Conflict Man

The victory of conflict-prone Donald Trump poses worrisome risks to the global economy and the US-China conflict.

And so, the blame game begins.  Predictably, it didn’t take long for the second guessers of the hindsight machine to lob grenades at Kamala Harris and the Democrats.  The media is hyper-ventilating over what quickly has been dubbed another American seismic political shock. Note, however that Donald Trump’s apparent 3 percentage point margin of popular vote victory is well below historic norms (see red bars in the chart below).

If you are like me, you must be getting sick of the torrent of instant postmortems on the who’s, how’s, and why’s of Trump’s stunning resurrection. Media platforms are great at slicing and dicing the vote count by gender, race, ethnicity, education, age cohort, geography, income deciles, etc.  I have little to add to that forensic assessment other than to stress a warning I issued repeatedly over the past several months — that elevated price levels were likely to matter much more to economically-anxious American voters than sharply declining inflation rates.  The exit polls did, indeed, show that turned out to be the Achilles’ heel for the Vice President.

Alas, it is time to move on.  Acceptance, as they say, is the first step on the road to healing.  That’s true not only of the nearly 48% of American voters on the losing side of this election, but true for all citizens in a sharply polarized nation.  By moving on, I mean letting go of the what-ifs and indignities that for many still feel like salt in open wounds.  It also means resisting the temptations of winners’ gloat. But letting  go does not mean ignoring the consequences of what happened on November 5.  For me, that spells thinking more about what Trump 2.0 portends for the global economic outlook, in general, and for the US-China conflict, in particular.

A few weeks ago, I laid out my assessment of  the global economic outlook in detail.  Notwithstanding consensus forecasts for a global soft landing over the next several years, I argued that the risks on the downside far outweighed those on the upside.  I stressed three concerns: a “sticky” disinflation that would prove problematic for monetary policy and interest rates; mounting disparities in the mix of global output, both within the advanced economies as well as in a China-centric developing world; and the wildcard of political and social repercussions of a world in conflict.

That latter concern now seems especially important in the aftermath of this election. Donald Trump is a man of conflict — the ultimate political disruptor. His use of provocative messaging is unparalleled for a major figure in the annals of modern US politics. That’s true not only of the vicious personal attacks he directs at political opponents, but also of the extreme positions he takes on domestic and foreign policy. However, it is important that we don’t get misled and distracted by his rhetoric.  That could well be the clever trap he set for the US body politic. By exhausting ourselves through indignation and fact-checking, we risk missing the basic point of his approach — using provocation to dominate the political and policy discourse. 

That key lesson of Trump 1.0 is likely to be even more prominent in his second term. He not only has the experience of 2017-20 to draw on but he also has a carefully scripted gameplan, Project 2025, prepared by a long sympathetic pro-Trump thinktank, The Heritage Foundation.  Candidate Trump, of course, disavowed any knowledge of this effort.  Unsurprisingly, within 24 hours of the election, the MAGA cult was quick to soften that view.

It is, of course, never easy to decipher the implications of Trumpspeak for policy. He often says one thing and then, as in North Korea where his threats gave way to “love,” he does the opposite. But as an agent of conflict, Donald Trump spells trouble for a vulnerable global economy.  In particular, his fixation on tariffs — namely, his support of 20% tariffs on all US imports — introduces the distinct possibility of retaliatory actions from America’s trading partners that could well spark a global trade war. In addition, Trump’s “America First” approach to foreign policy  — from Ukraine and Russia to China and North Korea  to Europe and NATO — all raise equally disturbing concerns of geopolitical instability.  With prospects of subpar global growth likely  over the next several years, according to the IMF’s latest World Economic Outlook, Trump 2.0 plays right into one of the downside global risks I fear the most.

The same is the case for the likely impacts of Trump 2.0 on the US-China conflict.  Don’t forget, it was Donald Trump who fired the first shot in an increasingly ominous trade war in 2018. His latest tariff proposal has a special feature aimed at China — increasing the current US tariff rate from 19% on two-thirds of all shipments from China to 50% or 60% on all imports from China. I doubt if Trump will go all the way in this extreme proposal, but I don’t doubt that he will once again take a misdirected bilateral approach to addressing a multilateral problem by penalizing China more than America’s other trading partners.  And that action will have consequences: We know from the experience of 2018-19, that China will not only retaliate, but that the Chinese piece of saving-short America’s outsize multilateral trade deficit will be diverted to other (higher-cost) US trading partners.  By singling China out for special treatment, the trade policies of Trump 2.0 are distinct negatives for both nations, separately, as well as for the conflict between them.

Moreover, Trump 2.0 poses additional risks to the US-China conflict that can be found buried in the 887 pages of Project 2025. For example, Chapter 4 on Defense Policy is a call to arms against China, with especially aggressive saber rattling on defending Taiwan. Chapter 5 on the State Department elevates China to the top of America’s adversarial threats. Chapter 9 on Development Aid calls for Washington to “end the climate policy fanaticism that advantages Beijing.” Chapter 17 on the Department of Justice calls for a reinstatement of the now disbanded “China Initiative,” which could do grave harm to people-to-people engagement between the two countries.  Chapter 21 on the Commerce Department prioritizes strategic decoupling with China. The tariff manifesto in Chapter 26 on Trade Policy was written by the veteran China basher of Trump 1.0, the recently incarcerated Peter Navarro. And on and on.

In looking out over the next four years of Trump 2.0, we obviously need to make the critical distinction between bluster and substance, between rhetoric and analytics. Only then, can we arrive at an objective assessment of risks to the global economy and the US-China conflict. Unfortunately, there is good reason to sound the alarm on both counts.  Yes, in one respect it is a fool’s game to attempt to predict the eventual actions and policies of Donald Trump.  But true to his role as the ultimate disruptor, the conflict man thrives on making extreme threats of instability and volatility.  That is where Trump 2.0 is likely to be very different than Trump 1.0:  Seasoned by eight years of battle, and now with no concerns for reelection, I  would be far more inclined to take him literally today than I did in the past. That spells heightened peril to the US, China, and a vulnerable global economy.