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.
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.