Understanding Trump's geo-economic thinking

After his meeting with North Korean leader Kim Jong-un, US President Donald Trump still wielded a big stick to China by announcing massive tariffs on $50 billion worth of Chinese goods, irrespective of the agreements the two countries had reached during the previous trade talks.

Trump also pledged to slap steep tariffs on steel and aluminum imported from the European Union, Canada and Mexico earlier this month.

It is obvious that Trump's trade war has spread like wildfire across the globe, which is related to his new mindset for geo-economics.

Substitute for geo-politics

Geo-economics is a term that is related to geo-politics. The essence of geo-politics is that a country capitalizes on its military and political advantage to gain interests globally. But over the past three decades, the United States has not updated its geo-political policy despite the fact that it is still a county possessing the world's most powerful military forces and nuclear weapons.

With the rise of the European Union, Russia, China and other emerging countries, America's influence in global affairs has diminished. And its military operations against other countries have triggered strong condemnation of the international community. In the wars with Vietnam, Afghanistan and Iraq, the United States failed to reach its goals.

The change of the international order and the rise of the emerging countries have led to the formation of new markets, which has prompted countries to shift focus to economy and currency from politics and military in order to grasp more market share in the global markets.

A growing number of countries have signed regional economic and trade agreements to displace military alliances and are willing to using trade, finance, currency and commodity pricing to protect their interests. More and more countries believe that economic and trade sanctions would be more efficient than military strikes in hitting the mark.

In a word, geo-economics means capturing and dominating the global markets, which will give a country the power to lead the world.

As a businessman-turned president, Trump understands geo-economics very well, and has given full play to the geo-economic policy since he took office. It is reflected in the trade frictions with China. Based on his new mindset for geo-economics, Trump bets that China would remain restrained and would not allow the trade frictions to develop into a full-blown trade war given that the United States still dominates the global trade and financial markets. At the same time, Trump also leaves space for the two countries to hold negotiations in expectation of China making concessions.

Helpful to re-election

Trump's challenge to the existing global trade and economic practices would increase the possibility of him being re-elected as US president.

His trade measures have led to a rise of US stocks and helped lower the unemployment rate.

Since Trump assumed office in 2017, the S&P 500 Index has surged 23 percent, compared with an average rise of 13 percent during the successive US presidents' first years in office since 1928. The Russell 3000 Index, which covers 98 percent of America's market capitalization, once hit the $30 trillion mark under the presidency of Trump. The change created a context in which the US dollar-denominated assets such as US stocks and bonds became a top option for international investors to avoid risks in case international trade and financial markets suffered from turmoil, which in turn strengthened the value of the American currency.

Therefore, the rise of stocks and market capitalization satisfy the Wall Street investors and the country's ordinary retail investors, likely contributing to his re-election as US president.

Also, Trump's tax cut plan has triggered an increase in job opportunities, the return of American firms to home base and foreign investors' interest in investment in the United States.

According to the latest national statistics, America's unemployment rate dropped to a record low of 3.8 percent in 18 years, a figure indicating a balance in labor supply and demand. Even the New York Times, which always talks back to Trump, had to praise the president for his contribution to job creation. That would be Trump's another feat to win the hearts of voters.

Under the circumstances, China should be aware that Trump's threats in areas of trade, finance and high technology would be a "new normal" for the future China-US relationship. To deal with his geo-economic policy, China needs to develop its own core technologies in the wake of the American blockage and to seek closer economic and trade cooperation with countries covered under the Belt and Road Initiative.

The author is chairman and chief economist of China Silk Road iVally Research Institute.


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