Is Trump on the right track?

The Trump train is moving in a fast pace and is making many enemies wherever it moves by its extreme Americanism and its disregard for other countries. The tone is often rude, and it shows the loud bully that many, in particular Europeans, think is the true American. The initial phase of the second Trump administration has been successful as they have saved billions by DOGE, deported illegal criminals, deregulated the energy sector and the financial sector, making progress towards peace in the Middle East and Europe etc. At this same time, Trump has managed to upset a number of countries like Greenland, Ireland, the UK, all of Europe, Ukraine, Iran, South Africa, India, China and the list can go on. Trump’s economic plan with increased protectionism and tariffs is adding tension as well.  

On the one hand, the Trump administration wants to ensure that the dollar remains supreme as a global reserve currency and that the dollar-based financial system continues to dominate, but at the same time, they also think that the dollar is overvalued by virtue of the fact that it is the world’s reserve currency, which means that people keep buying dollars and so that pushes up the value. Thus, the Trumpists want an accord whereby other countries help to weaken the dollar in exchange for tariff relief, military protection, and so forth. Ultimately, countries would fall into one of three buckets: green (friends), red (foes), or yellow (partial alignment). They want to re-engineer the global financial and economic system.

Trump did a good job for the Americans with North American Free Trade Agreement (NAFTA) as he demanded that Canada and Mexico help him fix it during his first term. The resulting US-Mexico-Canada Agreement (USMCA) should have put those countries into the green bucket. But that is not what is happening. On the contrary, Trump has been most abusive toward Mexico and Canada. Hardly a day goes by without him issuing some new threat, insult, or announcement of another tariff. Such are the rewards bestowed on those who play ball and get themselves into the green bucket. The problem with Canada and Mexico is that they are still running huge trade surpluses vis-à-vis the U.S., Canada around $100 billion annually, due to unfair trade advantages, and Mexico more than $170 billion. Mexico also has incoming money, remittances, from the U.S. of $65 billion annually. This means that Mexicans living in the U.S. are sending money back to Mexico. This is helping the Mexican economy, not the U.S. one, and this is driving Trump crazy. Finally, U.S. deaths related to fentanyl coming from Mexico are tens of thousands. In Trump’s mind, Mexico is a corrupt country run by drug cartels, taking advantage of the U.S.  

If you are any other national leader, what should you do to deal with Trump’s unpredictability and outbreaks? It might not hurt to talk to Trump, to make noises that sound nice to his ears, to praise his sagacity and create the appearance of affinity. But when it comes to policy, stay the course unless you get a large, irreversible benefit up front. And even then, you should prepare in advance to make it very painful for Trump to break whatever deal he announces with you. In the case of Greenland, it is clear that long-term, the geopolitical importance of Greenland will increase as more trade routes will open up and ice will keep melting. There are only 56,000 people living there. At some point, Denmark’s colonial rhetoric will not be acceptable for the Greenlanders, and they will want independence. Once that happens, money matters, and they will align themselves more closely to anyone who will help them build a better and richer Greenland. Most likely the Americans, but the path for a country breaking away from an old colonial power is unpredictable.

Regarding Mexico and Canda, given that Trump has already violated the terms of the USMCA, other countries have zero incentive to do what he demands. Can he be trusted? Maybe not, but he has the power to make your life difficult. If you are a country vulnerable to the kind of unilateral punishment that Trump can mete out, you do have a problem. But the solution is not to work with Trump, it is to remove the problem.

Thus, Mexico should already be seeking to deepen its trade with others, in particular Europe and China, which command some of the technologically sophisticated portions of the globalized value-chains upon which the Mexican economy relies. Similarly, Canada should already be working to link the resource-rich parts of its economy to China and Europe. That means abandoning any plans for new infrastructure to take resources south and coming up with a new development strategy for Ontario. For 150 years, the southern swath of the province has been an integral part of America’s Midwest manufacturing complex. Both sides have benefited enormously. But many Canadians think that divorce is now necessary.  

The rest of the world is already considering how to minimize the risk from Trump’s America, which will soon find itself in a position analogous to post-Brexit Britain. Withdrawing from the European Union for no good reason is estimated to have made the United Kingdom 10% poorer than it would have been, and the costs continue to mount. Will the U.S. face a similar fate? Whatever the case, the important thing to remember is that the dice has been cast. There is nothing that can change Trump’s isolationism and nationalism.

The problems for the western democracies, many who consider themselves superior and still has a colonial mindset, is Trump’s abusing and bullying behavior. They see him as a spitting, tobacco-chewing cowboy. Can Trump bring in another person who can be trusted and help Trump in a kind of bad guy, good guy scenario. One is reminded of Ronald Reagan’s second term. After the Iran-Contra scandal, the White House announced, in February 1987, that former Senator Howard Baker would serve as Chief of Staff. He brought instant credibility as a fair, honest, and decent public servant. His appointment was good for Reagan and good for the country. From then on, Reagan would make public appearances, shake hands, and give speeches, while Baker ran the executive branch. This scenario is likely not yet playing out for Trump. But his abusive nature is likely not good for the relationship with allies. Should you not be nice and kind towards your friends? Should the midterm election be favorable for democrats, things might change. Once Trump will become more concerned about his legacy, he will likely start toning down the rhetoric and become friendlier. For now, though, Trump will keep moving forward like a bulldozer, in particular against anyone he thinks is ripping him off and taking advantage of the U.S. Frankly, both Mexican and Canada are…Is Trump on the right track? Most Americans seem to think so, but it would likely serve him better if he can be kinder and more polite.