The curious death of Kim Jong Nam is one of those strange random events that has gripped the Asian and wider world media. The news item has all the ingredients for a good detective story. The dead man was probably using a false passport. Two alleged female assassins may also have been using false identities, and may or may not be the two women currently helping the Malaysian police. The lack of facts adds to the mystery. I suspect the death will pass without wider significance. It comes at a moment in the world’s story when many old alliances and foreign policy assumptions are being torn up by a new US President, so investors need to take stock.
The US is pursuing a reappraisal of its role and allies in Europe, in the Middle East and in Asia. There is a new tilt to US policy, which is very critical of the large surplus countries that have played the game of international trade well. A businessman President, elected to supercharge the US economy, is asking if the big surplus countries have cheated by using low exchange rates or other means at the expense of deficit countries like the US and the UK. Mr Trump is being dragged by the office he holds into shaping and expressing a wide ranging foreign policy which has to be about more than just the trade issues that preoccupy him.
He wants change. He will in some ways be more reluctant to use US power, in contrast to the interventionist policies of his predecessors and the plans put forward by Mrs Clinton. The wars in Afghanistan and Iraq were not popular amongst many voters and have proved contentious in all sorts of ways. In one respect he might be tougher, by defining more clearly who he thinks the true enemy of the US is and then perhaps targeting action.
The new President has reaffirmed his alliance with Japan, though not as swiftly as Mr Abe hoped. He condemns the actions and statements of North Korea, whilst stating he does not take their potential missile threats seriously. We are expecting tougher language about China over their big trade surplus and their military actions in the international waters of the Asian seas. He has backed down over the issue of the One China policy, which is fundamental to PRC China, though clearly he has a soft spot for Taiwan. The problem of North Korea always raises the issue of collaboration with China, the one country that may have some influence there. Maybe in the end there will not be a big change in the USA’s Asian strategy.
His approach to Europe is very different to Mr Obama’s. Where the US was supportive and encouraging of the European Union, Mr Trump is sceptical about its feasibility, values and usefulness from the US point of view. He has little time for the EU’s moral and political statements about the future of the world if the EU lacks military muscle to back them up. He does not always agree with their stance either, and knows he is the target of strong criticism from EU leaders. Where Mr Obama saw Mrs Merkel as the key figure driving through more union on the continent, backed by the most powerful economy, Mr Trump sees Germany damaging the world economy with a massive trade surplus sheltering behind a very undervalued currency. The new leader of the free world is critical of the failure of many EU countries to make the minimum required contribution to NATO. He worries that the EU wants to commit the US to international causes of dubious value or feasibility, only to ensure the US makes the major military contribution if one is needed. He values the UK relationship more, especially now the UK has decided to leave the EU. Mr Trump wishes to enlist UK help in rebuilding NATO as the prime military alliance for the defence of Europe, and to secure a bigger financial contribution from the European side of the partnership.
Mr Trump has also indicated he wishes to pursue a different approach to Russia. Whilst Mr Trump’s White House will doubtless confirm the longstanding western view that Russia was wrong to occupy Crimea, and will stand behind the borders of present NATO members, he may well wish to seek more agreement with Mr Putin over how to proceed in the Middle East. The President is under pressure from the foreign policy establishment of his predecessor to take a tough line on Russia, but his instincts will probably impel him to moderate their line. His vision of the Middle East is the big issue. If, as he says, he sees ISIL as the only opponent that the US needs to help defeat, it will draw him into an accommodation with Russia and its allies who say they share that aim. It will be a big change if the US abandons the idea that there are moderate potentially democratic forces in the Middle East that could replace current autocratic regimes whilst removing ISIL at the same time. It would also be possible to still hold that view, whilst saying it cannot be achieved using US military power.
Mr Trump has had a meeting with the Israeli Prime Minister and changed US policy on the Israel/Palestine dispute. He has made clear his support for Israel, and has shifted from the US insisting on a two state solution to saying he can live with anything the two sides agree. Time will tell whether this amounts to much of a change.
So what does this all mean for investors? It should not mean a less secure world than before, though the changes have to settle down and be understood by the other players. It does mean that a more isolated Germany and a less favoured China have to adjust to a very different stance. So far there is nothing in the new foreign policy that gets in the way of the economic recovery. If Mr Trump is to succeed he will need to concentrate his energies on US domestic politics, to get through his tax cuts, his banking reforms and his reflationary spending. He will probably see many of these foreign policy issues as a bit of a distraction, that, from time to time, disrupt his administration. He has already lost one senior official to opposition to any tilt towards Russia. His main domestic critics intend to worry away at all the links between the Trump team and Russia, as they remain implacable opponents of both.
The above article by John Redwood, Charles Stanley’s Chief Global Strategist, was first published by Charles Stanley on 17th February 2017.