US President Donald Trump has been in office for only 12 days, but his first few decisions have reverberated at home and abroad

Worrying signs of Trump trade war

After hearing the mantra "America first" from new US President Donald Trump, many are looking to China, which has adroitly capitalised on a leadership vacuum in world affairs by offering itself as a champion for global engagement.
After hearing the mantra "America first" from new US President Donald Trump, many are looking to China, which has adroitly capitalised on a leadership vacuum in world affairs by offering itself as a champion for global engagement.PHOTO: NYTIMES

Pulling out of TPP and plan for tax on imports from Mexico among measures raising alarm

WASHINGTON • Some allies of the United States are shifting focus to other potential partners for new sources of trade and investment, relationships that could influence political, diplomatic and military ties.

After hearing the mantra "America first" from new US President Donald Trump, many are looking to China, which has adroitly capitalised on a leadership vacuum in world affairs by offering itself as a champion for global engagement.

"We've always said that America is our best friend. If that's no longer the case, if that's what we need to understand from Donald Trump, then of course Europe will look for new friends," Mr Jeroen Dijsselbloem, president of the Eurogroup - comprising finance ministers from countries sharing the euro currency - said on the sidelines of the World Economic Forum in Davos, Switzerland, last month.

"China is a very strong candidate for that," he added. "If you push away your friends, you mustn't be surprised if the friends start looking for new friends."

During the US election campaign, critics dismissed the extreme talk from the Trump camp as political bluster. He would never follow through on his threats, particularly in trade where his business sensibilities would prevail, they said.

But that conventional wisdom looks to be crumbling.

LOOKING FOR NEW FRIENDS

We've always said that America is our best friend. If that's no longer the case, if that's what we need to understand from Donald Trump, then of course Europe will look for new friends.

MR JEROEN DIJSSELBLOEM, president of the Eurogroup, comprising finance ministers from countries sharing the euro currency.

First, Mr Trump delivered on a promise to withdraw the US from the Trans-Pacific Partnership. He provoked fears of a clash with China beyond issues of commerce by taking a congratulatory call from Taiwanese President Tsai Ing-wen. Then, last Thursday, his administration appeared to embrace a 20 per cent tax on imported goods from Mexico, asserting that the proceeds would pay for a wall along the Mexican border.

Within the business world, the prospect of substantial tariffs seems so damaging that many are hoping it would never happen.

"I'm incredibly concerned that the Trump people mean what they say," said trade expert Chad Bown at the Peterson Institute for International Economics. "One would hope that they are using this as a negotiating tactic. But even if you are, that's an extraordinarily dangerous game to play."

Given that nearly one-third of all US trade is conducted with China and Mexico, a rupture risks severe economic damage. The three countries are intertwined in the global supply chain. China makes components that go into auto parts manufactured in the US. Those parts are delivered to factories in Mexico that produce finished vehicles sold in the US. Calling such vehicles Mexican imports misses the fact that much of the value is produced in the US, with American labour.

 
 

In emphasising "America first", Mr Trump has generated a widespread sense that the US is surrendering its global leadership.

China is working to assume the mantle. President Xi Jinping used his address in Davos to submit his nation's bid as a reliable champion of expanded trade.

Mr Xi's speech was so successful that it won the embrace of business people and world leaders alike.

"We heard a Chinese president becoming the leader of the free world," said Berlin-based private equity fund manager Andre Loesekrug-Pietri.

Meanwhile, Japan is hammering out plans to show Mr Trump its companies are ready to create US jobs, according to a document seen by Reuters, as Prime Minister Shinzo Abe prepares for a Feb 10 summit in Washington where the automotive trade will be high on the agenda.

An early draft listed five areas including infrastructure but not the automotive trade, which Mr Trump has targeted as "unfair" .

It also referred to the idea of buying US dollar-denominated "infrastructure bonds", a proposal that has been floated as a way that Japan could take part in Mr Trump's promised upgrade of US infrastructure.

NYTIMES, REUTERS

A version of this article appeared in the print edition of The Straits Times on February 01, 2017, with the headline 'Worrying signs of Trump trade war'. Print Edition | Subscribe