Points to ponder
Regardless of all the protests that have erupted post U.S. elections – citing issues on rights, gender, race, religion, creed, etc. – the fact remains that Americans mainly voted on economic grounds. After all, if religion, immigration or race would have been real issues, they would not have opted to put someone who was half black in the White House for 8 long years, his birth status shrouded in mystery and possibly a closet Muslim. Mr. Trump, a Wharton qualified private sector management guru, hit the right note when gauging public sentiment, which had reached a tipping point after the financial crisis of 2008. Sick and tired of professional politicians who typically promised a lot but once in office resigned merely to maintaining a status quo or opting for business as usual (Obama’s two tenures epitomising this phenomenon), the majority public this time ensured that it elects a leader who can bring about a real economic change and return the United States of America’s economy back to being the envy of the world. And for this, it was even willing to forgive any personal shortcomings or vices.
So what exactly is this economic change that Mr. Trump is promising to the American people? Essentially, it relates to improving US manufacturing competitiveness to see to it that small and medium sized businesses return to fashion through entrepreneurship and innovation, and that job creation picks up at an express pace. To achieve this, he is willing to go any distance: shun or redraft American trade agreements; raise tariffs to protect home industry; strongly push for strict enforcement of global intellectual property rights to help US companies capitalise on their innovative edge (more than two thirds of global innovation still takes place in USA); review the increased number of regulations put on the US banking to unleash a fresh wave of industrial loans; reduce taxation; go easy on environment and climate change regulations; and even take on the World Trade Organisation (WTO) where it rulings tend to hurt the interests of American corporations. All very well, but this then leads to the next more important question: Do his proposed policies make any sense and should he really be adopting such a revolutionary path to economic progress, because ironically it is the US itself who is the original architect of the present economic world order: Laissez-faire and globalisation? A short answer: His proposals do merit a serious consideration, because while his plans may appear to be rather inward looking, they may actually work very well for the US, or let’s say at least in the short run.
Latest studies and recent international developments point towards a need for renewed strategies to improve a country’s trade and investment, since modern day global trade is changing course. Gone are the days where countries single-mindedly focused on expansion of trade or had blind faith to slip into the prescribed WTO straight jacket to become a part of the global trade order. Both, the 2008 Financial Crisis and a Noodle Bowl effect of FTAs (Free Trade Agreements), RTAs (Regional Trade Agreements), PTAs (Preferential Trade Agreements), etc. have slowly but surely undermined the once unquestioned wisdom of multilateral functioning. Modern day thinking being that while expanding global markets is a worthy goal, history offers lessons that only fair and ‘constructive trade’ is what nations should be seeking – ‘Constructive’ referring to a realisation that only such trade is welcome which tangibly adds value to the home economy and ensures a gradual but clear development of its core national industries – USA’s current trade equations with most leading economies of the world tell a rather different story!
Further, not just in the US, but in general the frustration with WTO is growing. Of late, quite a few countries are thinking of either challenging or simply walking away from WTO rulings that they believe hurt their growth and development prospects. For example: Brazil is unhappy with the latest WTO ruling against the Brazilian industrial policies that were announced by it as far back as 2011, aimed at lifting its floundering home manufacturing by providing various kinds of tax breaks and subsidies; USA is unhappy as the WTO deals with its case of protecting its steel industry; China and Thailand are dissatisfied with lack of action on dumping of sugar by South American countries (mainly Brazil); India is disgruntled as it wants no compromises on its support packages for its farmers; and last but not least, Japan & Europe want no interference in their respective bids to further strengthen Japanese and European automobile manufacturing that form the backbone of their industrial employment (Czech Republic alone assembles 1 million cars per annum). So really, Mr. Trump may not be alone in his challenge to the WTO to re-constitute both its ambit and its operational rules, as his sentiment may well be shared by many other leading economies of the world.
Shoring up sustainable home manufacturing competitiveness requires a holistic approach, which is not without its pitfalls and therefore requires careful planning and meticulous timing. Meaning, protection to home industry needs to be for a limited period and with clearly specified goals, should ideally be done during a low inflation cycle, needs to be accompanied with a strict cum transparent monitoring and evaluation system, and preferably be coupled with policies that stimulate home demand in tandem. Interestingly, Mr. Trump’s proposed solutions for fixing America’s economic woes encompass all these factors. He assumes office when USA is going through one of its lowest and longest low-inflation cycles and his plans to bolster demand through infrastructure spending – USA’s infrastructure happens to be in a rather dilapidated condition when compared with like-to-like economies of Europe and China – while aiming to provide a level playing field to domestic industry through a mix of better trade policies and industrial reforms, just might be the recipes the Americans have been waiting for since a long time!