Love him or hate him, U.S. President Donald Trump will go down in history as the great disruptor, having completely shaken up the established world order. It is, however, yet too early to realize the full effect of his actions, and it seems that the President himself may not understand the impact of what he has started. Remember, he only looks to the short term – you do a deal and move on. He will not have considered the enduring effect of what he has been doing over the months and years ahead.
Now before you start to think that this is just another cheap jab at the world of Trump, I think that it is important to recognize that he has quite rightly shocked the world, especially the western allies, and broken the complacency of the post WW2 era, which has now gone forever. However, while throwing the cards up in the air is certainly dramatic, not understanding nor appreciating the result of this will leave the world in a very nervous and insecure position.
Add to this the various conflagrations around the globe, and we have every reason to be worried about where we are now and where we are heading.
The past few decades have seen the growth, strength and in many cases success of globalization. Yes of course, there have been failures, but the spreading of global trade has certainly moved many nations’ economies from failing to growing.
But now we are seeing a dramatic change. President Trump has almost single handedly created the cracks that will mark the end of this seemingly secure economic structure.
Ending the period of globalization of trade, freedom of trading routes and the interconnection of supplies and manufacturing to a new world in which the established and entrenched trading structures have been torn down, is going to have consequences. Am I being overly dramatic? No! We now have a new economic order where globalization has been replaced by nations focusing on the security of their supply chains both for their economies and their industries. The picture we confidently saw before in which global trade had prospered has been up ended in a way we could not have imagined outside a cheap economic thriller.
The “art of the deal” Donald Trump-style has worked in areas such as one-off property contracts. First frighten your opponent with a very high price or tariff and then let them sweat. Then, if they have not already knelt before you for a better deal, just say you will do something especially for them and offer a “special discount just for you!” The opponent is often fawningly grateful and sings high praises, while the President has got himself a better price and a grateful trade partner.
That’s fine if you are flogging an apartment, but not if you are changing patterns of trade which have been become deeply embedded in various economies across the world. As an example, the seemingly mild mannered Canadian Prime Minister, Mark Carney, did not follow the expected playbook after the belligerent tariff threats from the President. He just walked away and announced that he was ready to do deals with other parties in vital trade areas for the United States.
So, wheat and other agricultural exports, which are vital for the U.S., he announced could be transferred to China and the EU. Vital power supplies from Canada to the northern U.S. states could also be transferred elsewhere, and delivery of key gas and crude supplies again moved to other hungry customers like the EU and UK. Interrupting these supplies could bring various factories and refineries to their knees in just a few months.
The manufacture of a completed car in Detroit can involve the cross-border transfer of key components seven times before the final assembly. These trade lines have developed because of their effectiveness and efficiency, not because of political wrangling. They have also taken decades to develop and adjust as products and economies grow and spread out. To suddenly change these supply lines is extremely dangerous as easy alternatives don’t exist.
Carney now looks like the cool calm statesman managing the best for his nation, while the blustering President might just start to realize that bullying your neighbor, ally and largest trading partner doesn’t always work, and can have very serious economic consequences – especially with mid-term elections coming up.
As our geological tectonic plates move, we are all aware of the damage and death they can cause and while our economic tectonic plates may not be so obvious, their effects may well prove to be equally dangerous to national economies, corporations and most important the employees, customers and citizens dependent upon the financial strength of their economy.