Donald Trump is making America scary again

OPINION by Gideon Rachman for the Financial Times

Donald Trump's domestic critics have often compared him to a mafia boss. James Comey, who Mr Trump fired as head of the FBI, said that dealing with the US president reminded him of his earlier career, "as a prosecutor against the mob".

Mr Trump made his career in construction in New York and casinos in New Jersey, which may explain why his mannerisms seem strangely familiar to fans of The Godfather or The Sopranos.

But this is not merely about style. The president's way of conducting foreign policy also seems to owe something to the mob. There is the emphasis on personal relations between bosses; the sense that only his own family members are completely trusted; the willingness to switch suddenly from warm words to threats and back again; the tendency to treat alliances as a form of protection racket — pay up, or we'll stop protecting the neighbourhood; the preference for the offer you can't refuse, rather than a genuine negotiation.

Mr Trump's aides dismiss comparisons between the president and a mafia don as facile and insulting. But they would probably accept that Mr Trump's goal to "make America great again" also involves making America scary again — or, in Washington-speak, "restoring deterrence".

The theory goes that the previous US president, Barack Obama, was too professorial and reasonable. The heads of rival mafia families — the Putin mob in Moscow, the Xi family in Beijing — sensed weakness in his administration and began to take liberties. So America needed a tough-guy president; somebody willing to wave a baseball bat.

The Trump tribe thinks these tactics are working. Take last week's showdown with Mexico. Angered by the flow of refugees across the US's southern border, Mr Trump threatened to impose tariffs on Mexico. That caused Mexican officials to move swiftly to appease the Don, by agreeing to deploy more security forces along its own southern border and to process more asylum-seekers inside Mexico.

According to Mr Trump's supporters, this is not an isolated example of successful bullying. The president ripped up the Obama administration's nuclear deal with Iran and reimposed sanctions. The Iranian economy is reeling, and the regime may have to return to the negotiating table. The EU was bitterly opposed to the revocation of that deal and has tried to set up an alternative payments system to allow trade with Iran to continue.

But senior European officials and businesspeople were informed that they could be barred from the US if they violated sanctions, and the scheme has yet to get going.

The White House is extending similar tactics to China. Meng Wanzhou, the chief financial officer of Huawei, the Chinese telecoms company, was arrested in Canada for allegedly violating US sanctions on Iran — a striking example of American extraterritorial reach.

Now the US is blocking the transfer of technology to Huawei. Foreign companies that use American tech, such as the British chipmaker Arm, are having to fall in line.

The Trump administration believes that America's central role in the global economy gives the country a unique array of coercive tools that it is only beginning to exploit. Foreign companies that violate US sanctions can be hit with fines that run into billions. Individual businesspeople can be targeted for arrest, or banned from entering America. Bypassing the US is very difficult because of the size of its market and the importance of its technology.

Mr Trump has now added tariffs, his weapon of choice, as another coercive tool, and not just on trade issues. The dispute with Mexico was about immigration. But the most potent economic weapon in America's armoury stems from the fact that the dollar is the world's reserve currency. If you make a large transaction in dollars, even outside the country, you will almost certainly engage with the US financial system. And that makes you vulnerable to the long arm of the American law.

Other countries are scratching their heads about how to fix this vulnerability. Displacing the dollar as the world's favourite currency is a long and arduous business. All the current alternatives have flaws. Russia is not a large enough economy to support a global currency and doing business in Russia is hazardous. China's renminbi is not fully convertible so cannot be seamlessly transferred around the world.

The Chinese authorities fear that moving towards a fully-convertible currency would spark large-scale capital flight from China, which says something about the scariness of their own system.

The EU offers the rule of law, a large market and a fully convertible currency. But even the euro is not yet close to being a rival to the dollar — perhaps because the institutions underpinning the European currency are still under construction and memories of the eurozone crisis remain fresh.

The trouble with a policy of "making America scary again", is that eventually the Trump administration will scare people off. It is trust in the American system, as much as the sheer size of the economy, that has given the US its central role in the global economy.

But the more Mr Trump deploys weapons of economic destruction, the more he will undermine that trust and encourage foreigners to look for ways around America. Eventually, they will find them.
_

Written by: Gideon Rachman

© Financial Times