Trump and the Coming Death of Multilateralism

It is truly odd that the U.S. and global stock markets actually rose in the days following the election of Donald Trump as president, as if a few passing pro-business comments by the president-elect and prospect of a pro-business administration would make the difference between looming wealth versus lean times for investors. Akin to the “Trump Kool-Aid” (soon to be released in stores across the country, I am sure) that so many American voters apparently drank before they entered the polling booth, the stock markets appear not to care much about the prospect of a paradigm shift in U.S. and global politics — and economics — as a result of the election of Mr. Trump to the presidency.

His election as president of the U.S. implies an assault on a great many things, but none of them has as much potential negative global impact as the coming assault on multilateralism. In the Post-War era, the world has been clearly transformed for the better by the ever-freer flow of information, people, money, trade and investment. The world has benefitted greatly from the creation of many multilateral institutions which have fostered a climate of governance, transparency, and accountability - and a willingness to tackle a plethora of issues concerning humanity head on - ranging from climate change to immigration flows to conflict resolution. If Mr. Trump’s dystopian view of the world comes to pass, much of that stands at risk.

In the Post-War era, Wilsonianism (liberal internationalism) and Rooseveltism (collective action based on alliances and mutual respect) have been the cornerstone of international relations. If he is to be taken at his word, and if the Republican Congress will allow it, Mr. Trump will seek to weaken many of the pillars of Post-War stability and prosperity, such as NATO, the WTO and the UN. He made his opposition to free trade a central element of his political platform and has promised to declare war on free trade agreements such as the TPP and TTIP.

One of the likely results of this is that other countries will undoubtedly want to bypass the U.S. entirely when it comes to trade and investment. China has already redoubled its efforts to promote the adoption of the Free Trade Area of the Asia-Pacific and the Regional Comprehensive Economic Partnership — both rivals to the TPP — which China was excluded from and which cannot come into force without U.S. ratification. As was demonstrated by Iran when sanctions were in full swing, there are alternatives to participating in traditional forms of trade, investment, and currency clearing; Mr. Trump appears intent on ensuring that such alternatives are explored and pursued with vigor by as many countries as possible.

Another likely net result is the rise - even further - of a tendency toward economic nationalism and the propensity for protectionism. As national budgets become further strained, jobs become more scarce, and growth rates continue to decline around the world, governments that are already predispositioned to protect their own interests and adopt policies designed to shelter domestic industries will do so more liberally. They will not take into consideration that the erection of trade barriers and imposition of non-investor friendly investment policies is contrary to economic growth in the long-term - for everyone. If the U.S. no longer leads the way in adopting and practicing free trade and investment policies, governments around the world will have even less incentive to do so. We could see tit-for-tat trade wars that collectively drive the global economy into the ground.

In a report released last month, the WTO noted that between mid-October of 2015 and May of 2016, G20 economies had introduced new protectionist measures at the fastest pace seen since the Great Recession, rolling out the equivalent of five each week. That trend has coincided with a slowdown in global trade that is already in its fifth year, which has contributed greatly to an increase in protectionist political rhetoric around the world. The last thing the world needs now is an American president and Congress leading us all straight into an economic abyss.

America has vacillated throughout its history between periods of interventionism and isolationism, with varying degrees of depth - all with some impact for other countries around the world. Never before, however, has a political force emanating from America been intent on dismantling the very multilateral international order it helped to create. Mr. Trump’s version of the coming American isolationism has truly frightening potential consequences, immersing the U.S. into a cocoon of self-interest and propelling the world into competing economic and political landscapes where a common set of rules no longer apply and countries are only in it for themselves.

Consider the consequences of a world in which alliances depend not on a common set of values, but on perceived short-term interests, and in which every American ally must question U.S. motives and intentions. Envision a world where, as a result of trade wars, the price of natural resources and food could skyrocket at any given time because of spot shortages, resulting in riots and increased global political and economic instability. These are some of the potential outcomes of a collapse of multilateralism in a world reduced, in a very Trumpian way, to a series of business transactions where the winner is supposed to take all. We’ve been there before — in the 1930s. Better buckle up.

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Daniel Wagner can be reached at: dwagner@riskcooperative.com or 1-203-570-1005.