On the receiving end of Donald Trump’s crusade against the global economic order, it’s often assumed, are faceless multilateral institutions or the rules that have governed international commerce since World War II.
But after a week in which the U.S. president broke two longstanding taboos, it may be his successors who pay the real price, according to senior officials from past administrations who say decades of diplomacy — and America’s future credibility — is at risk.
On Tuesday, Trump directly linked his trade war with China to Federal Reserve interest-rate policy — and also to a criminal case against a Huawei executive, the daughter of the Chinese company’s founder, who has been detained in Canada as part of a U.S. probe into sanctions violations. Trump said he’d be willing to intervene in her case if it helped secure a trade deal with Beijing.
“That’s an amazing statement to the world,” said Carlos Gutierrez, the former Kellogg Co. chief executive, who served as Commerce secretary under President George W. Bush. “All these little things are going to add up and have a lasting impact. Anything can be linked to anything now.”
U.S. officials have struggled for decades to convince suspicious foreign counterparts about the separation of powers. They’ve explained that court cases brought against international companies caught violating American sanctions, or breaking other laws, weren’t driven by cynical politics. They’ve characterized Fed policy as the response of an independent central bank to domestic conditions, not a projection of U.S. might. They didn’t persuade all of the people all of the time — but the framing was central to America’s ability to lead by example.
In defense of Trump, he may be simply articulating what has long been a closeted reality about U.S. power. And the president’s defenders tend to argue the rules he’s breaking were past their sell-by date anyway.
Commerce Secretary Wilbur Ross on Thursday played down concerns over Trump’s Huawei comments, as other administration officials have also sought to do. When the president said he was prepared to step into the Huawei case if it helped close a trade deal with China, he wasn’t saying that he’d definitely do it, Ross told Bloomberg Television.
Ross conceded, however, that Trump had earlier this year intervened on behalf of ZTE, another Chinese company, as a “personal favor’ to President Xi Jinping — illustrating exactly what concerns critics of Trump’s transactional style of governing.
Gutierrez said he spent many meetings as commerce secretary trying to convince visiting ministers that legal actions against foreign companies were taken without any political interference, and that lobbying wouldn’t help. “I remember using this argument in China several times,” he said.
‘I Need Accommodation’
Just as problematic for future presidents may be Trump’s linking of monetary and trade policy.
Trump had already departed from presidential norms with his repeated criticism of the Fed and its Chairman Jerome Powell for raising interest rates, reining in the president’s efforts to accelerate growth. Some analysts have detected a softening in Powell’s subsequent speeches, and drawn the conclusion that the president is getting his way.
But this week Trump took a step further, roping the Fed into his tariff war. He specifically said that he wanted low interest rates to boost the economy as he takes on China over trade. “We’re fighting some trade battles and we’re winning. But I need accommodation too,” he told Reuters.
Because of its immense global impact, the policy pursued by America’s central bank has long been the subject of fierce international disputes.
After the crisis of 2008, bond purchases by the Fed — aimed at lowering long-term rates –led to a fall in the dollar. The Fed came under attack by Brazil and other developing economies, which accused Washington of waging a currency war. The so-called taper tantrum of 2013, when U.S. tightening sucked money out of emerging markets, triggered a similar row.
But past administrations have avoided making the central bank an explicit tool of American power.
The case the U.S. made after the 2008 crash was that unorthodox Fed policy was a technical response to domestic conditions, not a political move aimed at other countries, said Nathan Sheets, who was an in-house economist for Fed policymakers at the time. He later served as undersecretary for international affairs at the Treasury during the Obama administration.
That kind of delicate economic diplomacy will be harder to pull off in the wake of comments like Trump’s, said Sheets. “Even if the Fed’s policy doesn’t shift, it adds a political overlay for the central bank to deal with, but also for the rest of the world to interpret,” he said.
World Won’t Listen
Part of the concern is that Trump’s actions will give other governments cover to do the things that America has spent decades telling them not to do.
The U.S. worked hard to convince Japanese governments since the 1980s, for example, to stop trying to influence currency markets via public statements, according to Mark Sobel, a former senior Treasury official and U.S. representative to the International Monetary Fund. Yet with his own complaints about the strength of the dollar, Trump has sought to do exactly that.
“We used to criticize everybody else for open-mouthed operations,” Sobel said. “When we open our jaws about currency matters, it definitely gives license to others.”For future administrations, there’ll probably be consequences. They may seek to persuade the world that the Trump era was an aberration. But Gutierrez thinks the world won’t listen.
Instead, U.S. officials will likely spend years listening to their international peers throw Trump’s pronouncements back at them, he said. “Countries around the world will not let us explain that it was a Trumpian dip.”
First Published: Dec 15, 2018 07:58 IST
Credit: Source link