Candidate Trump had confounded many a mind. No one seemed to have a clear idea how a President Trump would behave. But, wait no more. Barely a week into his presidency, the unpredictable has shown that he will be following the same script as he took steps to decisively follow through on his campaign talk. Spooked, the Chinese are now taking Trump on his word and preparing for the worst. The Financial Times also warned its readers earlier this week to start taking the Trump talk seriously.
Trumps actions on his domestic agenda well, his agenda reads more like a decisive dismantling of the Obama agenda on immigration, healthcare, climate change, oil drilling, law enforcement, etc. are leading to a visible political realignment within the US. This may sound strange, but his middle-of-the-road approach on some issues combined with an authoritarian approach on others could be appealing to a wider electorate.
But it is Trumps belligerent posture towards foreign trade, with both friends and foes alike that continues to force face-palms every day. During his first week, the new US President has withdrawn his country from the 12-country Trans-Pacific Partnership trade deal; promised to impose major border tax on American firms using overseas bases to supply goods to the US market; threatened to undo Nafta unless America gets a better deal; ordered a wall up the long US-Mexico border down south; and more.
To be fair, such a mercantilist approach has some benefits so far as satisfying Trumps disaffected base is concerned. Some manufacturers are already cowering under pressure as they halt plans to move factories overseas. Trump sounding tough is what fueled his rise in the first place. Already, big names like Ford, Carrier, and Sprint have towed the political line.
And then, his talk of infrastructure spending, his approval of two controversial but job-creating pipelines, and the Republicans impending cuts on corporate and income taxes, have also helped rally the fickle stock market. Besides, if economic czars are indeed serious to make US manufacturing competitive again, they will take a hard look at excessive regulatory burden on firms.
However, as has been pointed out elsewhere, including by influential minds such as of Larry Summers and Martin Wolf, the weight of American protectionism will provoke retaliatory protectionism from its major trading partners in the Asia-Pacific and North America regions. Regional supply-chain disruptions may result from a two-way muscle flexing. Swallowing the gains, consequences can be of three kinds for the US economy.
One, American firms, already under pressure from Trump to keep jobs inside the US, would be at the risk of being locked out from long-term raw-material and component-supply contracts overseas. As regional supply chains start to re-adjust to new realities and replace US firms, it will hurt price-competitiveness of the remaining US manufacturers. American workers will find themselves stuck in limited jobs that pay lower still. American consumers, for want of choice, would have to contend with expensive and low-quality goods.
Second; a protectionist America that blocks overseas manufacturing will end up dragging Americas crown jewel, its high-end services industry into the fray. American firms produce some of the most cutting-edge and widely-used solutions in fields such as information technology, R&D, design thinking, financial services, management consulting, higher education, online content, and entertainment. Their drive for continued innovation and expansion would take a beating if America under Trump recedes inwards.
And third, in a world where the US manufacturing giants and market-seeking MNCs will be discouraged from setting up more shops abroad and where US services behemoths are refused access in some of the worlds biggest and growing markets, it will further fuel the rise of local champions in countries like China and India to become global champions. American corporates, many of whom happen to be the poster children of global capitalism, will be the ones losing out.
The situation will be abysmal even in an ideal scenario for Trump where his protectionist measures dont draw any retaliatory tariffs. Continued American prosperity needs markets for US goods and services overseas. Steep tariffs and other such trade and investment barriers will, in the long run, sap external demand, resulting in lower consumption of US products there. Resurrecting US manufacturing base and keeping it all inside brings an echo from a distant past, a la 1920s, of forces that contributed to the Great Depression.
Who knows Trump may end up re-shaping the current globalist world order. But it is becoming apparent that this combative White House inhabitant has a weak understanding of the competitiveness equation. In the coming months, under all likelihood, Trumps promise in his inaugural address to buy American and hire American will result in some concrete actions. Those measures will swiftly drag the goodwill US is left with in courts of arbiters like the WTO. That, and what follows later, wont make America great again.
Comments
Comments are closed.