The new Protectionism


With the impending arrival of Donald Trump as President of the U.S. at the White House, the major trading nations of the world are worried. First of all, they never expected him to win, and apparently had not drawn up contingency plans. They probably thought they could manage a Hillary Clinton presidency, as she was a supporter of the status quo, though she turned against the Trans Pacific Partnership (TPP) trade deal propounded aggressively by President Obama during later part of her election campaign.

Trade is like immigration – it evokes passionate arguments for and against trade globalization. The WTO (World Trade Organization) looms large on any global trade issue, but it has had a variety of ups and downs while trying to conclude a global trade deal, with stringent opposition from developing countries. Those arguments against globalization have now died down, but a new President at the White House could resurrect th ghosts of global trade agreements, by walking out of multilateral trade agreements. President-Elect Trump has clearly stated that he will revoke the NAFTA trade deal of the Nineties, or at least re-examine it vigorously. The TPP trade deal is surely dead by now, as Trump will not let that agreement even go to the U.S. Congress. And, a Congress dominated by Republicans is in no mood for new trade deals, which it thinks are against the interest of middle class Americans.

While we can recite the virtues of globalization ad infinitum, it is critical to understand the rise of anti-trade, anti-globalization sentiments both in the U.S. and the U.K. (and increasingly, in most of Western Europe). Why did we not predict this phenomenon ahead of current times?

Well, the sentiments were always there, but increasing job losses in the U.S. specifically and stagnant wages have incited Middle Class America to revolt in a democratic manner – they simply decided to reject the status quo politics of Washington, and bring a stark outsider to run the country. Trump is no politician, he was not even in the running. He is a businessman focused on making profits for himself and his family. How will he now carry out his campaign commitments to Americans that he made in the heat of the election campaign, while trying to understand the intricacies of running the Presidency?

My assessment: he will implement what he said he will do (with some tweaks of course). Why will he do that? Just think – in corporate management, we commit to do something and we will have to do it, come what may. Trump is a corporate businessman, running many businesses. When he commits something, he will have to do it, and he will do it – unlike the career politician who is afraid of political backlash. Trump has nothing to fear, he is not from Washington, he is least bothered with back room dealings at the Congress.

This would just mean that he will actually go and do what he said he will do – and, he said those things many times over and over again, and he was consistent, and that is one of the main reasons why he won the election. There is no sugar-coating, there is no “being nice and gentlemanly”, no diplomacy, no niceties with Trump. And, Middle Class America liked what it saw in him – he repeatedly demonstrated it in all his campaign speeches and messages.

Dangerous, right?

Not really.

The U.S. economy is huge and resilient and depends on a global network of buyers and suppliers for its success, and continued growth. President Trump will soon realize it. While he may not sign any new trade agreements, and threaten to walk out of existing agreements, he will be told by the Congress that international obligations cannot be violated. Trump might give some headaches and nightmares, but at the end he is not stupid. He will adjust himself while the world will struggle to adjust itself for a wild run with President Trump over the next four years. But he will push for retaining American jobs in America, and no country will be immune to that pursuit. And, I believe nothing is wrong with the jobs focus, as eventually a well-paid American in the U.S. is going to want to buy things from all over the world. Unless, I am missing something. Disclosure: I am not an economist by training!

I plan to write a separate piece on immigration matters, but on trade matters I think the world should expect a roller coaster ride for most of 2017. And, contingency plans will have to be ready. Currencies will be hurt seriously (see what happened to the Mexican Peso after the Trump win). Immigration will also be hurt.

Wiser counsel will eventually prevail, and there might have to be some serious compromises stuck.

In the meanwhile, brace yourself for a wild, wild ride. This is the world of “new protectionism”.

Cheers,

Vijay Srinivasan

20th November 2016

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