Davos elite braces for ‘Trump’ tumult

Trump’s policy choices will be the talk of the retreat, even he skips the forum to focus on the US govt shutdown

NEW YORK • In 2018, Davos was basking in a robust global economy as Donald Trump pledged that “America is open for business”.

One year on, the US government is partially shut and the market ebullience that greeted the president’s corporate tax overhaul is a distant memory.

In the 12 months since he visited the World Economic Forum (WEF) in the Swiss Alps, Trump has launched a trade war with China, slapped tariffs on Europe, weighed in on Prime Minister Theresa May’s Brexit deal, expressed understanding for France’s “Yellow Vest” protests against President Emmanuel Macron and threatened to “devastate” Turkey’s economy.

That unpredictable stance toward traditional US allies and rivals alike fans geopolitical risk and ensures that Trump’s policy choices will be the talk of the retreat, even as the president skips the forum to focus on the shutdown.

“The No 1 question in the mind of leaders in Davos now is what on earth is Trump up to?” said Tina Fordham, chief global political analyst at Citigroup Inc and a WEF regular. “We’ve very clearly moved in terms of investor sentiment from the Trump bump euphoria surrounding tax cuts and deregulation to fears of a Trump slump.”

The US president enters the second half of his term accompanied by an end-of-year meltdown in markets and the International Monetary Fund’s (IMF) warning that “escalating trade tensions” are the biggest risk to global growth. He does so without restraining influences like Defence Secretary James Mattis, whose departure last month over Trump’s abrupt decision to pull US troops from Syria reinforced the sense that his foreign policy is ever more beholden to the pursuit of “America First”.

Three Camps

Faced with that reality, world leaders are increasingly falling into one of three camps in their approach to the president, according to Stephen Walt, a professor of international affairs at Harvard University: following Trump’s lead, resistance — however futile — and trying to make the most of his policy vagaries. Yet, lacking any consensus against Trump, Walt sees many leaders as engaged in a waiting game to try and sit him out.

“There is no longer this idea that he’d be reined in by the establishment and that you’d have a fairly normal administration,” said Walt. “People are now fully aware that he’s extremely impulsive and erratic and will continue to challenge the status quo. That means something different depending where you are.”

Among the forum’s headline attractions is German Chancellor Angela Merkel, who can be expected to build on her New Year’s address denouncing nationalism and populism that reinforced her status as a Trump adversary. Yet, she and Macron were unable to prevent Trump from quitting the Iran nuclear deal or the Paris climate accord. Germany is in the firing line if he follows through on his threat to impose punitive tariffs on imported cars.

Euro versus Dollar

Trump’s attacks on allies and persistent questioning of the value of the transatlantic alliance have accelerated European efforts to gain greater autonomy, including moves to boost the role of the euro and reduce dependence on the US dollar. Until that happens, however, allies in Europe remain vulnerable, said Erik Brattberg, director of the Europe Programme and a fellow at the Carnegie Endowment for International Peace in Washington.

“They talk the talk of becoming more strategically autonomous, more sovereign in their foreign policy,” said Brattberg. “But the answer from Europe will be passive. They will not be able to assert themselves.”

‘No Illusions’

Still, as the IMF makes clear, increased tariffs are the main drag on the global economic outlook, and an improvement hinges on resolution of the US trade conflict with China, along with “the resulting policy uncertainty”.

China’s delegation to Davos this year is led by VP Wang Qishan. Trump’s decision last week to pull the whole US government delegation means Wang won’t get to meet with Treasury Secretary Steve Mnuchin and discuss the trade conflict.

For all his bluster, diplomats point to the fact that Trump has not radically altered the American-led web of alliances. He renegotiated trade deals with Canada, Mexico and South Korea that left much of the substance intact, and his complaints about Europe’s defence spending, China’s trade practices and Iran’s regional role could have been championed by other Republican presidents.

Yet, for Russia, Trump’s unpredictability has led to worsening ties.

“Moscow is ready for more disturbing moves in all possible directions,” said Fyodor Lukyanov, head of the Council on Foreign and Defence Policy, a research group which advises the Kremlin. “There are no illusions about Trump left.” — Bloomberg