Trust Breached

Earlier this year, the Canadian Chamber of Commerce in Hungary (CCCH) held a business breakfast focusing on the uncertainties surrounding the economic policies of the new Trump administration. CCCH President Nicholas Sarvari has summarized for Diplomacy&Trade how much coherence, if any, can be seen in this economic policy so far; how it may affect trade relations as far as the United States, Canada and even Hungary are concerned in a possibly more transactional world.

“Unfortunately, there isn’t much coherence in the sporadic rhetoric Trump speaks, but if you consider the economic concepts emerging in a broader global security context, a concerning global view is visible in the backdrop. Bearing in mind that the Presidency is not just one man, the Trump team is pursuing a policy where the liberal camp is somehow held responsible for the 2020 ‘stolen elections’ and are to blame for everything from global warming to international immigration and the Russian invasion of Ukraine or Chinese aggression. Weakness is what they blame and an America in the global arena that cannot dominate dialogue is considered weak by Trump. Economic policy is deeply ensconced in this view of the world and explains how power politics and a much more transactional approach to international relations is taking shape. It seems that in Trump’s world, there are no allies – only deals to made,” the CCCH President highlights.
He is of the view that Trump’s words are mostly unpredictable and deliberately infuriating. His policies are to take advantage of weakness wherever possible and to manipulate the other side into a deal as he envisions it. “Canadians woke up to a very unexpected threat of tariffs. Talk of a trade war was topped by threatening Canadian sovereignty. The treat of tariffs alone sent the Canadian political scene into a frenzy and has since dominated the political agenda. Threats to sovereignty, threats of tariffs and the unpredictability have made the impending Canadian elections all about dealing with Trump. Disruption is the Trump agenda – to perhaps solidify a conservative win in Ottawa or to attain a negotiating position over a country he sees as weak? Perhaps, it’s intended to exacerbate issues with Canadian unity, it’s not clear as there doesn’t seem to be immediate sense to the rout. It does, however, seem to be backfiring looking at recent polling and the reaction of Canadians in general.”

Further disruption anticipated
One can already see that many of Trump’s campaign promises have not materialized – at least not in the time framework he promised – and many of these have been revoked either by the President himself or blocked by courts. As Nicholas Sarvari notes, campaign promises vs. building out Trump’s reality are two different things. He now has control over both houses of Congress and favor in the Supreme Court (6-3). “Realistically, more chaotic and unpredictable rhetoric is likely, but I anticipate further disruption wherever he can achieve it. He will force his agenda in Europe and lend support to conservative right-wing parties wherever he can – the recent German elections demonstrated a massive growth for the AfD, pushing this agenda further in Europe too. Even the recent European summit appears to be trying to achieve a deal that could be taken to Trump – and he will consider like an episode of The Apprentice. Where they fall short on delivering promises, Trump and his loyalists will blame it on ‘Biden’s inept legacy’ or the incomplete eradication of the deep state enemies. Democrat-sided political analysts are already predicting a very rough ride for the Republicans and see major obstacles already within a few short weeks – but I still don’t think this will sway the administration from carrying out the most aggressive changes between now and midterm elections. And I also think that whatever plays out internally, the fact remains that very serious lines have been crossed in longstanding postwar relationships – this has set things in motion for economic and foreign policy shifts in other countries, including Europe, that may feel themselves alienated by a long-standing ally.”

Special treatment for Hungary unlikely
As for the possibility of all this affecting economic relations between the U.S. and Hungary or with Canada, the CCCH President points out that “Hungarian PM Orbán served a political purpose during the Trump campaign, but I am very doubtful that Hungary will receive any special treatment or favors in return. Hungary is an EU member and, as such, any economic policies that are applied to the EU will apply to Hungary too. But it’s also difficult to see how special favor would be granted to a country that has been so close to China over recent years as Hungary. Although there are many convergences in Trump’s and Orbán’s world view, Hungary also has little to offer the U.S right now. Orbán will continue to bombard the European liberal, but Hungary’s ever weaker economy and rising opposition will not make this an easy battle. Will Trump push for a new double tax treaty with Hungary? – quite unlikely, but it is also difficult to imagine that this is high on anyone’s agenda in Washington.”

Trust breached
He adds that with Canada, the situation might be a little different. “The tariff threat breaches trust and political responses to the threat alone will have a broad impact in Canada. Even if Trump backs down, trust has been breached and Canada is likely to continue to focus on how to manage an unpredictable, more protectionist US trade policy moving forward. In the next two years for sure, but possibly for the entire duration of the Trump presidency, it is likely that Canada will focus on diversifying trade globally as well as preparing serious retaliatory measures that could soften the impact and possibly lessen the duration of a tariff regime. Canada’s dialogue with the U.S. must be from a position of strength to be taken seriously and I do think that Canada can find that position.”
Canada has also taken this situation as a signal that delaying the diversification of the economy cannot continue. Canada already has trade agreements with the EU and many other countries around the world. This will allow Canada the chance to focus its attention on increasing trade elsewhere. It might take a while, but at the end of the day, there are lots of options for Canada to reduce its dependency on the U.S. Necessity is something that wasn’t there before – so, businesses were more inclined to work with US partners because of the convenience of it (language, proximity, etc.). Now, pure economics is going to be the reason why businesses will turn elsewhere, he stresses. Trust has been breached and as the world now seems to be churning, trust may be breached with some of the longest standing allies the US has.

Caution and worry – Trumponomics is here
Regarding the consensus on this topic by the participants of this CCCH business discussion, the President of the organization says it was one of caution and worry. “The fact is that the impact of Trump’s rhetoric in Canada is being felt in Mexico and Chile too – and will also be felt in the EU. If the tariff model is pushed forward, one consequence will be to seek alternatives to the U.S. market. Canadian trade with the European Union could significantly expand due to the Comprehensive Economic and Trade Agreement (CETA), which has been provisionally in effect since 2017. Although not yet fully ratified by all EU member states, the agreement has already led to a substantial increase in trade between Canada and the EU. The remaining countries yet to ratify CETA include Belgium, Bulgaria, Cyprus, France, Greece, Italy, Ireland, Poland, Slovenia, and Hungary. Given this context, those opposing CETA within the EU should reconsider their stance, as there are strong reasons to expedite ratification. Opposition has largely come from concerns that trade with Canada could lead to job losses or the decline of certain industries. However, evidence indicates that free trade generally delivers more benefits than drawbacks—especially considering recent economic shifts under “Trumponomics. Now is time for EU countries to advance CETA, allowing them to capitalize on the emerging opportunities that enhanced trade relations with Canada can provide.”