Reducing American Influence Over Global Institutions

Economics, FREEPOM

The Trump Doctrine and the Promotion of Free and FAIR Trade

 

It would appear that even International Monetary Fund Managing Director Christine Lagarde is picking up on the Trump language and doctrine when she recently stated that “the IMF has always been a supporter of free and fair trade”. This comes as no surprise as the Donald Trump Presidency has in essence hijacked the international process through its strategic take-over of one of the world’s largest economies and contributors to the Funds financing arrangements.

The use of the word “FAIR” alongside “FREE” in the recent references to international trade stems from Trump’s speeches in the primaries and campaign season of 2016. While giving massive rallies across the United States he would express the need for free and fair trade, always with an emphasis on the word “FAIR”.

The fact the the IMF is now using that term in its official statements is very telling of the trend moving forward. But it could also be an example of how much of this global monetary transformation is being scripted and talking points issued beforehand for use in a specific and strategic manner.

Such a thing does not require a conspiracy of vast proportions or even that much orchestration. Political campaigns and politics in general use such talking point strategies as a matter of routine. This can be observed across the nightly news spectrum as political surrogates march forth with common messages and alignments meant to spread their parties vision to the masses. Large corporations also use such methods in order to maintain one message and one face to potential investors and business partners.

The international institutions which have governed the world since 1944 are on the verge of some fundamental changes on how they operate and function in relation to one another. The suggested mandates and policy changes are being issued from the think-tanks and working groups across the political, corporate and banking broad-bands. The message from Madame Lagarde is loud and clear – the Trump mandate is the direction in which the world framework needs to shift.

This shift is not the design of Trump alone. The new American President is the salesman for the implementation of the multilateral monetary and financial frameworks which are meant to re-organize and re-balance the global monetary system.

Some new readers may not understand exactly what this entails but its core mandate is the reduction of the USD denominated foreign exchange reserves which are held in central banks around the world. The accumulation of USD denominated reserves is the number one concern which needs to be addressed before broader and more systemic matters can be managed and minimized.

The People’s Bank of China is the largest holder of USD denominated debt outside of the Federal Reserve itself. The relationship between the American dollar and the Chinese renminbi is the pivot point for a large portion of these monetary adjustments and changes. America has the largest trade deficit and China has the largest trade surplus. Both nations are the two largest economies in the world with all others caught in the twisting and tightening motion which exist between both opposing positions.

As China is attempting to shift its economy from the traditional trade exporting model to a consumption based model like the West it finds the renminbi currency in an inconvenient position. The peg it maintains against the USD ensures that a strengthening American dollar will put increased downward pressure on it and any attempts to keep the RMB from depreciating requires the PBoC to unload American dollars in it’s foreign exchange reserves.

While this is in fact the end goal, China finds its reserves slowly depleting while no appreciation of the RMB takes place. The objective in Beijing is to decrease the export of cheaply made goods and invest more in domestic consumption and renminbi denominated financial instruments. This requires the renminbi to appreciate, not depreciate, in order to become more attractive to foreign investors.

The role of trade between the worlds two largest economies, and those caught in the middle, which amounts to everyone else, is the fundamental mechanism which will contribute to the transformation of the international monetary system from the existing unipolar USD based system to a more “FREE” and “FAIR” framework based on the use of multiple currencies and the slow integration of a supra-sovereign asset, such as the Special Drawing Right (SDR) of the IMF.

A new set of governance reforms are being rolled out by the IMF Board of Directors over the next few years with a focus on 2019 for approval and implementation by 2022. This builds on the 2010 Quota and Governance Reforms which were agreed upon in 2009 but were not implemented and enacted until 2016. The dominate role of the United States within the Funds operating framework will be discussed as a part of these “negotiations” with the expectation that Trump will demand a decrease in financial contributions to the IMF arrangements.

This will correspond with further decreases in American contributions to other international institutions, such as the G20, World Bank, NATO, and even the United Nations. This is where salesman Trump operates in his sweet spot as the quintessential business-political personality who will package and sell America’s changing role in the international community.

The reduction in USD denominated assets around the world will assist in this transformation in that America will no longer be able to contribute the majority of funding to these institutions. This lower demand for the dollar will allow for it to depreciate against the currencies of its largest trading partners, which in turn will make American made goods more affordable and increase exports. This translates into more domestic jobs and increased GDP which in turn lowers the debt-to-GDP ratio making debt more manageable.

China is in the exact opposite situation, as described above. It needs to have the renminbi appreciate so it can reduce its exports.

Let’s not forget the rest of the world churning in the middle. The changes to currency arrangements and trade deals are the fundamental tools which will be used to re-organize and re-balance the world. This is why the addition of the term “FAIR” has now been added to the global trade lexicon alongside “FREE”. Both are meant to shift our perception of world trade and how nations begin to interact with one another on a different platform.

The corresponding reduction in American contribution and participation in the global institutions will align with these broader monetary and financial changes. Other nations will be able to increase their own contributions and participation as the Trump doctrine leaves behind a well strategized and scripted vacuum.

JC Collins can be contacted at jcollins@philosophyofmetrics.com

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