President Trump shocked markets and challenged the Republican consensus last week by announcing new tariffs on imported steel and aluminum. Now the world is wondering how much further he will go. Should corporate executives and investors expect a few high-profile but largely symbolic measures, or should they brace for more trade shocks?
The stakes are immense, but the signals from the White House are, as usual, mixed. Mr. Trump tweeted Friday that, “trade wars are good, and easy to win.” But on the other hand, he said in a press conference last month with Australian Prime Minister Malcolm Turnbull that he was open to joining the Trans-Pacific Partnership if the U.S. could get a better deal.
Mr. Trump’s record suggests that more trade shocks are coming, and that they may be more severe. His attacks on free trade emerge from one of the most deeply rooted beliefs of his presidency—that American foreign policy has lost sight of the national interest and reaches instead for a vague and unrealistic “globalist” agenda. By “America First,” Mr. Trump means restoring the primacy of the national interest. The president may spend a lot of time on the golf course, but he pursues his nationalist agenda with great persistence. He is willing to take risks and pay a high price to achieve it.
Take Mr. Trump’s approach to democracy promotion. The idea that the U.S. should support the emergence of democracy around the world has been a pillar of American—and Republican—foreign policy for decades. Mr. Trump disagrees. For him, democracy promotion is something that America doesn’t do well and that often leads to bad decisions—like George W. Bush’s war in Iraq, Barack Obama’s war in Libya, and Mr. Obama’s failure to support President Hosni Mubarak, a longtime American ally, during the 2011 revolution in Egypt. Mr. Trump doesn’t hide his disdain for liberal internationalists and neoconservatives.
Mr. Trump’s skepticism about democracy promotion has cost him dearly among establishment Republicans. Some large donors shunned his campaign. Leading conservative magazines criticized him harshly. Many of the most talented foreign-policy experts in Republican ranks boycotted the new administration. Some neoconservatives in particular concluded that Mr. Trump’s contempt for promoting democracy and the rule of law abroad was a sign that he would destroy democracy in the U.S., and they went on to dedicate their polemical talents to persuading conservatives that President Trump is, at best, the second coming of Catiline.
Mr. Trump stuck to his guns. Even as accusations of collusion with Russia damage his presidency, he refuses to attack Vladimir Putin’s authoritarian rule. He praises Chinese President Xi Jinping even as Beijing cracks down on dissent. Countries like Poland and Hungary, which defy some European and Western democratic norms, do not incur his wrath. Mr. Trump has warmer words for the Philippines’ brutal President Rodrigo Duterte than for many European leaders. The administration hopes to gut spending for democracy-promotion organizations like the National Endowment for Democracy.
For Mr. Trump, free trade and democracy promotion are part of the globalist agenda that he has opposed for many years and believes the American public no longer supports.
He also believes he can win the trade fight and that the Republican base will support him against the establishment. He believes that other nations depend so heavily on the U.S. market that he can win enough concessions to vindicate his stance. And he believes that an administration that rewards its friends and punishes its enemies by rewriting trade rules will be hard to dislodge.
The pushback against Mr. Trump’s trade policy will be stronger and better organized than the reaction to his attacks on democracy promotion. Neoconservative intellectuals can deal powerful blows by writing acerbically in respected journals, but they aren’t nearly as damaging as Fortune 500 executives attacking the president for hurting their business. A stock-market swoon over fears of a trade war, and the real costs and consequences of proliferating tariffs, may derail the economic growth on which Mr. Trump’s political future depends.
It is much too early to predict that the president’s assault on the liberal trade order will succeed. But it would be foolish to underestimate the determination he will bring to the fight. Investors, managers and political leaders around the world need to prepare.