Don't be fooled by the strong US growth figures this quarter.

This is the growth Trump is boasting about. Hardly spectacular, especially considering the future he is mortgaging and the reputational capital he is squandering to achieve it. Just remember:

·         GDP is naturally volatile. Obama achieved growth this high too – around four times. So individual quarters mean virtually nothing;

·         Soybean exports jumped an annualised 3,000% in the race to beat retaliatory tariffs this quarter (adding around 0.6% to growth figures), and will probably plummet soon thereafter;

·         Similarly, a lot of other companies stockpiled raw materials, intermediate goods and finished goods before tariffs kicked in;

·         Any ‘sugar high’ from the tax cuts will be short lived with long term consequences for government debt and economic inequality;

·         Wage growth is still stubbornly flat.

I know this sounds pessimistic, but I also know Trump is going to try to claim vindication from these numbers. And I’m terrified people will believe him.

The trade war is not working. And the binge the US is on right now is leading up to a whopping great big hangover. Stock up on aspirin.

https://www.washingtonpost.com/opinions/the-economys-great-that-doesnt-mean-trumponomics-is/2018/07/26/2327dd6e-910c-11e8-bcd5-9d911c784c38_story.html?noredirect=on&utm_term=.3c018d4f94fa

Another reason this trade war is not “good and easy to win” - China has a lot more recent experience in cheating.

Trump thinks he has the upper hand in a trade war with China because the US imports so much more from China than China does from the US. So he has so much more scope to impose tariffs than China does. But overlooking the fact that bilateral trade deficits are NOT inherently a problem, Trump is overlooking three key facts:

1.       China has significant potential for non-tariff barriers against the US companies in China including unplanned inspections, delays in approving licenses, M&As and financial transactions, additional regulations, and other administrative headaches, etc. 

2.       If Trump keeps alienating his allies in the EU, Canada and Mexico, there are a whole bunch more US exports they can slap tariffs on too (including countries with whom the US has bilateral trade surpluses and therefore, according to Trump’s own logic, strategic disadvantages); and

3.       As I’ve recently come to realise, currency manipulation. 

China hasn’t officially been listed as a currency manipulator for years now (despite Trump’s claims to the contrary). Officially they now essentially have a market-based exchange rate. But this could easily change. They have precedent. They have a history of undervaluing their currency so it wouldn’t be hard to do it again. And this would offset any impact of US tariffs on Chinese exporters. 

For the US to do the same, Trump would have to successfully pressure the Federal Reserve to start targeting the exchange rate instead of the inflation rate - a drastic and frankly unthinkable change in the Fed’s mandate (far more drastic than for China’s central bank). No president was supposed to even THINK it, let alone say and do it!

An independent central bank is a key and crucial institution in the US’s economy (with global impact greater than any other). It has been demonstrated that politicians simply can’t be trusted with control over interest rates and the supply of money. So presidents have traditionally respected their independence. Most were too afraid to even COMMENT on Fed policy, lest it be construed as undue political influence over an independent body.

Not Trump though. He’s criticised Fed decisions publicly both before taking office and this last week.

But even if he is reckless enough to try taking back the Fed, China already has a head start. You really want to challenge China to a game of “let’s manipulate the markets”? Girl, please!

China is harder to beat than you think, Trump. And the way you’re treating your friends, they may not be on your side either. And you can’t beat the whole world!

It's high school economics, stupid!

Aww, poor baby Trump. You’re upset interest rates and the US dollar are rising, which will also ironically worsen the trade deficit you have been bemoaning. If only someone could have warned you this would happen. Oh wait ... a high school economics student could have told you it would happen.

If your policies do what you want, higher interest rates, a higher US dollar and a worse trade deficit are EXACTLY what we could have told you would happen:

·         Any short term stimulus from your income and corporate tax cuts, in an economy already near full employment, will drive household and corporate expenditure, thereby pushing up inflation and increasing pressure on the Fed to increase interest rates. It’ll also push up the US dollar;

·         Income tax cuts will also drive import demand, thereby worsening the trade deficit;

·         Corporate tax cuts will also drive foreign investment, thereby driving up the US dollar, hurting exports and worsening the trade deficit again; and

·         Your trade war, to the extent it hurts the EU and China more than it hurts the US, will drive up the US dollar relative to the Euro and the Yuan, hurting exports and worsening the trade deficit AGAIN.

And this is ignoring the long term disaster your tax cuts will be for the budget and income inequality.

So many people could have told you this would happen. And so many people did!

By your own design, you literally brought this on yourself. Or ... you’re literally admitting your policies didn’t work.

And if you’re thinking of interfering in Fed policy ... think harder! You think the stock market and the business community is upset with your trade interference? Try upsetting the centre of the financial sector and arguably the most powerful institution on the planet.

Seriously, I dare you. I double dare you!

Brexit is Britain's own personally-inflicted trade war - but different.

Some have wondered why estimates of the cost of Brexit to Britain are comparable to (if not worse than) estimates of the cost of an all-out global trade war, even though the predicted reductions in trade from Brexit are far smaller.

Well it’s quite fascinating (for a nerd like me, anyway). An all-out global trade war costs the world in terms of higher tariffs, less trade, more expensive imports and less efficient production. Brexit costs Britain though, in terms of red tape.

You see, the EU is a customs union. This means that goods don’t have to pass a customs inspection once they are inside the EU. Once they reach Rotterdam, they’re in! This makes trade soooooo much easier. The UK auto industry for example, can engage in what is known as ‘just-in-time’ production, where their inventories are kept at relatively low levels to save on storage costs. This is because they are virtually guaranteed quick imports of parts from Europe when they need them. There are no customs inspections along the way to slow them down. Compare this to NAFTA. While it is a free trade agreement that generally imposes no tariffs, goods from Mexico still have to pass a customs inspection before going into the US. This is to make sure that they are, in fact, Mexican, and not say, Chinese goods trying to avoid US tariffs.

This is why Britain’s relationship with the EU is one that could simply not be replaced by a free trade agreement. And certainly not by a free trade agreement with the US[1] (despite Trump, the Saboteur in Chief’s, suggestions to Theresa May). And a customs union with the US, given the fact that it would render Brexit completely obsolete anyway[2], wouldn’t be as good as one with the EU either. So it is a huge advantage for Britain to be part of the EU.

But upon Brexit, Britain will leave the EU customs union. And while they won’t face massive increases in tariffs (as would occur in a trade war), these sudden customs impediments are even more problematic and costly. At least with a trade war, the government earns some tariff revenue.

This is why Theresa May is now trying to do a ‘soft Brexit’ or BINO (Brexit In Name Only), where Britain still remains within the customs union. Though ironically, as Paul Krugman notes:

“...that, of course, ain’t much of an exit: Brussels will still set UK trade policy, except Britain will no longer have a vote. So what was the point of Brexit in the first place? Good question. Too bad more people didn’t ask it before the referendum.”

And this is why Brexit could actually be worse for Britain than an all-out global trade war.

Because tariffs are one thing, but red tape is another.

---

[1] Given the distances involved and the already low tariffs with the US.

[2] Because of the vastly greater size of the US, it would involve Britain effectively giving Washington complete control over its policy – precisely Britain’s objection to the EU and Brussels.

The new post-US world order.

I warned (obviously I’m not the only one) that Trump’s alienation of friends and undermining of Western alliances would only serve to help China and Russia. And now this.

Trump has been openly hostile to NATO, the WTO, the EU, the G7 – the very foundations of the post-WWII world order that the US helped set up. Not to mention his hostility towards NAFTA and his abandonment of the TPP and the Paris Accords. Trump’s friendliness to Putin (and dictators in general) will only embolden Russia’s ambitions in Crimea, Ukraine, and their interference in Western elections. And Trump’s abandonment of the TPP set back what would have been significant progress in reigning in China’s influence and their unscrupulous trading practices[1] – something Trump himself has bemoaned[2].

Now China is on a mission to portray themselves as champions of free trade and guardians of the multilateral trading system, rather than the US:

“We must promote trade and investment, liberalisation and facilitation through opening up – and say no to protectionism,” President Xi Jinping at the Global Economic Forum in Davos, Switzerland.

They have been promoting new closeness with Japan and India (relationships that have historically not been without strain), even formerly fierce rival in manufacturing Mexico. And Russia is on the way towards its first free trade agreement with South Korea.

Chinese state media is already promoting the idea that the EU is on their side, calling China and the EU “natural partners [who] firmly believe that free trade is a powerful engine for global economic growth [and] should resist trade protectionism hand in hand”. In public comments in Berlin this week, Chinese Premier Li Keqiang and German Chancellor Angela Merkel both expressed their joint commitment to free trade. China is even offering to open itself more to the EU in exchange for the EU issuing a strong joint statement against Trump’s trade war. Maybe even launch joint action against the US at the WTO.

Joint. Between China and the EU. Against the US.

If China wanted an ally to its claims in the South China Sea, its questionable trade practices, its environmental standards (or lack thereof), or its positions on human and labour rights, this would be a fantastic way about it.[3] As Catherine Rampell of the Washington Post said:

“China has correctly been accused of stealing U.S. companies’ tech, copyrights and other IP to get an edge in trade. Now they’re borrowing one of our best foreign policy ideas, too: banding together with allies to punish a cheating, trade-obstructing bully … the strategy Trump ditched that actually could have curbed China’s bad behaviour … China is now trying to use against us.”

And then there is the 16-party Asian regional trade deal which would cover half the world’s economy. And, unlike the TPP, the US has no say in these negotiations. But Beijing does.

Trump thinks that because the US imports more from China than China does from the US, this gives him more scope for tariffs and more leverage. But in addition to the non-tariff barriers China has up its sleeve (see my previous blog), the US is less than a quarter of the global economy nowadays. And if China manages to obtain the cooperation of Europe (the largest trading bloc on the planet!), and the rest of Asia … game changer!

This is the one time in decades when we really need Western allies to be united against the rise of China and its unscrupulous behaviour, and the strategic undermining by (and ambitions of) Russia. And our most powerful player is the Siberian Candidate – and he didn’t even have to be brainwashed.

---

[1] Think “counterfeited US luxury goods, bootlegged Hollywood films, fake Apple stores, trade secrets pilfered from cutting edge US tech companies. It forced US firms to hand over their technology if they wanted to operate in China.”

[2] And no, tariffs are not a suitable alternative to the coalition of countries under the TPP that would have been far more effective at pressuring China to behave. Especially when it’s actually legal under WTO rules for China to retaliate against tariffs.

[3] Again, it really doesn’t matter that the EU has shown great reluctance towards such an alliance. The swing in the global balance of power is now clear. All because the US has given China an opening that never should have existed in the first place.

We should have left it.

When Trump first announced his steel and aluminium tariffs, I wrote that we should let him get away with it. Don’t retaliate.

To be clear, letting Trump ‘get away with it’ would only work assuming Trump really was trying to extract concessions from the rest of the world; that threatening to destroy Western alliances and the modern world order was just a risk of his approach, but wasn’t, in fact, the entire point. Hey, economics is built on crazy assumptions.

Anyway, I knew non-retaliation wasn’t a realistic hope – politics is rarely rational. And even to the extent that our retaliation would hurt us too, it wasn’t surprising that we refused to let it slide.

The EU, Canada, Mexico and China (among others) all announced retaliatory tariffs[1]. And these tariffs have been far more strategic and effective than Trump’s. Not only did Trump’s tariffs hit intermediate goods used by other US industries (thereby directly costing the US more than it gained by an employment factor of 16:1), we targeted US exports in very politically sensitive areas[2].

To the extent that it’s possible, we’re winning.

But Trump hasn’t backed down. On Friday 6^th of July at midnight, $34 billion of new tariffs on China came into effect[3] – and China retaliated with an equivalent amount at 12:01am[4] (they were prepared). Consequently, a massive soybean shipment from the US didn’t make it to China in time to beat these new tariffs.

This means the Trump trade war now covers over $100 billion worth of trade. But it won’t stop here.

Trump has threatened to retaliate against China’s retaliation against Trump’s ill-informed retaliation against China (right?) with a further $400 billion+ of tariffs. To which China has vowed to respond potentially on close to $100 billion more US goods, plus a series of additional non-tariff barriers[5].

Trump’s also pushing further 20% automotive tariffs, which could exceed $300 billion. And in response, the European Commission has listed $294 billion worth of US exports that could be subject to further tariffs – a whopping 19% of the US’s total exports.

Yep. Using these estimates – just from announcements already made – the Trump trade war could escalate to over $1 trillion (yes, trillion).

Add to this the fact that Trump has ordered the drafting of a bill that will effectively give him the authority to abandon the WTO entirely and impose whatever future tariffs he wants without congressional consent[6]. Furthermore, I haven’t even mentioned what Trump might do to NAFTA, which alone covers $1.1 trillion of trade between the US, Canada and Mexico.

Unfortunately, I can no longer see a way that this will end well (short of impeachment or a landslide victory for the Democrats in the mid-terms, neither of which I expect will happen).

So why, if the rest of us are ‘winning’ this trade war against the US, won’t we … you know … win?

Because Trump will never back down. The rest of us may be playing this game better than Trump, but that only matters if Trump is willing to concede defeat. He won’t. So even if we’re hurting the US more than they’re hurting us (and more than our own retaliation hurts us), Trump won’t concede. We’re now stuck in a staring contest with a man for whom his own people’s suffering isn’t enough to make him blink. He doesn’t care how many of his own people he hurts – as long as he wins.

Which means the only way out is to continue the trade war and completely destroy the existing world order, or spectacularly back down from our current retaliations – a move Trump will take as a massive victory (again, assuming breaking up the West isn’t the entire point).

This doesn’t absolve Trump. He’s still an economically-illiterate wannabe-dictator whose destroying decades of international relations for no discernible benefit (except to Russia and China). All of his tariffs are first and foremost, hurting the US itself. But if we’d just let him get away with his silly steel and aluminium tariffs (maybe thrown in another concession or two), he could have taken his little win and gone home. Now it’s too late and the only options I foresee are widespread pain or (if it’s even possible) an even more smug Trump. And who knows what he will feel empowered to do next?

All because we couldn’t swallow our pride.

---

[1] Specifically (though not exhaustively), to date, there have been tariffs announced in retaliation to Trump on: Iowa pork; Kentucky bourbon; Florida orange juice; Wisconsin-manufactured Harley Davidsons and yoghurt; Ohio washing machines; and US-made sunscreen, jeans, footwear, ketchup, blueberries, cranberries, peanut butter, rice, soybeans, beer kegs, autos and metal products.

[2] See Footnote 1. While many of these are key exports in States that voted for Trump, he is not the only target. Retaliatory Canadian tariffs on US yogurt – which only amount to $3 million worth of exports – mostly come from one plant in Paul Ryan’s native Wisconsin.

[3] And like the ill-conceived steel and aluminium tariffs, Trump’s latest tariffs will probably hurt the US and its allies more than China. They will actually mostly miss Chinese companies and instead hit US and other non-Chinese companies operating in China. For example, non-Chinese companies operating in China supply 87% of the computer and electronic products affected by these tariffs – Chinese companies only 13%. And they again significantly hit intermediate goods rather than finished goods, forcing US companies further down the supply chain to suffer (including Trump's beloved manufacturing industry). This ironically will hinder any corporate intentions (if any) to increase investment in response to Trump’s corporate tax cut. Some companies are even already relocating to countries like Vietnam and Mexico. And to the not insignificant extent that these tariffs filter down to US consumers, this will offset the minor benefit they received from Trump’s income tax cuts.

[4] China’s 12:01am retaliation covered things like soybeans, cars, port, dairy and other goods, disproportionately made in Trump Country.

[5] China can’t match the US’s $400 billion (even if you overlook the damage this would do to Trump’s own people) because it only imports around $135 billion from the US each year. But given how much more strategic China has been with its attacks (and how strategic Trump has not been), they are likely to make it count, along with many other non-tariff retaliatory measures to make up the difference, including making it more difficult for US companies operating in China with unplanned inspections, delays in approving licenses, M&As and financial transactions, additional regulations, and other administrative headaches. Furthermore, China is compensating its own companies caught up in the trade war, and encouraging their businesses to shift their demand away from US products like soybeans and automobiles – all of which will lessen the US’s impact on them. Nor does China’s government face mid term elections in November which would potentially hinder their ability to retaliate.

[6] The unlikeliness of Congress actually passing this bill is almost irrelevant – Trump’s motivation and direction is clear, and there are an infinite number of other ways he can continue in this direction.

More trains might not be enough for Melbourne's western suburbs.

Rapid population growth in Melton

Population growth in the Ballarat corridor has been strong since the turn of the century, driven by the City of Melton. Since 2001, the City has averaged an additional 6,025 people each year, or an additional 29,106 between 2011 and 2016. And even as its (percentage) rate of growth declines, this is still expected to exceed 10,000 per year beyond 2025-26, or an additional 52,444 people between 2026 and 2031.

The City of Melton overtook the City of Ballarat’s population in 2008, and by 2031, it is expected to exceed a quarter of a million – over twice that of Ballarat.

Annual Population Growth, Municipalities of Moorabool, Melton and Ballarat, 2001-31
Source: ABS, 2018; Department of Planning, 2018

This means a lot more commuters

This kind of growth is to be expected in an area that enjoys a sub-40 minute train commute to the CBD, and the most affordable housing in Greater Melbourne. But it will also inevitably put pressure on local infrastructure, including the Ballarat train line.

Combining the municipalities of Melton, Moorabool and Ballarat, their population growth just in the five years from 2011-16 has resulted in almost 12,000 extra commuters along the Ballarat corridor – almost 10,000 from Melton alone, and mostly going to the Brimbank, Melbourne and Wyndham municipalities. Melbourne is unsurprising – it’s the CBD. But Brimbank and Wyndham also provide many health care, retail, transport and manufacturing jobs to explain these commuters.

Additional Commuters from Ballarat, Moorabool and Melton along the Ballarat corridor, 2011-16
Source: ABS, 2018

How many of these additional commuters use the train?

Well, of these 11,949 additional commuters, 2,213 take the train each day, 80% from Melton and almost 80% of whom go all the way to the Melbourne municipality. This dominance of the Melbourne municipality no doubt reflects the need for private transport to avoid too many connections/transfers for those working in municipalities like Brimbank and Wyndham.

Additional Train Commuters from Ballarat, Moorabool and Melton along the Ballarat corridor, 2011-16
Source: ABS, 2018

This means that:

·         19% of additional commuters in this corridor over the last 5 years use the train;

·         Bringing the percentage for the entire corridor’s commuter population to 13%;

·         Up from 11% in 2011.

So while the average rate of train commuting in this corridor is only a little above that of Metropolitan Melbourne residents more generally (12%), new residents to this corridor are much more inclined to use the train (19%).

This adds further to the existing pressure on the train network

And this is still lower than for new arrivals to Metropolitan Melbourne (26%), yet has already put enormous pressure on the Ballarat train line. Delays, cancellations, faults and staff shortages are common. Duplication of the line from Deer Park to Melton is currently underway (with eventual quadruplication on the cards). Additional services and ongoing investments have been promised by the Victorian Government. Ballarat may even get a train link to Tullamarine Airport if the route from Sunshine gets underway. And there are calls from local Councils for the State to electrify the line to Melton also, to allow metro trains (not just V-line trains) to travel.

But there is limited potential capacity for the public transport network as a whole, and only so much higher-density transit-oriented developments that network can handle. Given the population growth in the City of Melton alone is expected to jump from almost 30,000 every five years to over 50,000, along with the increasing popularity of train commuting across Metropolitan Melbourne, a major obstacle isn’t just increasing capacity on the Ballarat line. Capacity needs to rapidly improve around the City Loop. Otherwise all these additional outer metropolitan services will create a bottleneck, worsening existing strains on existing CBD stations.

The Metro Tunnel, and five planned additional inner city stations will certainly help. Will it be enough?

There is an alternative/supplementary solution though

Only 22% of Melton’s locally-resident workforce also works in Melton (employment self-containment). And the number of jobs in Melton would technically only be enough for 41% of those locally-resident workers (employment self-sufficiency), even if they wanted to work locally. Specifically, there are almost 20,000 more locally-resident workers in transport, manufacturing, health care, construction and retail trade alone than there are local jobs in those sectors.

Industry of Employment, Place of Usual Residence and Place of Work, City of Melton, 2016
Source: ABS, 2017

This reflects potential opportunities to recapture expenditure locally. A significant amount of the lost expenditure is no doubt linked to people spending most of their day working outside Melton. Basic retail offerings already exist locally, but even this could hold opportunities, given the level of out-commuting. And a strategy to develop greater employment opportunities in Melton (commercial and industrial, not just population-driven) could really retain more of Melton’s local residents, recapturing escape expenditure and easing pressure on local and metropolitan infrastructure – including the train line.

Just some other options include:

·         Higher density development closer to places of employment, both in outer and inner areas;

·         Greater housing development in middle-ring suburbs (significant apartment supply in Melbourne inner suburbs is about to come online) to improve affordability and reduce the appeal of outer suburbs; and

·         Facilitation of working from home and flexible work arrangements to ease pressure on peak period commutes, e.g. improved broadband and more Wi-Fi hotspots in outer areas.

Capacity constraints are an ongoing battle for major cities. But this is a unique situation for Melbourne where business as usual simply won’t cut it for much longer.

So additional train services are definitely needed. But they can only do so much.

Fun Fact.

Fun fact: every single Republican President since Teddy Roosevelt (1901-09) saw a recession in his first term; 4 have presided over 2; and Eisenhower presided over 3!

After all I've done for you!

“I pulled out of a trade agreement that you liked; I slapped a tariff on your key production inputs; the rest of the world retaliated directly against you; and I've threatened to tax you into oblivion if you leave … why don't you like doing business with me?”

Trump threatens Harley-Davidson again, says the company 'should stay 100% in America' after 'I've done so much for you' 

Bob Bryan 

President Donald Trump renewed his attacks on motorcycle brand Harley-Davidson on Wednesday, laying into the company on Twitter.

"Harley-Davidson should stay 100% in America, with the people that got you your success," Trump tweeted. "I've done so much for you, and then this. Other companies are coming back where they belong! We won't forget, and neither will your customers or your now very HAPPY competitors!"

On Monday, Harley announced that it would shift some of its production outside of the US due to Trump's trade fight with the European Union. Trump's decision to impose a 25% tariff in steel imports to the US had already hurt Harley's business. But the announcement of EU tariffs on US-made motorcycles as a response to the steel tariff appears to have been the last straw.

The company had previously announced an investment in a Thailand-based production facility, saying it was because of Trump's decision to withdraw the US from the Trans-Pacific Partnership. Harley operates facilities in Brazil, India, and Australia in addition to the Thai plant.

While Trump's policies continually hit the motorcycle company, Harley previously enjoyed a fairly tight relationship with the president. Executives from the company visited the White House in February 2017 and Trump continually brought up Harley as an example of a strong American business.

That close bond was broken following Harley's announcement, prompting Trump to go on a days-long campaign against the iconic company.

"A Harley-Davidson should never be built in another country-never!" Trump tweeted Tuesday. "Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end - they surrendered, they quit! The Aura will be gone and they will be taxed like never before!"

"Why don't you leave the EU?"

This is not normal. This is not okay.

In conversation with Macron, Trump said “Why don’t you leave the EU?” and that if France exited the union, Trump would offer it a bilateral trade deal with better terms than the EU as a whole gets from the United States. 

Yet another attempt to dismantle Western alliances. But he’s totally not in Putin’s pocket, right?

This is not normal. This is not okay.

Trump is trying to destabilize the European Union 

by Josh Rogin

As President Trump heads to Europe next month for the NATO summit and then a historic meeting with Russian President Vladimir Putin, his personal attacks on the European Union and other pillars of the Western order are overshadowing his own administration’s attempts to reassure allies that the United States still believes in the transatlantic project it has led since the 1940s.

During a private meeting at the White House in late April, Trump was discussing trade with French President Emmanuel Macron. At one point, he asked Macron, “Why don’t you leave the E.U.?” and said that if France exited the union, Trump would offer it a bilateral trade deal with better terms than the E.U. as a whole gets from the United States, according to two European officials. The White House did not dispute the officials’ account, but declined to comment.

Let’s set aside for a moment the point that Trump’s proposal reveals a basic lack of understanding of Macron’s views and those of the people who elected him. This is an instance of the president of the United States offering an incentive to dismantle an organization of America’s allies, against stated U.S. government policy.

Trump has been publicly trashing the E.U. and NATO since his campaign, but the pace and viciousness of his attacks have increased. Just this week, at a rally in North Dakota, Trump said: “The European Union, of course, was set up to take advantage of the United States, to attack our piggy bank.” He then complained about a $150 billion trade deficit with the E.U., inflating the figure.

Other reports note that Trump recently told Group of Seven leaders that “NATO is as bad as NAFTA,” suggested to the Swedish prime minister that America should leave the NATO alliance , and launched gratuitous public attacks on German Chancellor Angela Merkel at her weakest moment. It’s a deepening trend that leads to an unavoidable conclusion: Trump doesn’t believe in the continued sanctity of the European Union and NATO, as well as the United States’ commitment to both.

Trump defenders often say he is simply throwing out ideas to see what sticks. Some say his motives are primarily political and domestic — or that he is more talk than action. Many cling to the hope that the president’s top diplomatic and military officials can still execute sound policy, reassure allies, manage Trump and head off any real catastrophe.

That was plausible during Trump’s first year in office, and European allies were relatively reassured. But during his second year, so far, Trump has shrugged off previous constraints. His new national security team can only try to tamp down fears and attempt to merge Trump’s “America First” mantra with a responsible strategy.

During an interview this week, Secretary of State Mike Pompeo said the president is trying to “reset” the liberal world order, not dismantle it. Trump is being “disruptive” to force allies to agree to reforms needed to reflect U.S. interests, he argued. Assistant Secretary of State Wess Mitchell called Trump’s approach “strategic renovation” during a speech last week in Brussels . Mitchell argued that tackling disagreements such as trade head-on can strengthen the alliance for the strategic competition with Russia and China that lies ahead.

But these efforts to reassure Europe are failing. European officials no longer believe Trump’s words can be discounted. They don’t see the alliance rift as routine or temporary. They don’t believe it’s possible to repair the transatlantic bridge in the middle of a Trump-sized earthquake. European countries have no choice but to hedge and seek alternatives to U.S. leadership.

“If you look at the world today, you realize the position of the West is going to be contested for the first time in several centuries,” former British prime minister Tony Blair told me. “And if the West if is disunited, it’s going to be much less capable of withstanding that challenge.”

If Europe doesn’t feel the United States is really on its side, the risk is that individual European nations turn to other geopolitical forces, and this is bad for America, Blair added.

Of course, Trump’s opinions closely track those of Putin, including on the status of Crimea, aid to Ukraine and Russia’s interference in the U.S. elections. Overall, Trump’s attack on the E.U. and the U.S.-Europe relationship is a huge strategic windfall for Russia.

“As long as there is a unified Europe that maintains a liberal international order with basic rules of the road, it is a disaster for a dictator like Putin,” former vice president Joe Biden told me. “That’s why Putin is doing what he’s doing.”

The United States and Europe have had disputes before. It’s possible this one will get resolved eventually. Meanwhile, Trump is doing enormous and unnecessary damage. His intentional and egregious actions to undermine the E.U., NATO and the United States’ relationship with both can no longer be discounted, rationalized or seen as anything but what they are — a brazen attempt to undo the strategic infrastructure both America and Europe need more than ever.

So much winning - just not for the US.

I wrote back in December 2016 of the risks of a trade war, even for a country with the US’s market power:

“Even if it doesn’t escalate to a full trade war, belligerence like this from the US ... [could] cause other countries to search elsewhere for suppliers and customers that don’t impose such penalties on international trade.”

Now, in order to avoid dealing with a belligerent US: the TPP is going ahead without them and many of their hard-fought-for provisions that would have reigned in China’s unscrupulous behaviour; the EU is negotiating directly with Japan, Australia and NZ; South Korea with Russia; and China is pursuing stronger ties with Japan, India, even formerly fierce rival in manufacturing Mexico.

All because Trump is squandering the reputational capital the US spent decades building. 

So much winning. Just not for the US.

America’s Trading Partners Are Having Plenty of Fun Without Us

By Wendy S. Cutler

There is a new buzzword in trade circles these days: diversification.

“There has never been a better time to diversify,” a spokesman for Canada’s trade minister wrote in a tweet after the disastrous recent Group of 7 meeting.

South Korea became so frustrated as it renegotiated its six-year-old trade agreement with the United States in the spring that it became determined to turn elsewhere. South Korea’s trade minister started a “trade diversification” strategy soon after the agreement was announced.

Diversification is the polite way of saying that America’s friends and allies believe we have become an unreliable partner, and they are now looking elsewhere. From Ottawa to Brussels to Seoul, our trading partners are fed up with the Trump administration’s tariffs, and they have given up on trying to charm President Trump or persuade him that free trade is good. To reduce their economic dependence on the United States and their exposure to a potential global trade war, they are forging trade deals that leave us out of the picture altogether.

On June 14, Canada’s government asked Parliament to ratify a new version of the Trans-Pacific Partnership, which the United States backed out of last year. On June 18, the European Union trade commissioner visited Australia and three days later, New Zealand to begin negotiations for free-trade agreements; and on June 22, South Korea announced plans to pursue negotiations for its first free-trade agreement with Russia.

These moves are a direct response to the Trump administration’s unreliability and unpredictability, and they are a clear sign that the administration’s trade policy priorities — renegotiating deals and punishing violations — are not working out as expected.

The president may want better deals to replace the old, “terrible” deals he doesn’t like, but so far, the rest of the world has been reluctant to negotiate new agreements with the United States. The long and growing list of tariffs, particularly those based on dubious national security grounds, has weakened the administration’s ability to form coalitions with other countries to tackle legitimate concerns, especially China’s unfair trade practices.

Instead, our closest trading partners are scrambling to find new markets for exports subject to tariff increases by the United States, and to secure new suppliers for the American products that their own countries are planning to hit with retaliatory tariffs.

Prime Minister Shinzo Abe of Japan, for example, has worked diligently to build close ties with the president. But now Japan’s top exports, autos and auto parts, are suddenly facing the threat of a 25 percent tariff. As Mr. Abe told Japanese legislators: “It’s hard for Japan to understand, and we cannot accept it.”

Japan is thus accelerating negotiations with other countries. Japan and the European Union plan to sign their free-trade agreement in July. Moreover, it was Japan who stepped up to fill the leadership void left by the American exit from the Trans-Pacific Partnership. The Japanese Diet approved a bill to ratify the revised pact this month.

The tone and policies of the Trump administration have even managed to bring two longtime rivals, China and Mexico, closer together. The two countries once competed head-to-head as low-cost manufacturers, with the United States as the most important market. After Mr. Trump began beating the drum for tariffs and a possible withdrawal from Nafta, Mexico’s economy minister, Ildefonso Guajardo, called a visit last year to China “strategic leverage,” saying it “sends the signal that we have alternatives” to the United States.

China, meanwhile, is on a mission to woo trading partners. Beijing’s campaign to be viewed as a champion of free trade and guardian of the multilateral trading system has been met with considerable skepticism. But efforts by China to promote stronger commercial ties with Japan, India and other countries are making headway. After a meeting in May with China’s premier, Li Keqiang, Mr. Abe said he wanted to “lift up the Japan-China relationship to a new stage.”

Regrettably, this leaves the United States on the margins as the rest of the world builds a new trading structure without us. Our workers, farmers and companies will be locked out of important markets. We will lose our chance to help write the rules and set standards for trade in advanced technology, such as alternative-fuel vehicles, 3-D printing and artificial intelligence. Global and regional supply chains will increasingly bypass the United States. And years of efforts by the United States to curb China’s unfair trade practices will lose critical international support.

To be sure, as the world’s largest economy, the United States will remain a major player in international commerce. Our market is a magnet for imports and our export competitiveness in manufacturing, services and agriculture is strong. The dollar remains the primary global reserve currency, with much of the world’s commerce denominated in dollars.

There is a danger, however, in overestimating our negotiating leverage. Trade patterns will shift as our partners look elsewhere. We have spent decades building trust with our allies. We are now squandering it.

Correction: June 28, 2018

An earlier version of this article misstated a former position held by the author, Wendy Cutler. She was an acting deputy United States trade representative, not an acting United States trade representative.