Trump conducts foreign policy like a business

 

Trump policy: ‘Beat ‘em or buy ‘em’

Foreign affairs as a business

 

Gordon L. Weil

In a competitive world, one rule keeps cropping up. 

The US-Iran Memorandum of Understanding is a prime example.  The rule is “beat ΄em or buy ΄em.”

By any standard existing beyond the confines of the White House, President Trump led the U.S. into defeat in its effort, along with Israel, to strip all power from Iran.  Trump now hopes to extract economic advantage from the ashes of military failure.

He learned this rule in the real estate business.  One way to beat a competitor is to buy it.  Your market share increases and you reduce competition.  You argue that the loser should be happy, because you bought him off generously.   His pride has a price.  Pay it and his pain is lubricated by cash.  If necessary, you can make him your subordinate partner.

The Iran war was sold as a military necessity, aimed at preventing it from acquiring a nuclear weapon to threaten the Middle East.   Its leadership could be forced into submission, ending the country’s support for Hezbollah, Hamas and the Houthis, terrorist groups staging furious opposition to Palestinian subjugation.

From that perspective, Iran was not defeated and could develop a weapon superior to nuclear arms – control of the Strait of Hormuz.  The Iran war revealed the limits of American power.

The MOU alternative to unattainable military victory would tame Iran by investment and economic recovery.  Prosperity may be a better weapon than missiles.  Iran will become more integrated with Europe and North America, reducing it as a threat. 

That’s difficult to accept for MAGA hardliners, who bought the exaggerated tale that Iran’s nuclear missiles could begin flying next week, when the conflict was mostly about power.  In the end, buying them when you couldn’t beat them is the card that consumer discontent with high-priced gas at the pump has forced Trump to play.

This approach explains Trump’s principal foreign policy representatives – Steve Witcoff and son-in-law Jared Kushner.  Both are real estate developers without any diplomatic experience.  Every problem to Trump and his agents can be solved by them as in business, and trained foreign policy or intelligence experts should be ignored.

That way of thinking explains why Trump claimed he could solve Russia’s war on Ukraine in a day.  All Ukraine had to do was give up some real estate, and Russia would settle.  He thought Russia would prevail sooner or later, so Ukraine would save lives by ceding territory.  He did not consider Ukraine’s desire to survive as a nation, which goes well beyond a land swap.

Consistent with his business sense, Trump believed that Ukraine would go along with his plan in return for increased American investment.  He also dabbled with the idea that Russia might be similarly bought off.   The backing of U.S. investors (and profit for American corporations) should be a sufficient incentive to seal the deal.   It wasn’t.

Trump has repeatedly used this buy-it-if-you-can’t beat-it policy.  He sees it as a great success in Venezuela, where American companies may return to exploit its massive oil reserves, and he showed he could topple its leader, if not its regime. 

He sees Gaza, wiped clean by Israel, as ripe for western-style development and the use of incentives to get the Palestinians to move out.  While it may be impossible to suppress Palestinian hopes for their own country, prosperity and emigration might work.  The real obstacle is Israel, whose hardliners simply want the U.S. to leave the land to them.

Greenland is a good example of the policy.  Trump could envisage Denmark, looking at a handsome payoff, being willing to sell the island to the U.S.  It matters less that the U.S. today could have whatever military bases it wants there than that the vainglorious president would get credit for expanding U.S. territory.

Trump’s insulting proposal to make Canada the 51st state is the same policy.  He saw that country as a weak dependency that might easily give up its pretensions of having its own culture and history to get in on his leadership.  Its goods would no longer face the artificial trade barriers he had just created.

In Iran, Ukraine, Palestine, Greenland and Canada, Trump has been confronted by nations that are willing to make sacrifices to preserve their identity.  Just as Old Glory means something to Americans, their flags stir emotions that cannot be purchased or readily suppressed. 

Given the changed nature of war caused by drones, Trump’s planes and his proposed battleship could not impose American will militarily.  Nor can Russia and maybe not even China.  Economic cooperation is far better than military action, but it is taking long and painful conflicts for Trump to understand that.

Still, something’s missing that goes beyond war or foreign policy as a business.  Respect for others.  With that, foreign policy might work better.

U.S. foreign policy failing

 

Gordon L. Weil

Donald Trump set his highest priority foreign policy objectives: reducing or eliminating the U.S. trade deficit, ending the war between Russia and Ukraine and resolving the conflict between Israel and the Palestinians in Gaza.

He promised early results and took swift action once in office.  He has failed, thus far at least, on all three.

On trade, Trump misused emergency legislation to impose high tariffs to virtually all countries for trade in goods.  “I’m using trade to settle scores and to make peace,” he said.  Settling scores means eliminating unfavorable trade balances, which he claims were intentionally caused by other countries.  After that, Trump’s version of peace would presumably prevail.

He believed he could settle scores painlessly. Foreign suppliers would absorb the impact of the tariffs. They would pay the tariffs, increasing foreign revenues flowing to the U.S. Treasury.  If they raised their prices to cover the tariffs, higher cost American manufacturers could regain market share. 

He did not count on retaliation and resistance from others.   He resisted accepting that end-use customers would pay for the tariffs. He ignored the effect of retaliation on essential American imports. And he did not take account of the impact of his constant tariff changes on corporate investing and consumer confidence.

But retaliation came from China and Canada, both providers of essential imports. Retail prices began to increase.  The stock market sank as tariffs rose.  Partners began to diversify their trade away from the U.S., losing confidence in the reliability of American policy.  The dollar as the world standard wobbled.  Trump backed off.

As for Ukraine, Trump had boasted that he could settle the conflict in a day.  That would have to mean the full and immediate surrender of Ukraine to the Russians, resulting from a cutoff of U.S. support.

Trump thinks little of Ukraine. His first impeachment was caused by his attempt to force Ukraine President Zelenskyy to dig up evidence against Hunter Biden.  He knew nothing of the centuries-old effort by Russia to suppress Ukraine, even going so far as starvation, or of Putin’s failure to keep earlier “peace” agreements.

He believed that Russia would ultimately overpower Ukraine, which should, in effect, surrender to prevent the unnecessary loss of life.  But Ukraine and powerful European allies understood that Putin would not respect a settlement and was trying to relaunch Soviet-style domination. 

With or without the U.S., Ukraine would resist no matter the cost.  When Trump realized he was dealing with two, not one, strong-willed forces, he essentially abandoned his peacemaking, potentially leaving the defense of Ukraine to itself and its European allies.

After the Hamas attack on Israel, Trump fully backed the Israeli response.  But Israel gradually went beyond a proportional response.  It seeks to take over Gaza, the Hamas home base, on the way to complete domination of Palestine.  Trump offered the fantastic prospect of turning the territory into an American seaside resort after expelling the Palestinians.

As the harshness of Israeli actions became apparent, sympathy grew for the target Arab populations.  Critics of Israeli policy toward the Palestinians could find themselves labelled as antisemitic by Israeli Prime Minister Netanyahu and Trump’s supporters. 

Netanyahu stepped up his inhumane pressure on Gaza, eventually starving many there.  Israel’s international support faded. Even Trump responded to the starvation and increased both his pressure on Israel and his distance from it.  Some Israelis warned the nation could become an international pariah. 

Trump had bet on Israel, but slowly came to understand the advantages of improved links with Arab states and the disadvantages of giving Netanyahu unconditional support.  His peacemaking on behalf of Israel turned into dealmaking with the Arab nations, with Israel excluded.

Trump’s policies have failed.  Tariffs could not be drastically raised.  Ukraine and Russia would fight on.  Israel would prolong the Gaza War.

Trump may yet turn all this around.

He should roll back his across-the-board effort to “settle scores” and negotiate individual accords with major trading partners.  Top priority should go to Mexico, Canada and, if possible, China. Each accord must be objectively screened for its potential domestic impact, and deficits must be accepted as a fact of life.

On Ukraine, the U.S. should join with Europe to tighten sanctions on Russia and let Putin know that Ukraine will have long-term support until a ceasefire and negotiations without any preconditions take place.

Joining also with the Europeans, the U.S. should make clear that a two-state Israel-Palestine solution must be adopted, no matter how difficult that would be.  The rebuilding of Gaza and its society should begin under a newly elected Palestinian Authority.  The U.S, could be the economic partner of Israel and Arab countries in creating a truly regional economy.

These may seem like unrealistically lofty objectives.   But Trump has the potential to surprise and influence the world by changing course. 

Foreign policy by threats has high cost

 

Gordon L. Weil

Donald Trump conducts foreign policy by threats.   If you don’t do as I demand, he implies, I will simply take you over.  Forget about pursuing traditional diplomacy with friendly nations.

Bullying may work on real estate competitors in New York City, where Trump gained his education in his father’s business, and the volatile world of local commerce allowed him to crush competitors.  

Real estate moguls may come and go, but sovereign nations tend to hang on tenaciously.  Look at Ukraine.  Still, you may dream of your place in history by expanding American territory.  Meanwhile, your diplomats can demand concessions from others by warning them about the president’s unpredictability if they don’t yield.

Trump’s threats may be false, but he uses intimidation as the shortest path to getting what he wants.  Beat up Denmark about Greenland, Panama about its canal and Canada for its supposed dependence on the U.S.  Even if his real goals are unknown, as the powerful leader of a powerful nation, he tries to pressure friendly nations to bend to his will.

In one aspect of this approach, Trump seems to believe that when one country sells more goods to another country, their margin represents a subsidy – getting something for nothing.  In fact, each country gets paid for its products.  It looks like the U.S. should always have a favorable trade balance with others and not “subsidize” anybody.

That policy doesn’t account for trade in services and cross-border investments. It also ignores the mutual benefits that can flow from trade, but measures only money and even that only partially.  It is virtually impossible for a country to have a neutral or favorable trade balance all the time with everybody else.

Trump’s remedy is to boost the prices of imports by imposing tariffs.  If foreign suppliers want to avoid being priced out of the market, they must swallow the tariff.  Otherwise, when tariffs boost their prices in the export market, domestic producers can raise both their prices and their sales.  Either foreign producers’ incomes are cut or American customers pay more or both.

Trump bullies Canada, which he claims without evidence that the U.S. “subsidizes” by $100 billion a year.  He threatens to raise tariffs on imports from Canada to cut the subsidy, and force it to increase its military spending and border controls. 

Trump’s crude and insulting solution is that Canada should become the 51st state.  One Canadian counters that Canada should absorb some U.S. states, including Maine.

Does the U.S. pay more to Canada than it receives? 

In 2023, the U.S. bought about $64 billion more goods from Canada than it sold there.  Canada paid $23 billion more for American services than flowed the other way.  That left a U.S. trade deficit of $41 billion.  But Canadian investment into the U.S. was $77 billion more than U.S. investment into Canada.  (There’s no U.S. foreign aid to Canada.) 

The net result was a favorable U.S. balance of payments with Canada.  Trump chooses to ignore the full facts, the essential details showing there’s no $100 billion “subsidy.”

Canada’s vast territory provides a protective buffer for the U.S., like the Atlantic and Pacific Oceans.  But it needs to boost its military spending.  Trump is right in saying it leans too much on the U.S.  And he has already succeeded in inducing increased Canadian border protection.

To accomplish his objectives, Trump has alienated many Canadians by devaluing their loyalty to their own country. You don’t have to be American to think your country is great. By insulting a close ally and its leaders, Trump may prevail on some current issues, while sacrificing a highly valuable partnership for the long term.

If Trump raises tariffs on Canadian goods, Canada has plans to retaliate dollar-for-dollar.  A trade war only leaves victims and no real winners.  It would harm the relationship for many years, reducing Canadian trust in its “neighbour” (even their spelling is different).  Trump dismisses cooperation to confront China, their common adversary. 

Does Trump really believe that Canada’s ten provinces would readily join the U.S. as a single state, and that Canada would simply drop its own national identity, foreign policy, health care system, gun control, and abortion law, just to avoid high American tariffs or confrontation with him?

Trump’s policy of “America First” must inevitably turn into “America Alone.”  Canada would focus increasingly on trade with other countries.  The European Union, which includes Denmark, might either build its own defense arrangements or see the rise of anti-American nationalism in countries there, leaving the U.S. with fewer reliable allies in either case.

Whatever may be gained by bullying rather than negotiating could come at the loss of long-term trust among allies.  That would be a high price to pay by the U.S., long after Trump’s “America First” has faded.