Democracy could be the greatest casualty of Trump’s war

It was not too difficult to predict some of these reversals. It is now well known that financial markets were spooked by a fall in US Treasury bond prices, with their rise in yields indicating a lack of faith in the US economy as buyers of this paper turned sellers. This was huge, as US trade deficits are financed by inflows of foreign capital and exports of services. If capital inflows reverse, Trump’s budgetary plans would come under threat, as also the global primacy of the dollar.

Also Read: Trump tariffs: The global bond market achieved what diplomacy couldn’t

At the same time, China has been pushing its yuan as an alternative to the dollar. The prospect of a tariff-led rise in US inflation while interest rates rose made even his own supporters in the field of business vote with their feet against his tariff policy. Yet, he has persisted with one aspect of his agenda, by raising tariffs on China to ridiculous three-digit levels. 

So, in the end, it boils down to a US versus China game. The question, however, is: Was it only about tariffs or does he (and his trade team led by Peter Navarro) have a long-term plan? Is there any method to this madness? And what is the role of geopolitics in all this?

To understand this, we must go back to the early 1990s, when Mikhail Gorbachev’s ‘perestroika’ policy led to a break-up of the Soviet Union. One consequence was an end to the US-Soviet Cold War, reflected in the political and economic standoff between North Atlantic Treaty Organization (Nato) countries (which formed the Organisation for Economic Co-operation and Development or OECD) and Warsaw Pact countries (which morphed into the Council for Mutual Economic Assistance or what came to be known as the Comecon group). 

The Cold War was a confrontation of ideologies: democracy versus communism. But a world split into two blocs was excellent for most countries, including developing ones, as they could use the face-off to resist economic pressures from the developed world.

Also Read: Trade face-off: Will Trump’s America back down first or Xi’s China?

To take an example, developing countries were exempt from tariff reciprocity under the General Agreement on Tariffs and Trade (GATT) in 1947. The US actually extended to all countries more tariff concessions than it got just to bring them into the democratic fold. 

To take another example, despite the close economic and political relations between India and the Soviet Union in the 1960s, it was the US that lent a helping hand during the India-China war of the early 60s and the food crisis later that decade. US President John F. Kennedy spoke of India as a ‘strategic ally’ vis-a-vis China, although what Richard Nixon thought about India (as we now know) probably captured Washington’s political position more accurately. Many other such examples can be found.

This came to an end in the early 1990s with the end of the Cold War. In the establishment of the World Trade Organization (WTO), it was clear that non-reciprocity for developing countries had come to an end. Economic relations have been frosty at WTO ministerial meetings. There was some hope that the relatively socialist EU might form the basis of a new ‘cold war’. European prosperity in the 1980s had led to an economically strong group of 15 EU countries that could potentially challenge the US. However, the end of the Cold War forced the EU’s economic plan to turn into a ‘security’ arrangement as well. 

The Maastricht Treaty of 1993 had expanded its membership to 27 nations by 2003, with East European countries joining that had broken away from the former Soviet bloc. The subsequent EU economic crisis shook its unity.

Also Read: Tariff pause: A chance for the EU to come back stronger and more united

Finally, the possibility of China emerging as a new ‘countervailing force’ always existed. However, after China joined the WTO in 2001, it was far more interested in pursuing economic development (based on US trade) than participating in international politics. To Beijing, economic prosperity via trade was important for internal politics.

In his declared unilateralism, Trump has made it clear that the old Cold War dynamic is gone and what’s at stake now is economic hegemony. So, as far as he is concerned, it is the US versus China in economic terms (the rest is a diversion) and countries must pick sides in this new stand-off.

Unfortunately, an anti-immigrant stance and the suspension of many civil liberties within the US seem to be the price he considers worth making his country pay to make it ‘great again.’ If Trump’s civic agenda persists, the casualty in this war for economic hegemony would be democracy. That is what economic domination at any cost could come to mean. Most developing countries will likely choose to side with the US. 

On the other hand, EU countries (with significant economic giants like Germany) have again been asked to stand up and be counted. Will the EU emerge as a countervailing force, given the strong democratic ethos in most of its constituents? Will the ‘lazy European’ awaken from slumber to challenge Trump?

Today’s geopolitical war could end in various ways. The great casualty across the world will be democracy.

The author is visiting professor, Shiv Nadar University