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Who benefits from Trump's tariff wall?
Ian Bremmer's Quick Take: A Quick Take to kick off your week and what a week it is going to be. An extraordinary downturn in US and global markets. The reaction to 'Liberation Day' where American citizens will be liberated from the highest performing economy in the world. Now, globalization, of course, is what is being undone here by the United States. The US benefited massively from globalization, from cheaper goods and services and capital and people moving more easily across borders all over the world. But the fact that the United States economy as a whole benefited did not mean that the average American benefited. They did not. And indeed, while the top 10% did much, much better in the US over the last 40 years, the top 1% even better, the top 0.001%, not only extraordinarily well, world leading well, but also had the money to capture the US political system and ensure that the policies were exactly what they wanted.
And that has led to a massive backlash in the United States where most voters no longer support free trade. Most voters no longer support collective security. Most voters no longer support US leadership on the global stage. They voted in Trump, and Trump is giving them what they voted for, which is a "tariff wall" around the United States that at least for the first few days, he is not backing down. And the implications of that are going to be significant destruction of wealth in the United States and in markets all over the world. And you saw it this morning, Hong Kong, Hang Seng down 13%. Other markets across Asia down 6%, 7& to 10%. The Europeans now following suit, though not quite as dramatic and same in the United States with the opening for the Dow and the Nasdaq. Now, look, I'm not a market watcher. I'm a political scientist.
As a political scientist, what I find very interesting here is this fight between "Deep MAGA" and "Dark MAGA." And Deep MAGA being the people that really do believe that the US has not represented them for a very long time. And what they want is a fair shake from people that are more representative. They want the ability for working and middle class to have better lives and not be taken advantage of. They want non-predatory policy domestically. Dark MAGA, globalism, free trade, and capturing the policies of a smaller state that do their bidding. And this last weekend has been a repudiation, at least tactically of Dark maga by Deep MAGA. This was the fight you saw between Elon Musk and who runs DOGE, and this happens to be the richest man in the world and the second most powerful heretofore in the Trump administration. And Peter Navarro, who is trade and manufacturing counselor for the White House and nowhere near as powerful as Elon, and yet told Elon to stay in his lane, said, "You're interested in selling cars, and what we are doing is making America great again."
Navarro's not in a fight with Elon to be clear. Navarro is supporting a policy that he knows Trump wants. And so Trump has decided that on this one, which is the most impactful policy he's put in place globally in this or in his previous administration, that he is decisively going against the globalists and he's going in favor of using American power to have manufacturing and capital in the US. Now, nevermind the fact that this is going to take a long time. That if it were to work, and if it were to work, you'd want it to be consistent. You'd want to build up American reputational capital. You'd want rule of law to be strong. You'd want people to think that they could come to US universities and prosper, that the US would be the most attractive place to send their kids to have jobs, and Trump isn't doing any of those things, so that's a problem, right?
The fact that the US is making itself less attractive as a destination and less predictable as a destination really undermines US putting massive tariffs on highest you've seen in over a hundred years to make other countries pay. But politically, what Trump could benefit from doing here is actually leaning in against the globalists. In other words, if he were to say, "Yes, this hit to the markets is a feature, it's not a bug. Portfolios, they're going to get hit. And the rich people that have benefited on the backs of the average Americans, I don't care if they don't make a lot of money. Just like the foreign governments that have been taking advantage of American free trade policy," which is overstated. But nonetheless, the politically smart thing for Trump to do domestically would be to then say, "I'm going to snap back the tax breaks that I gave to the highest bracket.
You guys are going to start paying again, and I'm going to take the money from the tariffs. Take these effectively a sales tax, all the money that the US government will be collecting from these higher goods, and I'm going to redistribute it to the average American. I'm going to give that money to the workers so that they can deal with the fact that their pensions have just blown up by 10%, by 20% or more over the coming weeks. I'm going to give them an opportunity because they're going to have to pay higher prices in a more inflationary environment where you can't actually substitute away from imports because all goods are so interconnected, whether it's automotive or it's a plane ticket or it's just a cup of coffee at your local Starbucks."
All of those things, Trump has the opportunity to lean in to the Republican base, which is also a lot of the former progressive base among Democrats who they have lost, in part because they have moved away from policies that have very popular under Trump in firming up the border against illegal immigrants, and also in opposing overly progressive woke policies that are very unpopular across the United States. Having said that, I don't think that's what he's going to do. And the reason for it is because I think that ultimately Trump is more interested in kleptocracy than he is in taking power for himself. I think he's much more transactional. He's much easier to buy off as an individual. If you give him money, he will give you the policies he wants. He's not going to throw Elon away.
Elon's already given over $250 million to the campaign, and we'll give a lot more and we'll find ways to benefit Trump and his family. A lot of people like that, that want lower taxes for the rich. A lot of people like that, that want lower regulations that allow their companies to benefit more, that ultimately screw the average person in the United States. And I think Trump is more interested in that. If you really wanted to ensure that you could benefit the poor people, you wouldn't be taking away so many of the capacities of the IRS for example. You'd want audits on wealthy people instead of wealthy people being able to avoid taxes because the IRS doesn't even have the capacity to do the most complicated audits out there.
You would have a group of policies that would be much more focused towards ensuring that the wealthy actually pay their fair share, that legal and tax policies are not buyable by special interests, and ultimately that the swamp could be drained. And that just, even though I think that's where JD Vance is more oriented, and I think that's where increasingly house Republicans are more oriented. Lord knows that's the Republican base, which today are less educated men, working class and middle class. The Democrats have lost almost all those voters, but that's not where Trump is. And I think as a consequence, the political opportunity that he has will be constrained.
That ultimately also means that there'll be more of a balance and probably more of a snap back eventually in reducing these tariffs and finding deals earlier than you would otherwise expect. So maybe the market hit long-term is not as bad as it could be in a full-on anti-globalist push by the Trump administration. But ultimately, one thing we've learned by Trump, who again used to be a Democrat before he was Republican, he's fundamentally not ideological. He's fundamentally about Trump. And here navigating that probably means less pain as opposed to more. Even though in the near term today, this week, there's going to be plenty of carnage in the United States and around the world. That's it for me, and I'll talk to you all real soon.
FILE PHOTO: Brazilian president Lula da Silva hugging Ursula von der Leyen the President of the European Commission at the 3rd EU-CELAC Summit in Brussels, Belgium on 17 July 2023.
EU and Mercosur near trade deal (at last)
It has been a long four years since the free trade deal between Brussels and Latin America’s largest trade bloc was agreed in principle, but all sides now, finally, look close to signing on the dotted line.
European Commission President Ursula Von der Leyen and Brazilian President Luiz Inácio Lula da Silva plan to meet on the sidelines of the COP28 summit in Dubai to push through the final hurdles. If all goes well, the European Commission’s vice president for trade may attend the Mercosur summit in Rio de Janeiro on December 7 and bring an early Christmas present home for EU exporters.
The deal would create an integrated market of over 780 million consumers, one of the largest in the world. The European Commission estimates it will save over $4.4 billion in tariffs alone, and give Europe better access to minerals crucial for renewable energy applications. Farmers in Mercosur countries meanwhile – that’s Brazil, Argentina, Paraguay, and Uruguay, with Venezuela suspended, and Bolivia joining soon – are expected to get a nice boost, too, especially for their exports of beef, coffee, and soybeans to the EU.
So what’s the holdup? Environmental concerns, mostly. Some European member states have pushed for stricter external monitoring and protections against Amazon deforestation than Brasilia can stomach.That said, Lula has signaled he is ready to compromise in order to make good on his earlier pledges to revitalize Mercosur as a formidable trade power.
And Brussels has its own reasons to be flexible: after failing to land big potential deals with India and Australia, a third major trade failure could pose problems for the centrist coalition presently in charge as it tries to fend off surging right-wing challengers in upcoming EU parliamentary elections.
The effort could still fall short, but Eurasia Group expert Julia Thomson says all sides are aware the moment of opportunity is ephemeral.
“Even if they can't get everything they're expecting,” she says, “negotiators will try to advance the deal.”
But if they don’t, she warns, “it will probably go back into the fridge and take ages to be rediscussed.”
The World Trade Organization headquarters in Geneva.
Viewpoint: US reversal on e-commerce rules will hurt global consumers
What are data flows and why are they important?
Technology firms gather a lot of information on our daily online activities such as whether we like a Facebook post, someone else likes our Facebook post, or how much time we spend browsing websites for a new pair of shoes. They use that information to improve their services, to give us recommended posts or websites based on our preferences.
The internet is designed as a seamless web, so your data can flow around the world. So a US or Chinese internet company with operations in Vietnam, Cambodia, and Thailand might choose to have a single data center for Southeast Asia in one of those countries that collects data from all three. That is the most cost-effective and secure set-up.
However, there has been a trend, especially among developing countries, to establish so-called data localization requirements that prohibit the transfer of their citizens’ data to another country.
Why is that?
There are multiple arguments given, but I think the main driver is economic. Countries increasingly see data as a new resource to exploit. They believe that a data center set up within their borders will be a source of new jobs and investment.
But they often dress up the requirements as being about law enforcement or national security, saying that if law enforcement needs access to their citizens’ data, it needs to be close by for easy access, which technically is not really the case.
How do restrictions on data flows affect companies and consumers?
Data localization rules can function as a type of trade barrier. Smaller companies might not be able to afford the investment of building a data center in a new market. Even larger companies might decide it doesn’t make economic sense to do so and decide to steer clear of a market with that requirement.
Ultimately, the consumer and digital inclusiveness will suffer. The classic example is the consumer in Africa, where people have come to rely on phone-based payment services. So if a small country in Africa imposes a data localization requirement, Apple Pay and other providers might opt to suspend operations there, depriving users of their services.
Why did the USTR reverse its position on this issue?
It's purely political. Lawmakers such as Sen. Elizabeth Warren (D-MA) who have been advocating tougher regulation on big technology firms have been pressing USTR to abandon attempts to enshrine protections for e-commerce in international trade agreements. They argue that making binding commitments to foreign governments limits the space for domestic policy debate on big tech.
Similarly, labor groups and associations of domestically focused manufacturers such as the Coalition for a Prosperous America have opposed US attempts to push for free data flows because they fear that whatever foreign governments ask for in return may hurt workers and companies in the US.
What has been the reaction to this move by USTR?
Anti-trade US lawmakers and advocates are obviously very happy. Warren responded by saying that USTR had rejected the efforts by big tech lobbyists to use trade deals to thwart regulation.
But the reversal of a longstanding US position came as a shock to other members of Congress, the US business community, and several countries that have been key US partners on digital trade priorities. A long list of tech and non-tech business groups issued statements and sent letters condemning the action.
So, what happens next?
The e-commerce discussions track at the WTO will continue but is not likely to achieve much, at least in the near term. The US reversal on data flows will probably affect the positions of other countries, including some that had moved away from data localization requirements. India, for example, recently significantly revised its policies to allow most data to freely transfer across borders. In the aftermath of the US reversal, reports in Indian media suggested India might follow suit.
Meanwhile, US protests over the USTR move prompted the White House to convene an interagency process with the National Security Council, State Department, and Commerce Department to discuss the issue. USTR is coming under some pressure to change its position on data flows at the WTO, or at least moderate it, but it’s not clear whether that’s really possible. Consultations may continue for some time and fail to reach any conclusion.
Edited by Jonathan House, senior editor at Eurasia Group.
How bananas demonstrate globalization
If globalization were a fruit, it might be a banana. But while bananas are still popular, globalization not as much lately.
In recent years, part of the pushback against globalization has been led by autocrats who reject things like free trade and the liberal international order.
For them, globalization means losing control, which they don't like one bit. But the world today remains more interconnected than ever, particularly in cyberspace.
So, do they want less globalization, or rather a version that fits their narrative?
Watch the GZERO World episode: The politics of resentment & how authoritarian strongmen gain power.
The Graphic Truth: Land borders crucial to trade
Hundreds of Canadian truckers angry about vaccine mandates have paralyzed Ottawa, the capital, for more than a week. They’ve blocked roads, honked their horns, and called for Trudeau’s resignation. Now, they have obstructed access to the Ambassador Bridge — a crucial artery connecting Detroit, Michigan, to Windsor, Ontario, that accommodates the transfer of more than a quarter of US-Canada annual trade worth a whopping $137 billion. Here’s a look of how this route compares with a few other major land trade routes.
GZERO Exclusive: Trudeau Defends Free Trade, Immigration and His Credibility Amidst Scandals
As his reelection campaign reels in the wake of recently surfaced blackface and brownface images, Canada's Prime Minister Justin Trudeau provided an exclusive response to GZERO Media's Ian Bremmer, host of the weekly foreign affairs program GZERO World.
In an email exchange transcribed below, PM Trudeau addressed the credibility gap the pictures and video from his past have created.
Ian Bremmer:How seriously can anyone take your passionate speeches on respect for diversity after seeing these images?
PM Justin Trudeau: Actions speak louder than words. I know that my actions in the past have been hurtful to people, and for that I'm deeply sorry. Our government has acted to fight discrimination and racism consistently over our first term, and if we earn the right to govern Canada again, we'll move forward to fight racism and discrimination in our next term.
Ian Bremmer:Can you remain credible on multiculturalism in Canada in light of this?
PM Justin Trudeau: That's for Canadians to judge. I will be spending the next few weeks working hard to earn their trust.
The exchange came following a new and wide-ranging interview Bremmer conducted in Canada's capital, Ottawa. As Canada approaches election day on October 21, the race is extremely close. His opponent, Conservative Party leader Andrew Scheer, has capitalized on scandals and the diminishing popularity of some of Trudeau's signature policies—on immigration, trade, and the economy.
The complete, exclusive interview is featured on the next episode of GZERO World with Ian Bremmer, which airs nationwide on public television beginning this Friday, September 27. Their conversation is also the basis of the latest Time magazine international cover story, written by Ian Bremmer, about Trudeau's battle to defend his globalist agenda as populism rises abroad.
As poll numbers suggest Canadians are increasingly disenchanted with Trudeau's approach to the global refugee crisis, the Canadian leader stood firm in his assertion that a more diverse population will make his nation stronger. Trudeau also delivered pointed criticism of the current economic policies of U.S. President Donald Trump, calling them unsustainable.
"Inequality continues to grow everywhere around the world," he said. "But it's growing less in Canada than it is in the U.S., and that is because we made a decision to say, 'trickle down doesn't work.'"
GZERO WORLD with Ian Bremmer airs nationwide on public television Fridays beginning at 11 a.m. ET. Check local listings. The interview will also be published in full on gzeromedia.com on Monday, September 30, at 10 a.m. ET.