Will trade triumph under Trump?

Rahul Mazumdar | Updated on March 12, 2018

Donald Trump

The fact that he rode to power on an anti-globalisation wave gives rise to concerns. But let’s hope pragmatism prevails

The US election results raise a concern: which way will the country go from here, given that President-designate Donald Trump won on an anti-globalisation plank?

Trump’s rise reflects the extent to which political polarisation in the US has grown during the last eight years on various subjects. Trump from the very beginning seemed to have got the discontent of the US citizens right, and echoed their popular sentiments against globalisation, which Americans believe has mugged them off their livelihoods, with the immigrants adding to their concern. The irony, however, is that the immigrant argument seems erroneous when the country itself is made up almost entirely of immigrants and their progenies.

The whiners say

The election results clearly show US to be whining and badly bruised by globalisation. US, since the World War II, has been the greatest proponent of the idea of globalisation. Trump’s win throws open the argument of whether the hunter has actually got hunted in the process.

The US’ inclination towards globalisation could be well corroborated by the fact that its share in the world exports of goods and services during the last 50 years gradually declined from 16 per cent in 1965 to 9 per cent in 2015.

At the same time during the last 25 years, US’ current account deficit, which includes the combined trade deficit of goods and services, increased by almost six times from $ 79 billion in 1990 to $ 463 billion in 2015. During the same period, while US’ GDP almost tripled from $ 6 trillion in 1990 to $17 trillion in 2015 — the current account deficit as a percentage of GDP doubled from 1.3 per cent to 2.6 per cent. This deficit has arguably been the single biggest job killer in US.

Trade agreements have been one of the key tools devised under the aegis of globalisation. The moderately porous borders US offered through North Atlantic Free Trade Agreements (NAFTA), or the Africa Growth Opportunities Act (AGOA), or the concessions provided to the less developed countries in the world, permitted most foreign goods to come in with a zero or low tariff, encouraging US to manufacture less and import more. The textiles sector is a classic example of this phenomenon. Garments produced by people thousands of miles away in Asia, at much lower pay, finds space in the best of high-end malls of New York.

All has not been bad

While the election results show that America is paranoid about globalisation, a good number of Americans fail to realise that they have benefited significantly as a result. The economic arrangements the country has enjoyed with various other countries have worked to US’ advantage. With regard to unemployment rate during Q3 2016, it stands at a relatively low 4.9 per cent compared to 8.6 per cent in the European Union.

Even as the entire world succumbed to the global financial crisis of 2008 which actually emanated in the US’ own backyard, its economy has not only been in revival mode since but is currently the fastest growing among all the advanced economies.

With regard to the trade agreements, NAFTA which was signed almost two decades ago, saw US’ per capita GDP double in these years. At the same time in the per capita GDP has grown by close to one and half times over the last 10 years, which also included the worst crisis the country has faced since the Great Depression.

The fact is that different sectors in the economy do get adversely affected when trade barriers are lowered, but the aggregate benefits are greater than costs. US consumers hence have enjoyed low priced goods and services, and low inflation rates, each of which has helped them to increase the real value of their incomes.

While Americans suddenly consider themselves to be victims of globalisation, the country may not be aware that they have been the largest exporters of high-technology products across the globe. This was made possible by concentrating on producing high end, value added, novel products by qualified professionals from across the world.

Last but not the least, one of the greatest beneficiaries of the globalisation spree has been US- based multinationals.

Foreign policy matters

With Trump having thrived on populist tide against immigration and global trade, the Trans-Pacific Partnership (TPP) Agreement will possibly see its premature death. He considers it to be the “death blow for American manufacturing”. However, what would be more interesting to see in the days ahead would be his approach towards foreign policy, which cannot be dealt with as a separate silo without attending to trade and commerce.

Try hard as it might, the US cannot undo globalisation. The world has become more integrated than ever before. If the US tries to put the globalisation genie back in the bottle, it may have serious economic implications. US has to realise that a good part of their progress is because of the contribution from the Asians, Africans and Latinos.

Globalisation throws up intermittent challenges which get ironed out in the long run. But it has brought about socio-economic benefits to a host of countries, developed or less-developed, whether by chance or by design.

As technology progresses, developed countries innovate to improve existing products and make them affordable, while introducing new products as well. Meanwhile, lesser developed economies learn to produce less expensive products previously made in the more developed countries because of lower wages or taxes.

Will trade triumph under Trump? The entire world eagerly awaits an answer. Going forward, the Trump administration should ideally view trade as benevolently as its predecessors, while creating new job opportunities for American citizens and not going into isolation. US instead of exploring import substitution, should use its ability to create value added goods and services for the world.

The writer is an economist with Exim Bank, India. The views are personal

Published on November 11, 2016

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