Just over 100 days into his presidency we are learning that, at least on international trade, Donald Trump is less hostile in practice than indicated by his campaign rhetoric. We must hope the same is true of his attitude towards the International Monetary Fund and the benefits of global financial co-operation. This is especially important considering the Trump administration is likely, in the next four years, to confront an international economic crisis requiring a strong IMF response.
A key theme of Trump’s election campaign was his allegation that too many countries are taking advantage of the US in international trade. He promised that he would name China a currency manipulator on his first day in office. He threatened to renegotiate radically trade deals like the North American Free Trade Agreement, and to impose punitive import tariffs on countries like Mexico.
Trump has appointed noted trade hawks such as Wilbur Ross, Peter Navarro and Robert Lighthizer to key positions in his administration. However, to date he is allowing cooler heads in the White House to prevail. The administration has reversed its position on declaring Beijing a currency manipulator and has not unilaterally imposed tariffs on trade partners. It has expressed reservations about the introduction of a ‘border adjustment tax’ and is no longer considering leaving Nafta.
On his proposed southern border wall, the president continues to insist that ‘eventually, but at a later date so we can get started early, Mexico will be paying, in some form.’ Enrique Peña Nieto, the Mexican president, has repeated (in much clearer language) that his country will not pay for the wall. Congress is refusing to fund its multi-billion dollar construction.
In promoting an ‘America first’ agenda, Trump has raised questions about the role of the US as leader of the world economy. He has expressed scepticism about the need for international financial co-operation, and ostensibly encouraged other European countries to follow the UK’s example of holding a vote on their continued membership of the European Union. He has nominated critics of the IMF and World Bank, like Adam Lerrick and David Malpass, to key positions in the US Treasury.
Trump seems oblivious to the major risks in the global economy that could thwart the US recovery. Nobody appears to have briefed him that the European debt crisis remains unresolved, or that emerging market corporates have greatly increased their dollar-denominated borrowing, and that China’s credit bubble may be close to bursting.
Someone close to Trump should tell the president how helpful the IMF has been to the US during past crises. It is the only institution that has the expertise, experience and credibility to foster the necessary global co-operation to neutralise the crises experienced in Asia, Latin America and Europe.
Attacking the IMF and highlighting its mistakes is likely to win favour with voters in the US industrial rust belt and agricultural heartland. However, when the next global economic crisis arises, the US will need to turn to the IMF to help resolve it. Trump would be advised to heed the Fund, its experience and its counsel before that time comes.
Desmond Lachman is a Resident Fellow at the American Enterprise Institute. He was formerly a Deputy Director in the International Monetary Fund’s Policy Development and Review Department and the Chief Emerging Market Economic Strategist at Salomon Smith Barney.