As divisions are deepening in the US, Washington is paving the way for trade wars. Incumbent President’s life expectancy is a matter of public debate. America’s political fall will be the hottest—and potentially violent —in decades.
WHILE Charlottesville’s white supremacists and violent riots brought forward old race divisions and seemingly new hate groups, North Korea’s nuclear threats prevail.
Not surprisingly, economic prospects are now more uncertain and markets as overvalued as in October 1929.
Political time bombs at home
During the 2016 presidential campaign, Trump promised to increase real economic growth to 4 percent. At the time, I predicted that would never happen and, due to political destabilization, economic growth could take a hit. That’s now the case.
Growth could be 2 to 2.2 percent in 2017-2018, although further destabilization could reduce it by 0.2-0.4 percent. But if Trump will cut immigration by 50 percent in a decade, as he plans (the RAISE Act), it would result in 4.6 million lost jobs by the year 2040.
In turn, Trump’s tax reform plans would require the support of the Congress, which is highly unlikely. In the absence of a repealed Obamacare, the Trump tax plan would raise federal government debt to 115-140 percent of GDP by 2027, and double it by 2047. Without bipartisan support, Trump must set aside the proposed tax reforms and is likely to opt for tax cuts that could amount to $500 billion in early 2018 – conveniently before the approaching mid-term elections.
One of Trump’s key initiatives has been the plan to address America’s crumbling infrastructure by spurring $1 trillion in investment over time. But now the plan is on hold. Since the expected fiscal expansion is late, it will achieve less than anticipated.
Moreover, by early fall, Washington must also cope with other political time bombs, including the impending fight for the nation’s debt ceiling (US debt amounts to $20 trillion, or 105 percent of GDP), the 2018 federal budget, and possibly another effort to overthrow Obamacare (i.e., The Patient Protection and Affordable Care Act).
Toward trade wars abroad
In the last G20 summit, most major economies vowed to continue to fight protectionism, but the White House managed to include in the final communiqué terms such as “all unfair trade practices” and “legitimate trade defense instruments” — which could serve as pretext for protectionist measures in the future.
Since spring, Trump’s Commerce Secretary Wilbur Ross has been investigating the effects of steel imports on national security grounds. By June, Europe’s NATO leaders launched an extraordinary lobbying campaign against an anticipated US crackdown on steel imports, which, they said, would hit US allies more than China.
In the US, the largest steel importers are Canada (17 percent) and Mexico (9 percent), followed by the Europeans – not China (2 percent).
As new trade conflicts will extend to imported aluminum, semiconductors, paper, and household appliances, trade friction will spread to China and other major importers. Indeed, Trump has directed the US Trade Representative Robert Lighthizer, a veteran Reagan administration trade hawk, to open an investigation into China’s intellectual property (IP) practices.
The investigation will proceed under Section 301 of the Trade Act of 1974 that was seized in the 1980s to deter the rise of Japan. Today, it could lead to steep tariffs on goods from China—which has pledged to defend its IP practices and retaliate.
To impeach, resign, or assassinate
Recently, special counsel Robert Mueller’s investigation impaneled a grand jury in the investigation of Russia’s alleged interference in the 2016 US election. It seems to be more focused on Trump, his businesses and extended family than Russia. The goal seems to be to impeach Trump. However, the investigation will take time.
In one much-debated scenario, the Mueller investigation will corner the incumbent president, who will resign to avoid public humiliation, thus trying to turn a failure in the White House into a political victory. Veteran Republican Ron Paul has predicted a darker scenario: the assassination of Trump by the US “deep state”; that is, the US industrial-military complex and intelligence community.
Recently, it was seconded by Philip Mudd, ex-deputy director oft the CIA’s Counterterrorist Center and FBI’s National Security. ”The government is going to kill this guy because he doesn’t support them,” Mudd says. Meanwhile, the Secret Service has announced it cannot pay hundreds of agents it needs to protect the President.
In this extraordinarily heated political environment, the Democrats could capitalize on the Trump debacles, but they are amid a meltdown of their own.
After the 2016 elections, the Clinton Foundation shut down the Clinton Global Initiative (CGI), which funded the Clintons’ personal ventures rather than Haiti or other destinations of abject need. The political force behind Sen. Hillary Clinton, the Democratic Leadership Council (DNC), has been plagued by a series of scandals, including collusion with mainstream media (CNN, New York Times, Washington Post), corrupt Ukrainian officials, fraud to subdue Bernie Sanders’ campaign, manufactured allegations about Russian interference, controversial liquidation of millions of dollars in real estate assets, the crimes of former DNC chair Debbie Wasserman-Schultz and her inner circle, and so on.
Presidency at crossroads
“The Trump presidency that we fought for, and won, is over,” says Steve Bannon,Trump’s controversial chief strategist who had a critical role in his presidential triumph—and who recently resigned from the administration.
As far as Bannon is concerned, the White House is now subject to Goldman Sachs (Secretary of Treasury and chief of National Economic Security are the investment bank’s former execs), which, he says, is evident in the administration’s neglect of its lower-middle-class constituencies; and the Pentagon, as evidenced by the US return to Afghanistan.
In April 2016, I predicted that the US 2016 election will turn America into a global risk. The coming fall will take us to the next phase.
Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/