Trump, the businessman

On the first ever foreign visit after his election US President Donald Trump has signed $380 billion worth of business deals with Saudi Arabia. These deals also include a $110 billion sales order for Saudi purchases of US defence equipment and services. President Trump has hailed these deals as, 'Tremendous investments' in the United States guaranteeing 'hundreds of billions of dollars of investments into the United States and jobs, jobs, jobs.'
White House spokesman Sean Spicer hailed the defence agreement with Riyadh as the "largest single arms deal in US history. This package of defence equipment and services support the long-term security of Saudi Arabia and the Gulf region in the face of Iranian threats."
Additionally, according to US Secretary of State the deal bolstered the Kingdom's ability to provide for its own security and continue contributing to counterterrorism operations across the region, reducing the burden on US military forces. This package, he said, demonstrates the United States' commitment to US partnership with Saudi Arabia, while also expanding opportunities for American companies in the region, potentially supporting tens of thousands of new jobs in the United States.
Clearly, Saudi Arabia's fear of Iran increasing its influence in the Middle East and even its apprehension that one day Teheran would cast an 'evil eye' against the Kingdom itself were adequately primed by the US to get Riyadh in the right frame of mind to sign such a huge business deal carrying a heavy defence component.
But can the Saudi Kingdom afford such huge expenditures now that the world oil prices have collapsed showing no signs of rebounding in the face of development of more economical sources of non-fossil fuels? Indeed, according to Luya Khatteeb (Saudi Arabia's economic time-bomb - Brookings) the 2014-2015 collapse in oil prices has slashed the kingdom's main source of revenue which makes 77 - to - 88 percent of its total income. For the first time since 2007, the government has been forced to draw on its foreign reserves and issue bonds.
The rapid depletion of Saudi's foreign exchange funds is rather alarming. Based on current levels of spending and deficit, and assuming budget priorities remain static, with oil market conditions to stay unchanged, and regional tensions do not escalate, their reserves give them a fiscal buffer of five years at best. The 2014-2015 declines in oil prices differ from historic episodes. This time its oversupply driven by unprecedented production levels from conventional and non-conventional producers. Advance technologies and unconventional sources of supply to the energy mix have made the competition fierce over market share.
If this unsustainable financial decline continues at its present rate, the dollar exchange rate to the riyal will be endangered and the government will not be able to keep the peg. This may have serious ramifications on the US dollar if other Gulf Co-operation Council countries follow suit.
As for defence spending, the 2016 budget has featured the largest single allocation in the budget at 213 billion riyals ($56.79 billion) to the military and security services, comprising more than 25 percent of the total budget. According to some estimates, Saudi defence could reach as much as $62bn by 2020, in part due to KSA's military interventions in the region. It is worth noting Riyadh's defence budget had been rising by 19 per cent a year since the Arab uprisings of 2011 which clearly reflects the growing domestic and regional pressures felt by the authorities.
Furthermore, budgeted allocations may not necessarily include off balance sheet financial commitments allocated to countries that opted to join Saudi Arabia's military coalitions and campaigns in the Middle East. Sharp decline in oil prices, cost of subsidies and military spending, including the war in Yemen and supporting rebels in Syria, are all factors that will continue impacting the Kingdom's financial position.
Trump has a well-established record of hostility toward the kingdom's main rival, Iran, and in particular toward the Obama administration's Iran deal (the Joint Comprehensive Plan of Action, or JCPOA), which Saudi Arabia only reluctantly came to terms with.
Yet according to Yoel Guzansky and Sigurd Neubauer (Why Trump will disappoint the Saudis-May 10, 2017-Foreign Affairs) while Trump would surely want to differentiate himself from his predecessor, it is doubtful that he will significantly tilt US policy in a pro-Riyadh direction, whether by pushing for the removal of Assad or by confronting Iran with anything more than rhetoric to ensure that Tehran complies with the JCPOA.
And other issues may provide further sources of friction between the US and the Kingdom: the US-Russian détente, which Trump promised to pursue on the campaign trail, could strengthen Assad and therefore Iran; and Trump's quest to restart the Israeli-Palestinian peace process may require pressuring Riyadh to bring Ramallah to the negotiating table. In short, the kingdom's hopes for a full reset are likely to be dashed, no matter how many billions worth of arms it purchased from the US.
This is in part because defeating the Islamic State (also known as ISIS) is Trump's top regional priority, and the United States' anti-ISIS efforts still depend on the support of Iraq's various Shia militias, many of which are closely linked to Iran. Washington is therefore limited in how much it can push Tehran without endangering its campaign against ISIS.
Trump, like Obama before him, has also consistently emphasised the need for Saudi Arabia to bear its fair share of the burden in fighting terrorism. In April, the president claimed the kingdom "has not treated us fairly because we are losing a tremendous amount of money in defending Saudi Arabia."
The Saudis have consistently declared their support for enhanced counterterrorism co-operation against radical Islamic organisations, but have generally failed to move beyond rhetoric. In 2016 for instance, Riyadh announced it was prepared to dispatch troops to Syria to fight ISIS, but unlike the United Arab Emirates, it failed to follow through, likely because doing so would have reduced its capabilities of dealing with Yemen, which for the Saudis is the greater threat.
So far, Trump has not indicated any major changes in Washington's Yemen policy. The White House still formally supports UN-brokered peace talks and has continued the Obama-era policy of drone strikes against terrorist sanctuaries in the country. He has, however, given the Pentagon more freedom to carry out UAV attacks against al Qaeda militants in Yemen and has apparently increased US assistance to the Arab coalition forces.
Yet the Trump administration, which has been careful about not getting dragged into direct confrontation with the Houthis, would likely prefer that Riyadh pull out of Yemen. This would be best achieved through a diplomatic process so that the kingdom can save face.
Clearly, the Trump visit to Saudi Arabia was basically a business trip, for booking orders for killing machines that the US specializes in manufacturing for whose lack of world demand had caused closures and job losses by the thousands in the US. It was indeed not a strategic trip for mobilizing Arab opinion against ISIS and Iran because the US is already fighting the ISIS along with Iran, Iraq and Russia. The Trump rhetoric in this regard during his visit was only to placate the Saudis and other Arab Sunni states and was used as part of the sales-pitch.
The US President did not choose Europe or East Asia or even Canada or Mexico for his first visit abroad after election because most of these destinations are hardly in a position to place such billions of dollars' worth of orders which he succeeded in obtaining from Saudi Arabia and other Gulf countries.
Particularly he did not go to East Asia and, there is no sign that he would embark on such a visit soon, because he had expected to meet anger and hostility from long standing US friends in the region for giving up the Trans-Pacific Partnership (TPP) accord that President Obama had put together for the mutual benefit of all regional trading partners.
Trump's decision to do away with TPP was mainly to mollify China and make it attractive enough for Beijing to cut some mutually beneficial deals with the US. In this regard the two had announced a 100-day plan for trade talks.
According to Hao Tan (The art of the steel deal-May 19, 2017-Foreign Affairs) the goal is to fulfill one of the Trump campaign's promises by reducing the $347 billion US trade deficit with China, which in 2016 accounted for nearly 70 percent of the United States' total trade deficit of $502 billion.
China has already agreed, among other things, to improve market access for US credit-rating agencies and to remove import restrictions on US beef. The United States, in turn, made concessions on Chinese poultry and said that it "recognises the importance of" China's One Belt and One Road (OBOR) economic initiative. China will also receive US liquefied natural gas (LNG) exports.
Now the two are trying to rebalance global steel manufacturing. Such a deal would involve China cutting its own domestic steel production while at the same time encouraging Chinese investors and firms to invest in steel production in the United States. The rapid growth of China's steel industry played an important role in the country's industrialisation. Between 1990 and 2015, Chinese steel output expanded from ten percent to 50 percent of the global total.
From an American perspective, meanwhile, any increase in domestic steel production would be a political victory for Trump, who campaigned in part on a promise to restore US manufacturing to its former prominence. Steel production is largely concentrated in several Rust Belt states, which played a key role in electing Trump. As a result, economic growth and job creation in these states are high on the new president's agenda.