Trump in Davos 2018: What US President's speech means for prospects of global trade war

What was the American leader's message? What are its implications? And should we really be expecting a global trade war?

Donald Trump came to the World Economic Forum amid rising speculation that the US is preparing to launch a trade war on other states in order to deliver on his conviction that “protection will lead to great prosperity and strength”.

The US President spoke at some length on the subject of trade in his speech to a packed hall of delegates from all around the world.

So what was his message? What are its implications? And should we really be expecting a global trade war?

What did Trump say?

He picked up a theme already pushed by his Treasury Secretary, Steve Mnuchin and his Commerce Secretary, Wilbur Ross, at Davos, namely that the Trump administration is not “protectionist”, but merely demands “fair” trade.

“We support free trade but it needs to be fair and it needs to be reciprocal,” Trump said.

“We will enforce our trade laws and restore integrity to our trading system”.

The implication is that the system is rigged against America – something Trump asserted continuously when he was campaigning to be President in 2016.

This is founded on the view that his predecessors negotiated “bad” trade deals with other countries, such as Mexico and Canada, which resulted in multinational companies shifting production and American jobs offshore.

He also accused countries like China of manipulating their currencies to gain a trade advantage over America.

Trump’s rhetoric at Davos was uncompromising.

“The US will no longer turn a blind eye to unfair economic practices including massive intellectual property theft, industrial subsidies and pervasive state-led economic planning,” he said.

“These and other predatory behaviours are distorting the global markets and harming businesses and workers not just in the US but around the globe.”

Those references to state-led economic planning and subsidies were a pretty clear reference to China, although he did not mention the Asian trade superpower by name.

What has Trump done in response so far?

He ostentatiously walked away from two major multilateral trade deals that had been negotiated (or were in the process of being negotiated) by his predecessor Barack Obama: the Trans-Pacific Partnership [TPP] and the Transatlantic Trade and Investment Partnership [TTIP].

The Trump administration is also demanding changes to the North American Free Trade Agreement (NAFTA) agreement, which covers the US, Mexico and Canada and is threatening to tear it up if not satisfied.

Away from over-arching deals, the Commerce department bowed to lobbying from Boeing last year and is in the process of imposing punitive tariffs on the imports of the Canadian airline manufacturer Bombardier, something with alarming consequences for workers in Bombardier’s Northern Irish supply chain.

Earlier this week, the US government also imposed large tariffs on imports of washing machines and solar panels made in China and South Korea.

Mnuchin and Ross also made it very clear in Davos there are more of these tariff hikes to come.

So what might the US do next?

The unusual claim from Mnuchin this week that a weak dollar helps America sent a shock through currency markets, with some traders apparently betting that the US is now planning to boost its exports by talking down the US currency.

Mnuchin’s comments drew a sharp rebuke from the President of the European Central Bank, Mario Draghi, suggesting that he is concerned about this possibility too.

However, on trade deals, Trump offered what, in a certain light, looks like an olive branch.

“The US is prepared to negotiate mutually beneficial bilateral trade agreements with all countries,” he said.

“This will include the countries in TPP which are very important. We have agreements with several of them already. We would consider negotiating with the rest either individually or perhaps as a group if it is the interests of all”

That reference to “perhaps as a group” opens up the possibility that he is not so opposed to multilateral talks as his rhetoric implies.

Indeed, Trump explicitly told CNBC in an interview on the sidelines of the WEF, that: “I would do TPP if we were able to make a substantially better deal.”

So can we expect a trade war?

It’s important to bear in mind that Trump has talked tough on trade before but not delivered.

He failed to deliver his unequivocal campaign promise to label China as a currency manipulator on his first day in office.

An optimistic reading, taking into account his positive noises about resurrecting TPP, is that Trump will prove much less protectionist than his rhetoric suggests.

However, a less optimistic reading is that his administration, having put huge effort during 2017 into repealing Obamacare and ramming through corporation tax cuts, will now devote more attention to perceived trade injustices and actually start to inflict the damage to the integrity of the global trading system that has long been feared.