Azernews.Az

By Dr Frank Musmar

While tuning into the first debate, the voters expected to hear some substance to address their concerns over many issues such as the economy, crimes, climate, inflation, jobs, healthcare, Taxes, immigration, the war in Ukraine, and the war in Israel are more likely not watch the second in September. The first debate was a style without substance.

Former President Trump's more disciplined and nimble approach stood out, while President Biden's stumbling and frozen moments raised concerns about his leadership abilities. Biden left the pressing issues of the economy and border control unaddressed. In the earliest modern US debate, Biden's lackluster showing not only spotlighted the Democrats' uphill battle but also underscored the significant challenges they face in the upcoming election.

President Biden's recent stumble, particularly his struggle to articulate critical issues like immigration and abortion, has raised significant concerns among Democrats, especially with the election just around the corner. This struggle has intensified tensions within the party and significantly impacted the Democratic Party, underlining the gravity of the situation. The urgency of the problem is palpable. After the debate, Biden's campaign waited 30 minutes to comment while Trump supporters flooded the room at a ratio of 10 to 1. Soon after the debate, Democrats expressed confusion and concern, and some Democrats called it the time for an open convention. Biden’s performance has reignited fears among Democrats. Whether he can carry the party through to November now looms large, adding a layer of concern to the upcoming election.

Relations with South Caucuses under a Second Trump’s Term

Democracy and human rights, energy, and security are believed to be the three central pillars of the US South Caucasian policy. Due to the State’s interest in transporting possibilities of the Caspian basin’s energy resources to Western markets, energy will remain the main priority. Moreover, a continuation of certain inertia, the non-active policy will be preserved under Trump as he is famous for his declarations and practical approaches regarding decreasing the US interference in other countries, especially domestic affairs.

We might witness less interference from the side of the US in the regional or state affairs in the South Caucasus; among the three countries, Georgia will suffer more from this policy as much more depending on the active Western and especially American support.

Azerbaijan-US relations are expected to flourish during Trump's second presidency as it corresponds to Trump’s non-interference policy agenda. A less active policy of the US in the region will have less interest in Armenia’s pro-Western rhetoric during Prime Minister Nikol Pashinyan.

Accordingly, Azerbaijan will gain more economic interest to attract more Western and American partners and investments in its oil and gas, especially given the considerably decreased Russian contribution caused by the anti-Russian sanctions and the Ukrainian war.

The Iranian factor is another essential factor that will play a specific role in the South Caucasus region. In the second of Trump’s presidency, the US withdrew again from the Iran nuclear deal, and the imposition of significant US economic sanctions against Iran is apparent, which will bring Azerbaijan a strong security partner for Israel and the USA on Iran's borders.

It is evident Trump’s US will engage more with some countries and disengage with some in the South Caucasus; the deterioration of the business or other relations with Iran from the side of Armenia and Georgia is evident where these South Caucasian countries will be losing more than they gain, they will not achieve anything adequate back from the US on the expense of failing their business projects with Iran and thus losing new significant commercial or energy development opportunities due to the superpower’s harmful interference in this case as it appears. However, it seems that it will be a golden opportunity for Azerbaijan to gain momentum and better energy and security deals with the new Trump term in the white house.

Global Trade Policies If Trump Wins

The possible re-election of Donald Trump as US president in November 2024 could entail a significant upheaval for the world trading order if he fulfills his announcements to raise tariffs (60 percent against Chinese goods, 10 percent against products from the rest of the world), mainly to reduce the US trade deficit. Such steps would blow further to the WTO, as the envisaged tariff increases would violate international trade rules. It is worth noting the tariffs President Biden added, including the 100 percent tariff on Chinese-made electric vehicles (EVs). Moreover, President Biden placed 50 percent tariffs on semiconductor imports ($1 billion a year) from China.

Donald Trump’s previous first term in office was primarily characterized by his refusal to sign up for a trade deal with Asian countries, the re-negotiation of NAFTA, the marginalization of the World Trade Organization (WTO), a trade war with China and deteriorating trade relations with the EU that led to the partial reform of the US free trade agreements with Korea (KORUS), Canada and Mexico (NAFTA, later USMCA) as well as the conclusion of a “mini-trade agreement” with Japan (USJTA).

Accordingly, the transatlantic relations with the EU are also likely to suffer. First, old trade disputes settled mainly with the Biden administration could flare up again, e.g., regarding steel and aluminum. Second, Trump could abolish cooperative measures by the Biden administration that mitigate the protectionist elements of the US Inflation Reduction Act for EU exporters. Third, the future of the EU-US Trade and Technology Council (TTC) might be jeopardized. Accordingly, we should expect the impact of two scenarios:

Scenario 1 entails increasing US tariffs to 10 percent on all US imports and 60 percent on US imports from China in 2025. Donald Trump and his former trade advisers have publicly envisaged these threats.

In scenario 2, in reaction to scenario 1, China would retaliate with a tariff increase of 40 percentage points on imports from the US. The following results of the two scenarios with the Global Economic Model of Oxford Economics for the four years of a potential second Trump term from 2025 to 2028 stand out.

The US economy (US GDP level) would be negatively affected in the first years in the minus up to minus 1 to minus 1.4 percent in the two scenarios due to a simulated temporary confidence shock in the short term that has adverse effects on private investment and consumption. Moreover, private consumption decreases due to higher consumer prices and unemployment. A cumulated loss in the GDP over the 4-year horizon amounts to nearly 600 billion US dollars in the first scenario and almost 1,000 billion US Dollars in the second scenario.

In scenario 1, however, the US GDP level would remain only marginally negative in 2028 mainly because of the temporary nature of the confidence shock and the improvements in the trade balance, the fiscal balance, and the terms of trade. However, in case of retaliation by China in scenario 2, the US would also suffer GDP losses in the medium term, in the range of about half a percentage point of GDP, with a slowly decreasing trend after 2028.

In absolute terms, the US trade balance would decline further because other trends, like the rising US government deficit, are more critical macroeconomic drivers of the trade balance than tariffs. Moreover, the US loses competitiveness due to an appreciation of the real effective exchange rate, which tends to raise imports and reduce exports.

The EU would also be hit harder than the US. Given the negative effect of a potentially renewed protectionism under Donald Trump, the EU should proceed along two lanes: First, the EU should prepare for such a scenario now. Before all, the EU should use the remaining term of President Biden to put the trade relations with the US on a more solid footing. In the best case, this could be achieved by institutionalizing the TTC and by convincing the Republican Party in Congress that the TTC is a crucial forum to coordinate trade policies vis-à-vis China with the EU.

Moreover, signing a critical minerals agreement and a Global Arrangement on Sustainable Steel and Aluminum would be essential steps to reduce the likelihood of a backlash from Donald Trump concerning transatlantic trade relations. A further step should be for the EU to foster its ties with other trading partners by signing more free trade agreements, such as with Australia, Indonesia, or India. Second, if Trump were elected and threatened to implement new trade barriers against the EU, the EU should be able to react. The EU should also be willing to threaten credible retaliation measures to counter such a threat. For such purposes, the Anti-Coercion Instrument was recently implemented and could provide the framework for possible retaliatory measures of the EU. While it is true that retaliation would aggravate the trade war and have detrimental economic effects, it appears necessary to have a counterstrategy founded on realpolitik.

Relations with EU under a Second Trump’s Term

While Europe’s populist, nationalist parties are likely to remain too fractious to exert blunt power after the European election, the sheer fact of their success is triggering a political upheaval equivalent to that caused by Donald Trump’s election as U.S. president in 2016. After all, the results of the European Parliament serve as a barometer of where national politics is headed in some of Europe’s most crucial capitals. Young men's eagerness for change, high taxes and environmental regulations, and skepticism toward supranational organizations like the EU, the United Nations, and, in some cases, NATO were behind the rise of the far right.

Accordingly, a slightly right-wing Europe is more appealing to Trump. Immigration, inflation, and a rejection of the mainstream “Trump’s favorite themes” have all contributed to the far right’s rise in Europe.

The U.S. role in Europe brought extraordinary benefits but also imposed extraordinary costs. The United States pledged to defend countries thousands of miles away, even at the risk of nuclear war. By providing foreign aid and allowing asymmetric access to its vast home market, it rebuilt a continent and helped foreign countries grow faster than the United States itself. Trump's policy with Europe will be “get on your feet and off our back.”

A full-on withdrawal from NATO, which would enrage the remaining Republican internationalists, might not be worth the political price. But with Trump contending for the presidency and his acolytes gaining strength among Republicans—and the threat that China poses to U.S. interests in Asia growing ever more severe—it is time to take seriously the possibility that the United States might leave Europe someday and consider what might happen next.

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