Developing world must brace itself for Trump tremors and aftershocks
Western backlash against globalisation set to strengthen as US president-elect draws new lines in the sand
The annual World Economic Forum gathering of the (largely western) globalised elite takes place from January 17-20. Davos faces a turbulent world in 2017. A selective listing of issues encompasses globally significant countries and regions in transition, notably Donald Trump’s impending US presidency, Brexit, the EU, Russia, China, Japan and the Middle East; and global driving forces, especially the “fourth industrial revolution”, cross-border production chains, the largely western backlash to globalisation and cyber warfare.
These times would test any government and country, but SA faces its own domestic challenges that, in the best case, will inhibit its responsiveness and, in the worst case, exacerbate the domestic political effect of these global currents.
A backlash against economic globalisation is the thread running through what some commentators are calling the crisis of the industrialised West. It manifests in rejection of economic, cultural and political openness, particularly in the trade, immigration and democracy terrains. It partly explains Trump’s rise and his anti-free trade, anti-immigrant, ostensibly anti-elite, agenda.
It also explains part of the Brexit phenomenon, notably its anti-immigration component, although, unlike Trump, the so-called “Brexiteers” are free traders at heart. And it explains the fault lines in the forthcoming, and highly consequential, French and German elections.
These trends coalesce into a progressive weakening of western consensus on approaches to managing the global economy as “the rest” rise to economic prominence yet do not possess the capacities to assume global leadership. Consequently, there is an uneasy interregnum in the management of global affairs, dubbed the “G-zero” world by the Eurasia group.
On the geopolitical stage, there seem to be two clear winners from these developments: Russia and China. Neither is a friend of western free-wheeling democracy so, to the extent that they benefit, other leaders with a less liberal mind-set, such as in eastern Europe, will be encouraged. To the extent that authoritarian tendencies are present in SA, they too will be encouraged, and perhaps reinforced, via our membership of the Brics group.
Russia stands to gain geopolitically from Trump’s presidency, although whether and to what extent this will materialise, given institutional and congressional resistance to Vladimir Putin in the US, remains to be seen.
China looks set to be the target of a concerted US trade offensive. At first sight, this would harm China’s highly export-dependent economy, worsening domestic political tensions. However, President Xi Xinping has one eye firmly fixed on the Chinese People’s Congress, scheduled for the final quarter of this year, at which he is keen to cement his hold on power and, perhaps, launch a new wave of economic reforms to tackle mounting domestic economic challenges by rebalancing the economy towards domestic consumption.
As many globally minded leaders recoil from Trump’s inward-looking trade and investment policies, so new global leadership will be sought, and China has already signalled its willingness to fill the potential void.
Depending on how China comports itself in its East Asian region, this dynamic, coupled with Trump’s general scepticism of the US military alliance system, could lead to a rebalancing of political power in that region, provoking Japan into action, with unpredictable consequences. Throw in the volatility associated with North Korea’s erratic leadership and it is clear that tensions in the East Asian region will ratchet up this year.
These dynamics highlight what is at stake at a global level: the future of the post-Second World War liberal international economic order.
Given domestic resistance, Trump is unlikely to tear up the multilateral institutional arrangements crafted over more than 70 years by successive US presidents. However, from trade through climate change to western security, he is likely to at least disrupt them, if not overturn them.
GLOBALISATION BACKLASH
The more his destructive instincts are brought to fruition, the more erstwhile critics will come to appreciate just how crucial these institutional arrangements have been in maintaining peace and security among the great powers (and therefore for the planet), and just how they have anchored post-Second World War economic growth and development.
Which is not to deny the many problems they contain, such as locking in distorted agricultural trade regimes. However, to the extent that “the rest” depend on western markets and investment, the gathering western backlash against globalisation will compromise the developing world’s economic prospects and compel it to diversify its trade interests by setting up, or strengthening, parallel governance structures, particularly at the regional level. In this light, while the prospects for Africa’s grand trade project, the Continental Free Trade Agreement, are not great, they may receive a fillip.
Overall, the world seems set to take a ride on a roller-coaster of deal-making based on raw power politics, away from the more genteel power politics, buttressed by international rules and institutions. In this mercantilist world, we are heading into, the wielders of cyber warfare will thrive and their actions will worsen already inflamed nationalist passions and illiberal reactions.
Where can South Africans look for hope in this gathering gloom? Notwithstanding the backlash against globalisation, the most positive integrative forces, especially technological change, are expected to retain much of their potency in the world.
However, one — cross-border production networks — is already under substantial attack in the US, while the other, the information technologies that underpin the “fourth industrial revolution”, is principally to blame for the populist phenomenon that gave rise to Trump and shows no sign of abating.
The first is more relevant to us. In case South Africans have not been watching, Trump is engaged in a Twitter war with the international motor industry, threatening “border tax adjustments” if they relocate production to Mexico (tomorrow it could be SA). This pressure is likely to intensify, with the US Treasury expected to designate China, Japan and perhaps Germany as “currency manipulators”, justifying additional border tax (import tariff) adjustments in the form of countervailing duties.
Retaliation is certain, but the extent and contours are unpredictable. Global uncertainty, characterised by outbreaks of trade wars, increasing national security contestation, hostility towards “them” and an increasingly fraying institutional fabric, seem set to increase.
The already fragile global economy is set to suffer in this environment, notwithstanding frothy financial markets punting Reaganesque supply-side economic policies emanating from Washington. Sooner or later, the political and economic limitations, as well as contradictions, inherent in the emerging Republican economic policy package will become apparent.
If there is one thing markets do not like, it is uncertainty. Unpredictability corrodes investment confidence, particularly of the real economy type.
Therefore, after the initial euphoria of Trump’s first 100 days, it is likely a reality check will set in and, if accompanied by highly conflictual trade and investment relations, investment plans will be recalibrated with a view to shortening supply chains so as to minimise the risk of policy- or securityinduced disruptions. The search for premium business environments that stand a better chance of maintaining good relations with the US will intensify.
As the Trump administration warms to its task of blocking Chinese economic expansion, and China retaliates, countries will increasingly be placed under pressure to choose sides. With all the prejudicial baggage Trump brings, it is very difficult to see his administration winning this contest for hearts and minds in SA.
When the ANC dominated our politics like a colossus, these geopolitical tensions were manageable. Now, as political power within the governing alliance and in the country is more contested, the foreign policy terrain has become more fluid and may also become more politicised. The Tshwane mayor’s recent Taiwan foray consequently assumes more significance.
The US and the West have generally been convenient, if historically deserved, targets for various tripartite alliance factions, even as the economy depends on western markets for value-added manufactured goods exports, and western investment to drive economic growth more broadly.
“White monopoly capital” in SA, with its obvious western linkages, is a natural extension of this safety valve, and so more anger will be directed towards it, particularly the Davos elite, by factions of the tripartite alliance as the ANC’s succession battle intensifies. Depending on who wins, there could be serious legislative consequences for the domestic and foreign private sector operating in SA.
Therefore, the “investment strike” by South African business is likely to continue until the succession dust settles, and will compound the negative international environment to deliver structurally slower, and perhaps negative, growth this year. With ratings agencies poised to deliver downgrades, it is — yet again — time to fasten seatbelts.