Will Trump put an end to glob­al­i­sa­tion?

Econ­o­mists warn that Trump’s pres­i­dency may come with the resur­gence of in­fla­tion and a nor­mal­i­sa­tion of in­ter­est rates in de­vel­oped mar­kets, which would be neg­a­tive for emerg­ing mar­kets.

Finweek English Edition - - THE WEEK - Edi­to­rial@fin­week.co.za By Lindo Xulu

as­the world ad­justs to the new nor­mal, with Pres­i­dent-elect Don­ald Trump at its helm, ques­tions sur­round­ing the sus­tain­abil­ity of glob­al­i­sa­tion con­tinue to re­ver­ber­ate around the globe.

Pop­ulism is on the rise, sweep­ing across the At­lantic and parts of Europe, but the idea that glob­al­i­sa­tion has failed is a mon­u­men­tal ex­ag­ger­a­tion.

Den­nis Dykes, chief econ­o­mist at Ned­bank, says glob­al­i­sa­tion and trade lib­er­al­i­sa­tion has had a pos­i­tive ef­fect on global growth. “If you look at the global econ­omy as a whole be­tween the 1970s and 2000s, im­proved trad­ing con­di­tions have largely con­trib­uted to driv­ing down the pro­duc­tion costs in most sup­ply chains.”

How­ever, those that have been left be­hind, partly be­cause of their in­abil­ity to re­main com­pet­i­tive in a highly skilled labour mar­ket, have now shown their dis­gust with a sys­tem which in prin­ci­ple sought to bring hu­man­ity closer, al­low­ing for (at least in the­ory) the free move­ment of peo­ple, goods and ser­vices.

And in ag­gre­gate, ex­port­ing de­fla­tion at a scale never seen be­fore in hu­man his­tory.

The growth of the mid­dle class in most de­vel­op­ing coun­tries has also been un­der­pinned by the rise in mul­ti­lat­eral trade agree­ments, which low­ered or re­moved trade bar­ri­ers around the globe.

South Africa has, for ex­am­ple, ben­e­fit­ted from a free trade agree­ment with the EU, as well as Amer­ica’s African Growth and Op­por­tu­nity Act (Agoa), which was re­newed in 2015 for an ad­di­tional 10 years. In Novem­ber, SA com­pleted all the ad­min­is­tra­tive pro­cesses to fa­cil­i­tate the im­ple­men­ta­tion of the pref­er­en­tial trade agree­ment be­tween the South­ern African Cus­toms Union (Sacu) and Mer­co­sur (whose mem­bers are Ar­gentina, Brazil, Paraguay and Uruguay), aimed at im­prov­ing trade con­di­tions be­tween South­ern Africa and South Amer­ica.

This agree­ment marked the first trade agree­ment con­cluded by Sacu (whose mem­bers in­clude SA, Botswana, Le­sotho, Namibia and Swazi­land) as a sin­gle en­tity, fol­low­ing the his­toric Sacu agree­ment of 2002.

How­ever, Trump has in­di­cated that he will take a more pro­tec­tion­ist view on trade. Without men­tion­ing any spe­cific com­pa­nies, Trump threat­ened to im­pose a 35% tar­iff on “any busi­ness that leaves our coun­try for an­other coun­try, fires its em­ploy­ees, builds a new fac­tory or plant in the other coun­try and then thinks it will sell its prod­uct back into the US without ret­ri­bu­tion or con­se­quence”.

It seems odd that Trump, who him­self has drunk deeply Chief econ­o­mist at Ned­bank from the well of glob­al­i­sa­tion, has now adopted a hawk­ish tone on fur­ther in­te­gra­tion.

As a leader of a multi­na­tional or­gan­i­sa­tion, Trump, ac­cord­ing to The New York Times and anal­y­sis of his fi­nan­cial dis­clo­sure re­port, has busi­ness in­ter­ests in at least 20 coun­tries in­clud­ing Ar­gentina, Brazil, In­dia and Turkey.

De­spite this, Trump ap­pears at least to have sounded the alarm bells for the glob­al­i­sa­tion project, but how se­ri­ously should we take his rhetoric?

Dykes says it’s hard to tell at the mo­ment, but some of Trump’s pro­nounce­ments are com­pletely un­re­al­is­tic in the short term. For ex­am­ple, he’s threat­ened to pull out of or rene­go­ti­ate the North At­lantic Free Trade Agree­ment (Nafta). While that may be pos­si­ble, it’s not some­thing that can be achieved overnight. That said, it’s im­por­tant to ac­knowl­edge that the spoils of glob­al­i­sa­tion have not been evenly dis­trib­uted. So some of the Trump sup­port­ers’ anger is jus­ti­fied.

In a world where we’ve wit­nessed neg­a­tive yields in parts of Europe, com­men­ta­tors have ac­knowl­edged that with the elec­tion of Trump might come the resur­gence of in­fla­tion cou­pled with a nor­mal­i­sa­tion of the bond mar­kets.

“Trumpfla­tion”, ar­gues Dykes, would not be in the in­ter­est of emerg­ing mar­kets. “We do need some in­fla­tion to be rein­tro­duced into the sys­tem but we need to be care­ful. Rapid in­fla­tion cou­pled with low global growth con­di­tions in an en­vi­ron­ment where trade is be­com­ing more do­mes­ti­cated could be a neg­a­tive for emerg­ing mar­kets. Be­cause it would sud­denly make us a less at­trac­tive in­vest­ment re­gion; if rates be­gin to nor­malise in de­vel­oped mar­kets, then cap­i­tal seek­ing slightly less risky as­sets will flood back into the US.”

Some con­tem­po­rary an­a­lysts have sug­gested that a Trump pres­i­dency could hark back to the Ron­ald Rea­gan era, which saw the US in resur­gence, cul­mi­nat­ing with the col­lapse of the Soviet Union.

But if one tests the rhetoric of Trump against Rea­gan most com­par­isons fall short. Rea­gan sup­ported his tra­di­tional al­lies, cham­pi­oned global trade and was an ar­dent sup­porter of the North At­lantic Treaty Or­gan­i­sa­tion. Trump is less of a Rea­gan and more of a James Mon­roe, US pres­i­dent from 1817 to 1825, who through the Mon­roe Doc­trine shaped US for­eign pol­icy by as­sert­ing the coun­try’s neu­tral­ity. Though his­to­ri­ans dis­agree on its im­pact, it re­sulted in the US largely re­main­ing iso­lated from global af­fairs, al­low­ing the Euro­pean pow­ers to take the lead.

Trump is less of a Rea­gan and more of a James Mon­roe, US pres­i­dent from 1817 to 1825, who through the Mon­roe Doc­trine shaped US for­eign pol­icy by as­sert­ing the coun­try’s neu­tral­ity.

Den­nis Dykes

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