rules.

China is now being forced to reckon with a negotiating partner that is willing to endure both short-term pain to its own economy — especially its agricultural sector — and to accept the side-impacts of a trade war on the global economy.

Second, Trump is forcing the American economy to evolve. China has been a key supply chain partner to the United States for most of the last two decades. By imposing stinging tariffs on Chinese imports — which have to be paid by the US importers, not the Chinese exporters — Trump is forcing American businesses to revise their products, services and business models to remain competitive.

Over the coming decade, the well-proven ingenuity of American companies will lead them to evolve their products to be independent of supply from China. Even if they find the economics of ‘in-sourcing’ or relocating the supply chain within the US commercially nonviable, they will search for new sources of supply. This will benefit other developing countries such as Vietnam, Laos and Cambodia. Unlike with China, these small economies can never evolve to being strategic rivals to the United States; thus, their growth will be politically palatable. Chinese companies too will have to find new markets for its exports, and the development of these secondary economies will create new sources of demand. The geographic distribution of potential markets of demand will also create resilience in the global economy that is over-concentrated on the consumption of the largest economies.

Third, Trump is spurring innovation. China has made huge strides in innovation both in terms of capability and volume. Today, it rivals the United States in the number of patents registered each year. The ongoing campaign by the Trump administration to bar Huawei from competing in 5G markets is not only based on security concerns, but also anxiety that the US is ceding ground on the commanding heights of innovation. By obstructing Chinese companies — such as Huawei — and distracting the Chinese leadership with his trade war, Trump is artificially creating time and space for American companies to regain their competitive advantage in innovation. His ‘us versus them’ approach will also drive competitive innovation in both economies as political leaders urge their respective leading companies to outperform their competitors.

Fourth, the trade war and Trump’s America First approach are compelling many economies to look elsewhere for future growth than America or China. This does not mean that these superpower economies will be discounted. Rather, in the future, they will be complemented by other markets. These beneficiaries will be found in South-East Asia, Africa and South America, where there is massive latent potential to activate growth and capitalize on the potential consumer demand from a large working-age population. Over the longer term, the redistribution of business focus will create poly-polarity in global economic nodes; more stable and inclusive than one which only focuses on the three ‘stools’ of the US, the EU and China.

Taken together, these longer-term effects of the Trump era will be structural and substantive. Each has the potential to deliver new sources of growth, reshape the global economic model and to distribute the benefits of growth more widely. None of these considerations are what Trump intends, but nevertheless they are the potential long-term upside and unintended consequences of his leadership. The current world of Trump is disorderly, disruptive and focused on the US, but the future world he inadvertently begets may well prove to be a more prosperous, robust and economically inclusive one.

 

Devadas Krishnadas served two and a half years in the Singapore Infantry and ten years as a Senior Police Officer, including as a Commanding Officer and a Head of Operations. He served for three years as Honourary Aide-de-Camp to the President of Singapore (the then President S.R. Nathan). He also served five years in public policy in multiple Ministries including the Ministry of Finance. In 2012, he founded and has since led, a boutique consultancy, focused on public policy and corporate strategy.