The march of isolationism
Trump's victory shows growing discomfort with globalisation
Is Donald Trump's victory a win for antifree market forces? Is it the death knell for capitalism and globalisation?
THE DEVELOPED world’s poorest country—the United States of America (usa)—has voted for its new president. The victory of Donald Trump was unexpected. But the anger that fuelled his victory was very much expected, and sends out a clear message. It questions the free market model of economy that has been the only model in existence for more than half of the world’s population.
Championed by the developed world, the free market economy has been under scrutiny since 1990. But developments in the aftermath of the recession of 2008 show that countries are increasingly losing interest in this model of economy. The recession wiped out 13 per cent of the global production and 20 per cent of the global trade. In fact, its impacts are still being felt across developed countries. Britain’s surprise vote to leave the European Union (Brexit) was the biggest reality check on the efficacy of globalisation, while high unemployment in Spain and severe economic crisis in Greece that led to adoption of austerity measures across the countries were wake-up calls. Opinion poll after opinion poll, including the one from the Pew Research Center, a Washington-based fact tank, suggests that many European countries want to follow in Britain’s footsteps and exit the European Union to pursue their sovereignty over decision-making and economy.
This sentiment was reflected during the US presidential election campaigns when unusual reports filled the newspapers. “Nobody is talking about the 43 million poor of US”. “Voters can’t buy bus tickets to go to the poll station”. “usa just closes its eyes to the inequality”. Then there were the kind of slogans Trump made: Stop outsourcing American job to India and China; Deport illegal migrants from the country. The campaign slogans had an uncanny similarity with those made in developing countries: free the market economy; create jobs for the locals; eradicate poverty. This is the reason Trump won, even though he has accumulated his fortune by reaping the benefits of free trade.
For the world yet to overcome the Brexit shock, Trump is just a rude reminder that there is some fundamental problem with the free market model. “Donald Trump’s victory should serve as a lesson for Europe’s mainstream forces ahead of their own ballots next year. Politics as usual just does not work on both sides of the Atlantic. Clearly,
people are not feeling they profit from the benefits of globalisation and free trade,” says Anthony L Gardner, the US ambassador to the EU.
The victory of Trump also indicates that the developed world now struggles with the third world problems. Its economies are in tatters; inequality is further widened, with a handful of people amassing the major chunk of profits generated out of a free market; and human development indices have declined sharply.
For example, in the US the per capita gdp grew by 14 per cent between 2001 and 2015, but the average wage grew by only 2 per cent. An analysis by the McKinsey Global Institute shows that the real incomes of about two-thirds of households in 25 advanced economies were flat or fell between 2005 and 2014. The situation was the worst in Italy, where 97 per cent of the middle-class saw stagnant or declining take-home pay. In usa, the figure was 81 per cent. About 193 million people, or one-third of those whose income has not been advancing, express negative opinions about free trade and immigration.
The possibility of creating the world’s biggest free trade market now looks bleak due to this rising discontent against economic liberalisation in developed countries. The proposed Transatlantic Trade and Investment Partnership (ttip) between the EU and the US, dubbed one of the most ambitious free trade accords ever attempted, has attracted opposition in Europe as voters have grown doubtful of the benefits of globalisation. The victory of Trump, who has pandered to the antiglobalisation sentiment, is likely to result in the demise of the deal. He has already vowed to withdraw the US from another free trade agreement, the Trans Pacific Partnership that covers 12 countries, on his first day in office. “Instead, we will negotiate fair, bilateral trade deals that bring jobs and industry back onto American shores,” Trump said while unveiling plans for his first 100 days in office.
Small wonder that immediately after the US presidential elections, multilateral financial organisations like the World Bank Group and the International Monetary Fund (imf), who champion the free market economy, defended the model. Addressing a press conference at the World Bank-imf Annual Meetings, World Bank Group President Jim Young Kim cited the example of China that has lifted 700 million people out of poverty using the same model of economy. Christine Lagarde, managing director of imf, was more vocal. On Trump’s idea of getting American jobs by adopting protectionism, she said, “The rhetoric against [free] trade would do harm to the country. I call it economic malpractice.” Just a few months ago, the research department of the imf had alleged that the proponents of neoliberalism have been over selling the benefits of free market.
Trump had campaigned on a promise to scrap international trade deals that transferred US jobs overseas and flooded domestic markets with foreign goods. His call for “Americanism, not globalism” struck a chord with the white working-class voters at a time when the US was still licking the wounds of the North American Free Trade Agreement (nafta), an agreement signed between the US, Mexico and Canada in 1994. nafta had resulted in the loss of manufacturing and shipping jobs for the Americans.
Verdict against rising inequality
There is another reason Trump’s brand of protectionism has found takers in usa. Free trade, which served the country for two decades following Europe’s and Japan’s wartime collapse, ensured enrichment of an already rich part of the society. The protectionism, as demanded and upheld by Abraham Lincoln, is now looked upon as a more fitting answer to “exclusionary capitalism” that helped the economic elite reap all the fruits of unrestrained international trade.
Factory work, which was once the backbone of the middle class, is now all but gone. It has been replaced by low-paying service jobs. In 1980, one in five Americans worked in manufacturing units. Now it is one in 12. Ohio now has one-third fewer manufacturing jobs than it had in 2000. Estimates by Massachusetts Institute of Technology economist David Autor show usa lost a million manufacturing jobs to China between 2000 and 2007—this is a quarter of the jobs lost across the US during the period.
Political scientist Francis Fukuyama, who had previously supported the American model of capitalism and free trade, also highlights this fallout of globalisation. “We thought to make the best of globalisation by producing nothing ourselves and offering services instead. This was a mistake. We forgot that socialism never was a big issue in the US, because enough people always managed to move into the burgeoning middle class. Nowadays, this is no longer the case, because they have worked in industries that we have outsourced to countries like China,” he says.
Other than soya beans and corn, which in a highly mechanised agriculture are practically produced without human labour, the US sells services like patents and licences, and technologically sophisticated products like industrial machines, semiconductors, electric apparatus and medical equipment. Unfortunately, high-tech industries and research do not create jobs for the majority of American people. This explains why the Rust Belt (Pennsylvania,
Trump's victory indicates that the developed world now struggles with the third world problems. Its economies are in tatters; inequality is further widened; and basic human development indices have declined sharply
Ohio, Michigan and Iowa) has been decisive in Trump’s victory. These are the states where working class people and union workers have seen deindustrialisation and manufacturing decline.
A study by the Pew Research Center finds that 65 per cent of Americans agree that the gap between the rich and the rest has widened in the last 10 years. In 2013, the median wealth of the nation’s upper-income families ($639,400) was nearly seven times that of middle-income families ($96,500), the widest wealth gap seen in 30 years when the Federal Reserve began collecting these data.
Obviously, the US is no stranger to the trend of rich dictating the political agenda, financing the candidates who protect their interests and ensure that the laws are in the interest of the corporate. The six-month-old Dakota Pipeline Access protest is the most recent specimen. Despite hundreds of indigenous people upping their protests against this proposed pipeline, Kelcy Warren, the chief executive officer of Energy Transfer—the promoter of the project—says, “I am 100 per cent sure that the pipeline will be approved by a Trump administration.” In June, Warren donated US $100,000 to the Trump Victory Fund and another $3,000 to the Trump campaign.
So, American political scientist Larry Bartels was not off the mark when he recently said the US senators are five to six times more likely to listen to the interests of the rich than to the interests of the middle class. “There is no discernible evidence that the views of low-income constituents had any effect on their senators’ voting behaviour,” Bartels said. Economist Joseph Stiglitz says from the 1980s until 2007, deregulated capitalism in the US brought greater material wellbeing only to the very richest in the richest country of the world (see ‘How Trump happened’ on p28). “Over the course of this ideology’s 30-year ascendance, most Americans saw their incomes decline or stagnate year after year,” says Stiglitz.
“There are many Americans who work two jobs to make ends meet,” says Hershey Friedman, professor of Business at Koppelman School of Business, Brooklyn College. “One of my friends, a college professor, is having trouble paying his rent and is heavily in debt. He is considering working at night driving a cab. There is a large number of people like that in the US. They are opposed to an economy slanted to benefit the rich,” Friedman says.
Increasing inequality and stalled growth in the wake of global financial crisis are also the reasons most nations in Europe seem to denounce the ideology of free trade. This becomes evident from the rise of anti-globalisation movements and nationalist parties in several countries.
Brexit exposed the anti-EU feelings and anger against the power structures that are alienated from the society and ineffective in tackling global downturn and the Eurozone crisis. The referendum is the result of a realisation that the beneficiaries of globalisation have been powerful corporations, affluent families and skilled and educated workers; the working-class continues to struggle with stagnant wages, job losses and staggering debt. “A UK departure is going to make the entire EU inward-looking and more defensive on globalisation,” says Fredrik Erixon, director of the European Centre for International Political Economy, a policy research think-tank based in Brussels.
In both Europe and the US, the grouse has been evident among older and less-educated citizens whose livelihoods were affected by automation and cheaper foreign labour—two main features of globalisation. Branko Milanovic, a leading economist of inequality, explains in one of his books that the recent surge of inequality in the West has been driven by the revolution in technology, just as the Industrial Revolution drove inequality about 200 years ago.
Rise of restrictive trade measures
Way back in 2011 when the Occupy Wall Street took roots, highlighting inequality and the failure of the economy to meet people’s expectation, the International Labour Organization (ilo) hinted that the growing unrest had an uncanny protagonist: the youth. Currently, the population in the age group of 15-24 is at a historic high. This group has not seen any economic model other than the free market. Comparing the current crisis of unemployment among the youth to the Great Depression, ilo said, “There have been serious financial crises, none have been as deep, as prolonged, and as globally contagious as the current crisis.” It also indicated that a generation is growing up without access to the labour market, further precipitating the crisis. It is no surprise that a majority of Trump’s voters are less educated unemployed youths.
Growing unemployment is one of the reasons most developed countries are resorting to economic protectionist measures. The wto report, which analysed restrictive trade measures between mid-October 2015 and mid-May 2016, says the G20 economies have introduced new protectionist trade measures at the fastest pace since 2008 economic recession. “G20 economies applied 145 new trade-restrictive measures—an average of almost 21 new measures per month, compared to 17 in the previous report,” it states.
Going by the European Commission report, between July 1, 2014, and December 31, 2015, Russia issued the largest number of measures restricting government procurement. Countries, such as Algeria and China, used discriminatory tax measures favouring local businesses. In the field of services and investment, China adopted the highest number of restrictive measures, followed by Indonesia.
China is the EU’s second largest trade partner. But the EU says Chinese exports are flooding European market. Recently, it has taken temporary anti-dumping measures against the imports of Chinese seamless steel pipes. “Europe cannot be naive and must protect its interests, especially when it comes to dumping,” says Peter Ziga, trade minister of Slovakia that holds EU’s presidency.
The European Commission says emerging economies were responsible for 50 per cent of all trade-restrictive measures introduced between June 2014 and December 2015. However, developed countries, including G20 members, also take protectionist measures despite repeated pledges against them. According to European Commissioner for Trade Cecilia Malmström, “Trade protectionism continues to be on the rise worldwide. Open markets are proven to bring more innovation, increased productivity, economic growth and prosperity. Despite this, few barriers to trade have been removed, while new ones have been introduced.”
Though usa is officially committed to free trade, it has limited openness since the 2008 recession. In fact, it has implemented the maximum protectionist measures since 2008. usa had pursued protectionism between the Civil War and the Word War II, before it radically changed its mind in the middle of the 20th Century, when Europe’s industries were largely destroyed, and turned into the follower of free trade to prevent others from protecting their industrial production. The optimism of the first two decades after the World War II is now sagging. Under the Trump regime, it is most likely to tailor its rules to shut out foreign companies from public tenders.
Like Japan, which practised protectionism much to its benefit, the upcoming Republican government in the US is going to be conservative in foreign trade deals and pay heed to Abraham Lincoln’s warning to his countrymen: “I proceed to try to show that the abandonment of the protective policy by the American Government must result in the increase of both useless labour and idleness; and so, in proportion, must produce want and ruin among our people.”
Emerging economies were responsible for 50 per cent of all trade-restrictive measures during 2014-15. But a WTO report says G20 economies introduced new trade-restrictive measures at the fastest pace since 2008 recession