US allies look to economic diplomat for policy clarity
Facing senators at his confirmation hearing this month, David Malpass recounted how his great-grandfather in 1883 established a Michigan iron foundry that through tenacity and hard work had overcome foreign competition to become a thriving, fifth-generation business.
Mr Malpass, a former Bear Stearns economist who is set to become Donald Trump’s top economic diplomat, laid out the story as an example of US resilience and the importance of strong leadership. As he prepares to enter an administration notorious for internal rivalries and zig-zagging policy paths, he could easily have offered it as testament to his inherited grit.
Mr Malpass is awaiting Senate confirmation as under-secretary for international affairs at the Treasury, having previously worked on Mr Trump’s transition team before the inauguration. The veteran of Wall Street and Washington will become a global interlocutor for an administration where clashes between free market voices and economic nationalists remain unresolved. The outcome has been conflicting policies, ditched pledges and confused allies.
“More than in any period in recent decades that I can remember, international counterparts in central banks and finance ministries are looking for greater clarity,” said Nathan Sheets, a visiting fellow at the Peterson Institute for International Economics and the previous occupant of the position Mr Malpass will hold. “Part of it is this tension in the various perspectives within the administration.”
Diplomats have taken to engaging with multiple people in the hopes of determining at least the contours of internal debate on matters like trade.
Even Republicans in Congress privately complain that they are often left out of the loop on economic policy and are struggling to understand administration thinking on international issues, such as China’s alleged currency manipulation.
It is unclear how Mr Malpass’s experience in more traditional Republican settings will serve him. Described by those who know him as down-to-earth and low-key, he was in the Treasury and state departments under Ronald Reagan and George H.W. Bush and also on the influential Senate Budget Committee.
In 2010, he ran unsuccessfully for the Republican nomination for the Senate in New York, winning backing, among others, from former mayor Rudy Giuliani. Mr Malpass’s wife, Adele, is also a former Senate Budget Committee staffer who chairs the Manhattan Republican party.
Mr Malpass’s biggest job will be reassuring allies eager to hear from a single authoritative voice. Among the priorities will be helping define the bilateral relationship between the US and China at a time when US companies are struggling with a rocky investment climate there.
Despite repeated pledges by Mr Trump, the Treasury declined to brand China a currency manipulator in April, instead acknowledging in a report on foreign exchange policies that its recent practices have aimed to prevent excessive depreciation.
At his confirmation, Mr Malpass said one of his tasks was to protect the “trustworthiness” of the dollar, having espoused stable exchange rates during his career. The Trump administration has sent clashing messages, however, with the president complaining about dollar strength even as Steven Mnuchin, the Treasury Secretary, sticks to a more traditional strong dollar stance.
The administration is also attempting to resolve an internal debate over whether to invoke a national security crackdown on steel imports, as foreign countries watch its fluctuating positions on trade.
Mr Malpass is seen by allies as an instinctive free trade advocate as well as a hard-money fiscal conservative. One former colleague expressed surprise that he had signed up to the “America First” agenda of a Trump administration espousing a confrontational approach to trade.
Mr Malpass has recently been critical of deals such as the North American Free Trade Agreement, however, as well as the 12-nation Trans-Pacific Partnership, which Mr Trump pulled the US out of. Judy Shelton, who served alongside Mr Malpass on the transition team, said he was a free trader but that he had felt agreements such as Nafta became “larded up” and overburdened with government-imposed detail, turning relations into “managed trade”.
At the IMF, officials have spent months trying to dissect the approach Mr Malpass will take alongside his future deputy Adam Lerrick, given their past criticism of the institution. Mr Malpass has attacked the fund for programmes that gave growth too low a priority, and for prescribing weak currency policies for struggling countries.
Christine Lagarde, the managing director, has quickly built a relationship with Mr Mnuchin and Gary Cohn, the National Economic Council director, but other officials privately talk about the lack of leadership from the US, the IMF’s largest shareholder.
At the World Bank, the institutional fear is more acute and questions hang over whether the Trump administration will back President Jim Yong Kim’s push for a capital increase. Bank officials say they have already begun scaling back lending.
Mr Mnuchin had a rough ride in Germany early in the administration as he clashed with fellow G20 finance ministers over language spurning protectionism. Doug Rediker, a former US representative to the IMF, said that Andy Baukol, the top international civil servant at the Treasury, had since helped Mr Mnuchin address fears of unwarranted disruption that were raised at the meeting.
Nevertheless, the US’s partners are watching Washington with deep anxiety. Matthew Goodman, of the Center for Strategic and International Studies, said: “The question to me is whether he will have the scope and incentive to pursue the kind of analytically grounded international economic policies that Treasury has traditionally pursued, or whether he will fall in line with the kind of zero-sum thinking we’ve seen to date on trade.”