Donald Trump’s Italian prototype

09.05.16 Publication:

Here is a good principle when thinking about the US presidential election in November of this year: hope for the best, but prepare for the worst.

It is time, now that both the Republican and Democratic parties have settled upon the candidates they will nominate, to begin the preparation. Normally, from the point of view of America’s friends and allies in the rest of the world, there is not much to choose between, say, George W Bush and Al Gore, or Barack Obama and John McCain. This time, it is clear that a President Donald Trump would be very, very different from a President Hillary Clinton. So foreign governments and businesses need to prepare themselves.

To prepare is not to predict. With more than six months to go before Americans place their votes, prediction is pointless in any case. Many things can happen between now and November that could affect the result. Assumptions that are held now, about each candidate’s apparently positive or negative ratings with different groups of voters, cannot and should not be relied upon.

Preparation sounds risky. Mr Trump is, however, a man who would admire preparation. He considers himself to be king of “the art of the deal”, to borrow the title of his bestselling 1987 book. High up on his list of advice to others would be preparation.

The basic message of his much-noted speech on foreign policy on April 27th, before an audience at the Center for the National Interest in Washington, DC, was that a Trump Administration would always follow an “America First” policy, whether in foreign affairs, trade or taxation. In doing so, he claimed, he would want America to be “predictably unpredictable”.

What does this mean? How can the Japanese government and Japanese business prepare for it? The best assumption is that although his particular tools and timing might be unpredictable, the essential direction of his policies would actually be quite clear. He has presented them so plainly and strongly to the American people that he would not be able to break his promises.

This is most plain and clear on trade. He says that the North American Free Trade Agreement, the pact between the USA, Mexico and Canada that came into force in 1994, has been “a total disaster”. The best expectation is that he will repeal it, so that any company that has organized its business on the basis of NAFTA rules should be working out a contingency plan for how to adjust to a post-NAFTA world.

The same applies to the Trans Pacific Partnership that the Obama administration has negotiated with 12 Asia-Pacific countries, including Japan, but not yet ratified. Such a multilateral deal, one which imposes obligations on all signatories including the US, would be anathema to President Trump. Mrs Clinton has also attacked it during the campaign, but her opposition can be assumed to be tactical. Under President Trump, TPP would be dead.

What Japan should do to prepare for such an outcome would, first of all, be to begin private diplomatic talks with the other TPP signatories about turning the partnership into a deal of their own, one that excludes the United States. Canada and Mexico, dumped from NAFTA, would probably be keen. It might also be possible to bring other countries in, perhaps even China.

The second preparation, however, has to be one of strength and even, in the event of a trade war over currency weakness or bilateral trade surpluses, potential retaliation. The need for strength is, primarily, a need for economic strength: it is time for the third arrow, of growth-oriented deregulation, to be properly fired, along with a full reform of the labour contract system so as to help boost wages and so household demand.

Also, however, there will be a new need for military strength. This does not simply mean spending more money on defence, nor should it mean developing nuclear weapons, but rather it should mean making new and strong security alliances that make Japan less dependent on the United States.

There should be no reason, even under President Trump, to break away from America. But the US alliance needs to be supplemented by stronger security networks in Asia – ideally with South Korea, controversial and politically difficult though that would be, but also with friendly countries such as Indonesia, Singapore, the Philippines, Vietnam, Australia and India.

Come to think of it, such alliances would be a good idea in any case. The basic framework is already there. It just needs to be made more robust. Which is what the world will have to be, if President Trump is elected and makes the United States more closed and isolationist.