August 11th 2018


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Articles from this issue:

COVER STORY Doctor-patient privilege dies with My Health Record

EDITORIAL By-elections reflect disenchantment with major parties

CANBERRA OBSERVED Longman result may force PM to rethink policies

INTERNATIONAL AFFAIRS No question about it: the Don is in charge

ENERGY Lower electricity price a fantasy

EUTHANASIA Vulnerable will be victims of Leyonhjelm's deadly bill

LITERARY STUFF Atlas Mugged

PHILOSOPHY On human nature

CULTURE AND SOCIETY The shadow of that hyddeous strength

FICTION A Scent of Musk

MUSIC Globalised Music

CINEMA The Equalizer 2

BOOK REVIEW ADF as modern peacekeepers

BOOK REVIEW The men who built up a great tradition

LETTERS

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INTERNATIONAL AFFAIRS
No question about it: the Don is in charge


by Colin Teese

News Weekly, August 11, 2018

The U.S. President is no shrinking violet. Nor does he move slowly. 

 

After less than two years in office, Donald Trump has turned the United States – and quite possibly the world – on its head. All the old economic verities are being set aside. And, as if that were not enough, he is giving geopolitics and the Western alliance a good old shake.

Donald Trump is a showman, not a politician. His public pronouncements are not carefully crafted to satisfy the largest possible audience. He is inclined, as the saying goes, to shoot from the hip. He exaggerates and backtracks without a blush. None of his detractors can cope with any of this.

But for those prepared to get behind the façade, there has been a kind of consistency in the Trump message, both on the campaign trail and beyond. He has been pushing three things: tax cuts for business, “make America great again” and make China small again, and stop bankrolling the security of the “Western alliance”.

The tax cuts are already in place. The jury is still out on whether they are good, bad or indifferent for the U.S. economy. It is not my intention to comment further on them in this article.

Trump’s economic path could not have been more purposefully laid out. The U.S. can never again be great unless it changes course. Business and jobs need to flow back to the U.S. To be great again the U.S. must regain the status of a major industrial power, alongside Germany, Japan and China. Donald Trump is convinced that for this to happen the current economic orthodoxies associated with open economies, free trade and (though he did not say so specifically) globalisation had to be cast aside.

If this contradicted orthodox views about free trade, then Trump was (and is) happy to be labelled protectionist.

Geopolitically, his views are no less radical. He has reinstated a fundamental, but long forgotten, truth into U.S. thinking: that foreign leaders, regardless of how one might choose to regard them, might just be acting in what they regard as the best interests of their countries.

He appears to have said this quite specifically in his contacts with his counterparts in China, North Korea and more recently, it seems, Russia. He is also resurrecting another basic pillar of foreign policy: that nations don’t have permanent friends, only permanent interests. The full implications of all this in geopolitical terms are profound, and beyond the scope of discussion in this article, which will concentrate essentially on matters economic.

What can be said in passing, however, is that Donald Trump, in his own curious way, is reshaping America’s view of its place in the world. Nationalism, putting the U.S. first, rather than the previously existing commitment to internationalism, is to be the guiding force. From this perspective, previous policies, created within the internationalist perspective, such as funding and providing a security umbrella for Western allies, is no longer to take precedence over domestic policy considerations.

This commitment to nationalism has earned the President the despair and contempt of prevailing elites, both inside the United States and deeper in the outlying democracies. So far as economics is concerned, one may discern a certain frenzy of anxiety in the manner of speech and writing from all the well-known architects of orthodox economic opinion.

How could all of this be, they ask? For the first time since the end of World War II, a U.S. President himself has turned his back on the sacred cow of free trade. He wants the U.S. to claim back the industrial sector sacrificed on the altar of globalisation, with its accompanying free markets and deregulation.

The internationalists are no less frantic. The President wants to recast the geopolitics of the Western alliance from what has developed since the implosion of the Soviet Empire. He is making it clear that the U.S. will not continue to bankroll a global security system for the North Atlantic, while leaving its Western allies free to pursue the more agreeable pastime of getting rich.

The two cornerstones of the post-Soviet world, free trade and U.S.-funded security for the Western allies, are being dug out.

Putting security issues aside for the moment, let’s have a close look at free trade – and what is claimed for it – through the lens of reality.

The free traders claim that by getting rid of taxes on imports (that is to say, tariffs) consumers will be given a wider choice of consumer goods, and prices will fall, at least to the extent of the abolished taxes. Put together as a global package, so the belief goes, everyone will be better off.

Trump does not even bother asking the well-founded question of whether, overall, these assertions hold up; he brushes them aside, taking the view that the U.S. cannot be powerful unless it has an industrial base capable of standing alongside Germany, Japan and China. (The absence of a strong industrial base also leaves the U.S. with an uncomfor­table debt on its trading account.)

Since none of this pleases the U.S. President, it is hardly surprising that his attention is focused on those of the U.S.’s trading partners who enjoy the largest trading surpluses: the European Union and China. Trump sees his moves to impose tariffs on some imports from these sources as an essential part of  re-establishing America’s industrial base. His detractors see it as the beginning of a trade war.

Note incidentally the reaction of the EU and China, self-proclaimed devotees of free trade. Their immediate response is to retaliate by increasing tariffs on U.S. imports. This is precisely the reaction trade theory tells them will harm their own economies.

It would seem, then, they would prefer to harm themselves with a retaliatory reaction than benefit by sticking to the principles of free trade they say they believe in.

By comparison President Trump’s position is a model of consistency. In the current environment, he believes America’s interest is best served if industry policy takes precedence over trade policy.

He may not be alone.

Rana Foroohar, a U.S. journalist and author, expert in American finance and business, wrote recently in The Aust­ralian Financial Review that the benefits of economic integration and global supply chains in today’s world may be a policy commitment the U.S. can no longer afford.

According to circumstances, drawing on supply sources from around the world can generate economic benefits. But for the U.S., the rise of China to great power status brings with it a fundamental change in the political and strategic landscape. China is now powerful enough to represent a security challenge to the U.S.

Given these considerations, a broad group drawn from both the private and public sectors within the U.S. is turning its attention to the question of whether or not it is in the best interests of the U.S. to continue its commitment to the idea of deep economic integration with countries such as China, which have the capacity to become a strategic competitor.

Dozens of U.S. experts, government officials, and military and business leaders recently gathered together at the National Defence University to discuss just these issues. They concluded that, in present circumstances, it is necessary for the United States to strengthen its manufacturing and defence industries. Pretty much in line with what Trump has been saying.

When it comes to national security, having the necessary industries on hand to help manage strategic challenges is more important than gathering whatever may be the financial or other benefits of global supply chains. Speakers at the event mentioned above shared the view that the laissez-faire approach to globalised business was over, and that this had serious ramifications for U.S. industry.

In future, the goal would be to generate resilient supply chains (that is, local manufacture) capable of withstanding not just a trade war but an actual war.

Major General John Jansen, who organised the event mentioned above, put it simply: “If you accept as your starting point that we are engaged in a great power struggle, then you have to think about securing the innovation base, making viable the industrial base and scaling it all.”

As it happens, some multinational companies are shortening their supply chains for commercial reasons. Boeing, for example, outsourced 70 per cent of its Dreamliner production to save money and yet it ran over time and over budget.

From the implosion of the Soviet Empire until perhaps the first five years of this century, the U.S. enjoyed a position of unique dominance. With no “great power struggle” to contend with, it was a moment when economics could dominate the policy debate, almost to the exclusion of all else.

Whether that was altogether wise is open to debate, but one thing is certain. In today’s power struggle for domination between the U.S. and China, economics must now take a back seat to security considerations in U.S. policy debates.

Obviously serious discussions are now taking place about how best to recast U.S. policies to take account of 21st-century geopolitical realities. It is hardly surprising that these will bring changes to how the U.S. manages both its internal and external affairs.

In these changed circumstances, a body of respectable U.S. opinion seems to agree with the President – perhaps even for the same reasons – that, as a matter of priority, U.S. industrial capacity must be rebuilt.




























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