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Implications of a Trump Presidency and shifts in the World Order

A PowerPoint presentation at the Hong Kong EGN morning seminar at the Mira Hotel, Kowloon, Tuesday, 28 February, 2017.

Download Implications of a Trump Presidency and Shifts in the World Order

Murder of Kim Jong Nam

My live TV interview with TRT (Turkish Radio and Television Corporation), Turkey’s national public broadcaster based in Istanbul. 

Hong Kong Chief Executive Election process starts

My live interviews on CGTN, the global English TV channel of Beijing's CCTV (China Central Television) -

14th February, 2017  (Scroll the time reading bar to about 25:15 to view the relevant clip) 

15th February, 2017  (Scroll the bar to about 23:01 to view) 

According to the online counter, each of these programs registered over 17 million viewings up to now.. 

 

A Conservative Case for Climate Action

In an Op-ed of the New York Times (8th February, 2017), the above proposition is put forth in a Paper to be released by the Climate Leadership Council. The Op-ed is jointly penned by Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, Gregory Mankiw, chairman under President George W. Bush, and Ted Halstead, founder and chief executive of the Climate Leadership Council.

Co-authors of the Paper include James A. Baker III, Treasury Secretary for President Ronald Reagan and Secretary of State for President George H. W. Bush; Henry M. Paulson Jr., Treasury Secretary for President George W. Bush; George P. Shultz, Treasury Secretary for President Richard Nixon and Secretary of State for Mr. Reagan; Thomas Stephenson, a partner at Sequoia Capital, a venture-capital firm; and Rob Walton, who recently completed 23 years as chairman of Walmart.

This heavyweight Paper presents a plan that buys into deep-seated Conservative pro-business, anti-regulation, pro-growth, pro-exports, and pro-jobs principles. It is based on four pillars -

"First, the federal government would impose a gradually increasing tax on carbon dioxide emissions. It might begin at $40 per ton and increase steadily. This tax would send a powerful signal to businesses and consumers to reduce their carbon footprints.

Second, the proceeds would be returned to the American people on an equal basis via quarterly dividend checks. With a carbon tax of $40 per ton, a family of four would receive about $2,000 in the first year. As the tax rate rose over time to further reduce emissions, so would the dividend payments.

Third, American companies exporting to countries without comparable carbon pricing would receive rebates on the carbon taxes they’ve paid on those products, while imports from such countries would face fees on the carbon content of their products. This would protect American competitiveness and punish free-riding by other nations, encouraging them to adopt their own carbon pricing.

Finally, regulations made unnecessary by the carbon tax would be eliminated, including an outright repeal of the Clean Power Plan."

The Op-ed suggests that this plan could meet America’s commitment under the Paris climate agreement, all by itself. Above all, it facilitates President Trump's move to free shackles on the oil and gas industries. It also contains broad-based elements that should appeal to Conservatives, libertarians, populists and environmentalists alike, thereby ensuring bi-partisan support.

Absent further details, an apparent fly in the ointment is that only exports to countries without comparable carbon pricing can benefit from the tax rebate. As not all oil and gas production is for export and not all exports are to such countries, a sizable proportion would have to bear the tax burden. If true, it is open to question whether such a plan would gain enough support from influential hard-nosed energy interests inside the GOP corridors of power. 

Backing Into World War III

In Foreign Policy (6 February, 2017), Robert Kagan, Senior Fellow of the Brookings Institution, argues that America must check the assertive, rising powers of Russia and China before it’s too late. Accepting spheres of influence is a recipe for disaster. Click here

His argument is based on the following premises -

(a) that the America-led uni-polar world order including strong ties with US allies remains the only one that works;

(b) that the rising "revisionist" powers of Russia and China will not be satisfied with regional spheres of influence, implying that either or both would seek global dominance;

(c) that China, in particular, may push the United States out of at least East Asia, "not only militarily but politically and economically"; 

(d) that we are returning to the 19th and 20th centuries when Great Power conflicts for spheres of influence led to global wars; and 

(e) that to save the world from a looming WWIII, the United States should build up its military further to restore US hegemony. 

Kagan dismisses out-of-hand the viability of Niall Ferguson's "tri-polar world order" jointly led or influenced by the United States, Russia and China with strategic "cooperative rivalry" respecting each other's core interests. He considers such strategic balance unsustainable as both Russia and China are dissatisfied revisionist great powers which are bound to progress from an inch to an ell. Instead, he thinks that the only option is for the United States to redouble her military strength to maintain a US-led world order. This emphasis on military dominance merits a little more thorough think-through. 

First, it begs the question whether history inevitably repeats itself. In the Age of the Fourth Industrial Revolution characterized by global interdependence and inter-connectivity, concepts of global hegemony, power exclusivity, and a zero-sum-game mentality may no longer work. For example, why should China push the United States off anywhere economically when American finance, technology, and businesses continue to define the global supply and value chain, much to China's benefit? 

Second, Russia has shown relatively limited ambition to achieve dominance beyond her Eurasian "near abroad". Notwithstanding narrower national calculations, she has displayed a more proactive role in maintaining regional peace and stability, as in the case of Syria following years of bloody conflict. Similarly, despite assertiveness in the South China Sea, which are critical sea-lanes central to her economic lifeblood, China continues to defend the global trading system, not to mention the international compact against Climate Change. China has also been fielding the largest peacekeeping contingent among Permanent Members of the UN Security Council. Both rising powers are therefore capable of contributing to the global commons. Unless they are deliberately threatened or provoked militarily, it may be too early to conclude that World War III is inevitable. 

Third, the United States military is already by far the strongest in the world, with military expenditure exceeding the rest of the world combined. If this is deployed to coerce Russia or China, both countries are likely and well able to respond. Russia's military remains formidable, including possession of more nuclear warheads than the United States. China's military is no longer a walk-over. Her rapid military modernization and build-up is largely in response to a de facto US encirclement of China's vital economic sea lanes with American military assets, including missile and bomber bases, as described in  film-maker John Pilger's new documentary "The Coming War on China". In addition to state-of-the-art inter-continental multi-warhead ballistic nuclear deterrence, China is more than capable of defending core interests in the South China Sea. Such defense includes robust ant-access/area-denial (A2/AD) capabilities both above water (such as mobile anti-ship ballistic missiles (ASBMs)) and under water (such as remote-controlled manoeuvrable sea-mines). 

Fourth, any dramatic US military build-up is likely to start a vicious arms race with Russia and China, spreading to many theaters, including space. This would only serve to reinforce their deterrence capabilities, consolidating their positions in a tri-polar world. 

Perhaps that's why President Trump seems inclined towards greater rapport with Russia. The recent joint astronaut survival training in Siberia is instructive. America's commercial energy interests in Russia may be part of the reason. So may be calculations for a possible US-Russian detente to balance against China. However, Russia is unlikely to come too close to bed with an fickle nemesis responsible for the collapse of the former USSR. Nor would Russia sacrifice China as her largest energy customer by far, or for that matter, as a strategic hedge against American hegemony. 

Perhaps that's also why, despite a worrying initial period of apparent apathy, if not hostility toward China, he has sent a letter to President Xi making amends and holding out an olive branch for constructive, results-based, "win-win" relations. 

Ultimately, that is, reality speaks louder than rhetoric. 

Assessing Trump's possible trade wars

In its February 6, 2017 Global Macro-Research Report -Trade Wars, Goldman Sachs examines the risks and opportunities of more strident American trade policies under an "America First" President Trump.

Download Goldman Sachs Global Macro-Research -Trade Wars

In considering the following highlights as regards China and Mexico, the leading targets of Trump's possible trade wars, it is important to remember that only 19% of China's exports go to the United States, compared with Mexico's 82%. Moreover, thanks to continuing economic re-structuring, exports now only account for 20% of China's GDP, the rest represented by services, investment and domestic consumption. 

The following findings of the Goldman Sachs report are noteworthy -

• According to Nicholas Fawcett, Senior Global Economist Goldman Sachs, tariffs of 45% and 35% on China and Mexico respectively would reduce America's GDP by 0.77 % by 2019, compared to China's reduction of 0.3%, taking into account likely retaliations and global spill-overs, all-out trade wars are likely to damage the United States more than China. 

• Immediate losers will be American consumers, who will face increasing inflationary pressures. 

• Targeting imports misses the point. For example, one-third of imported auto components (including a large proportion from China) are for car production in the United States. Imposing punitive tariffs on these will only make US-produced exports even less competitive. The same goes for many goods and products in the ubiquitous global production and value chain. 

• Being mooted is Destination-based taxation with border adjustment (DBTBA) equivalent to an import tariff plus an export subsidy. Instead of taxing companies’ total income net of total costs, it would tax companies only on income earned domestically and allow them to deduct only domestically sourced costs. Net exporters (like aircraft manufacturers) would benefit, while companies with a high net import share (like apparel or computers) would suffer. Importers with smaller margins would be the most vulnerable. The Dollar will get a further boost, perhaps neutralizing some of the advantages given to exports. 

• Depending on the severity of Trump's tariff wars, China may retaliate possibly even more robustly, targeting America's exports of airplanes, cars, agricultural products and even key US enterprises in China. While unlikely, China may also resort to selling more US Treasury bonds, putting pressure on US interest rates. 

• Trump's aggressive trade rhetoric is in answer to his electorate's deep-seated grievances in the declining traditional machinery, automobile, furniture, rubber, plastics, textile and clothing sectors. (*) Tariffs alone are unlikely to revive the competitiveness of these industries.

• A more likely first tariff salvo is to target China's imports of steel, aluminum, glass, and solar, where there is already huge Chinese excess capacity. 

• As for currency manipulation, the possibility of some window-dressing initiative cannot be ruled out, for example, enacting a non-country-specific, anti-currency manipulator piece of legislation with fast-track presidential powers. 

• Looming trade wars are part and parcel of Trump's world view that America's championship of global trade is being taken for suckers. Instead, according to Dr. Richard Haass, president of the Council on Foreign Relations, "trade has an important geopolitical dividend. It’s a way of supporting allies and promoting human development around the world, as well as integrating adversaries in a way that makes them think twice before they disrupt the status quo". Similarly, "our investment in the rest of the world is not an act of charity; it’s an act of self-interest."

(*) As a post-script, China's state-directed all-out strategy to grow global business champions is now eroding the competitiveness of Western business leaders in new industries like solar panels. A New York Times expose tells why. 

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Freshly renovated all painted white with new wooden flooring and woodwork, Flat D on 23/F of Royal Court at 9M Kennedy Road, Hong Kong is well situated within walking distance to all amenities near Admiralty and Central. 

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