U.S. President Donald J. Trump’s (R-New York) “America First” policies threaten to fracture the global economy into several rival trading blocs.
Strangely enough this new world trade order might be good for smaller nations; like Japan and the United Kingdom, and bad for major economies like the United States and China. The shape of the new trading blocs is starting to become clear and it does not look very good for the United States.
Trump’s most visible trade action so far was to pull the United States out of negotiations to create the Trans Pacific Pact (TPP); a massive free-trade zone that contained a dozen Asia-Pacific nations. Despite Trump’s action, the TPP is far from dead with the remaining members meeting in Tokyo to hammer out a new deal, CNBC reported.
How Pulling out of the TPP might hurt America
The new pact might be bad for the United States because it includes Australia and New Zealand – two major food-growing nations. It is definitely within the interests of those countries; and other food producers like Thailand, to shut American farmers out of Asian markets. Australia; a major mining country, has the added incentive of trying to shut U.S. minerals (such as coal) out of Asian markets.
Something that Trump and his followers seemed to have failed to consider is that by pulling out of the TPP; they have left the remaining countries free to negotiate deals that shut out American goods. This might have some devastating consequences for export-based industries in the United States.
A TPP without America might have three effects that the Donald and his supporters will not like. It might limit the demand for U.S. resources like coal, oil and wheat; an effect that will be felt most in areas where Trump’s support was strongest such as Appalachia.
Beyond that a successful TPP without the United States would make America more dependent on China. The U.S. would have to increase trade with China to make up for the lost exports to the TPP countries. In other words Trump’s policy might end up strengthening the very trading relationship he has criticized most.
Worst of all a TPP that includes Japan might shut the United States out of markets for heavy equipment, automobiles, machine tools and other industrial goods. That would hurt American industry; and make it a lot harder for Trump to keep his promise of increasing the number of American manufacturing jobs. U.S. industries would also become more dependent on exports to China than ever.
An Even Worse Nightmare for the United States and China
There is an even worse trade nightmare for the United States; and China, out there Trump and company have failed to consider. What happens if the United Kingdom joins the new TPP?
Britain is a major manufacturing nation and it is pulling out of the European Union through Brexit. That would leave the UK free to join the new TPP which is more plausible than you might think.
Great Britain has historic ties to several of the TPP nations; Canada, Australia, and New Zealand, were dominions of its empire. Another former British colony; Malaysia is also a member. Japan is also a historic British ally; it had close relations with the UK until the 1920s.
Joining the TPP might help Britain revive the Empire trading policies of the 1930s which helped it survive the Great Depression. British membership in the TPP might lure in India, which the Chinese would definitely dislike.
The UK would bring the added incentive of lots of investment capital and a strong financial market. The TPP powers might want use the City of London as a counterweight to Wall Street. It would also be a counterweight to Japan, which would be appealing to smaller nations fearful of joining some sort of Japanese club.
There are military advantages as well, Britain has a large army and navy; with two full-sized aircraft carriers scheduled to enter the fleet within two years. Beyond that Britain is a nuclear power with missile-carrying submarines capable of deterring Chinese aggression. None of the TPP nations is a nuclear power; and most of them lack large carriers, which makes friendship with the UK (or India) even more appealing.
Why Saudi Arabia would join the TPP
Nor is Britain the only potential problem for America; what would happen if Saudi Arabia joined the TPP? Once in the Saudis would be able to shut U.S. oil out of many markets to make their petroleum more valuable.
British and or Saudi membership would make it possible and perhaps desirable for the TPP to shut the United States out. That might lead to fragmented world trade and competing trading blocs.
A wild card here is the European Union; which just signed a major trade agreement with Japan, The Washington Post reported. That too looks like another attempt to shut the US and China out of a portion of world trade.
A real dilemma for the United States would be if Japan starts pressuring other TPP nations to join its’ Eurocentric-trading bloc. A strong TPP would have advantages for them such as more stable markets and higher prices. Such a push is likely to be met by Chinese (and possibly American) pressures not to join the TPP.
The Dangerous New Trading Blocs
A logical outcome of the Trump style protection would be several rival trading blocs. One might be the TPP; another would be the European Union and a third the North American Free Agreement.
A strong possibility; which Trump might not like, is some sort of United States/China trading bloc. Such an arrangement would be logical; because China has manufacturing capacity America, needs and the United States has food, investment capital, natural resources and technology China needs. Beyond that the Chinese need American markets, and Americans need the Chinese market. America also has military power which China needs.
Trump himself has hinted at such a possibility by talking of specific trade deals with individual nations. Such arrangements would benefit large powers like the United States and China, but push smaller countries to form trading blocs to counter their power.
The interesting question is would these rival trading blocs evolve into political and military alliances that might wage war or trade war upon each other. The last time the world divided up into such trading blocs was the 1930s; right before World War II.
Perhaps it is time for President Trump and his advisors to rethink their trade policies. Those policies might create a world they will not like.