Breakdown

The latest word from Donald Trump is that a trade deal with China will not happen until after the US presidential elections November next year.

He tells us this after many weeks of teasing the world’s markets with hints that a deal was forthcoming. Each time he said that, the markets jumped. Then they receded when it appears the American president was speaking without basis.

Last week Trump was constrained to sign a bill that supported the pro-democracy activists in Hong Kong. Whatever his personal inclinations might be, veto-proof majorities in both chambers of the US Congress voted for that bill.

If Trump had a choice, he would not have signed that bill. That shows in the obsequious letter he wrote Chinese President Xi Jinping transmitting the new US law.

China had warned against this bill passing into law. They describe this new law as interference in her internal affairs. After Trump signed it into law, China declared a ban on all US warships docking at the Hong Kong harbor.

This was an entirely symbolic response. US warships rarely dock at Hong Kong. They call on friendlier ports around the region such as Singapore, Japan and South Korea. The US is hardly harmed by the ban.

But Trump, being what he is, will not let this pass. Shortly after, he announced his inclination that no trade bill be concluded until late next year.

Trump may not realize it, but this latest pronouncement causes tremendous damage worldwide. It takes the wind out of the sails of the bilateral trade negotiations between the world’s two largest economies. It signals a breakdown of the talks due to factors totally unrelated to the trade issues being discussed.

The consequences will be far ranging. Immediately, we may anticipate a further retreat in the stock exchanges across the globe. That retreat will undermine efforts to revive global economic activity.

Japan, for instance, just announced it was introducing a stimulus program to enliven its stagnant economy. But if market capital shrinks, such a stimulus program will be negated.

The apparent shelving of the trade talks will feed into the perilous global economic slowdown. It could be enough to cause recession in the more vulnerable industrial economies.

Shelving the trade talks will harm both the Chinese and American economies. China’s growth began to flag this year. The tariff war could produce an even more lethargic economic performance next year.

The US manufacturing sector, for its part, has been contracting for four consecutive months. When Trump promised his base that America would be great again, that essentially meant the country would regain its dominance in manufacturing. All of the tariff restrictions Trump imposed on other economies were intended to help the US become the manufacturing superpower it once was.

But over the past few months US manufacturing has been moving in the opposite direction. In addition, the tariff war with China saw American farmers suffering from poorer exports. If the trends continue, they will cut into Trump’s vaunted Middle American political base.

But Trump never had a clear and coherent strategy on anything. He tries to get by with decisions taken on the fly.

The trade war takes its toll on other economies as well. Many emerging economies are stymied by the headwinds of slower global growth.

Over the next few months, unless Trump shifts his stance toward the trade negotiations, many countries will probably have to cut back their growth projections for next year. That includes ours.

NATO

Trump opened his London visit denouncing French President Macron’s remarks about the North Atlantic Treaty Organization (NATO) being brain dead. Those remarks were made in direct reference to Turkey’s recent behavior. It could as well have been in reference to Trump’s treatment of Ukraine, a key NATO concern.

Turkey, a NATO member country, recently conducted a major incursion into Syria to drive away Kurdish forces supported by the Europeans. Turkish president Erdogan ordered the incursion after talks with Trump that resulted in an order for US troops to withdraw from the Turkish-Syrian border.

Ironically, in at least a dozen public statements, Trump himself called NATO “obsolete.” He had threatened to cut American support for the alliance, decrying the failure of major European countries to raise their defense spending. In Trump’s view, the Western Europeans were freeriding on US military spending.

NATO was a military alliance organized in the depths of the Cold War to confront the threat from the Soviet-led Warsaw Pact countries. This week, the leaders of the NATO member-countries gathered in London to celebrate the 70th anniversary of the alliance – and possibly to rethink its future.

The Cold War is over. Some Warsaw Pact countries such as Poland are now with NATO. Although Russia continues to be menacing, the Western Europeans probably do not need a full military alliance such as NATO is.

No one (except perhaps Trump) thinks the NATO should go. No one is prepared to bury the alliance.

It is an issue of great domestic debate among the European countries if much more spending is needed for military purposes. European publics think there are other more urgent concerns that require spending on. These include better health care, improved police capabilities and subsidies required to slow down climate change.

On its 70th year, NATO does look like an alliance in need of redefinition. There is no agreement, however, on how that redefinition might happen.

Building a new consensus among the NATO member-countries will take much time and involve much disagreement. The alliance is deeply institutionalized.