Trump should reconsider isolationist policies
Following the unexpected outcomes from Britain’s EU referendum and the US presidential election, there are a number of other elections in Europe and the upcoming Italian constitutional referendum on December 4 whose results are hard to predict.
The Brexit decision, Donald Trump’s win and possible divisions within Europe have all pointed to the fact that, influenced by public opinion, established powers including the UK, the US and some European countries have all demonstrated tendencies toward anti- globalization, which comes from a sharp conflict between the globalization of the economy and localization of politics.
Economic globalization has allowed for the free flow of capital, which encourages domestic capital to flow into other countries with lower comprehensive costs where profits can be greater. But this outflow of capital can bring job loss to less- sophisticated workers domestically. In that sense, economic globalization can be a winlose situation for countries on the national level. It can yield higher return for domestic capital, benefit lesssophisticated workers overseas, but hurt domestic group of those workers.
However, government leaders are elected by a country’s citizens. When domestic interests are increasingly damaged during economic globalization, a country under a democratic system will tend to oppose economic globalization.
China is currently promoting industrial upgrading and innovative development, which could mean that the emergence of advanced industrial capacity could render outdated capacities useless. In addition, as China has intensified efforts on research and development and design to rise up the industrial value chain, lower- end businesses, such as contract manufacturing, will increasingly move to regions in Southeast Asia and Africa. This process will leave more domestic workers behind, which leads to a major task of balancing the interests between those who have gained substantially and those whose interests are severely hurt.
Now that Trump has become the President- elect, public attention is concentrating on how many of his campaign promises will be realized, which to a certain degree can be gleaned from his victory speech. He said “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”
But it is unlikely to “Make America Great Again” by rebuilding infrastructure, along with his calls for raising trade tariffs and US retrenchment.
First, improvement in public infrastructure, which is normally government- led, is generally expected to attract further investment, create more job opportunities such as in manufacturing, increase tax revenue and achieve the goal of breaking even for the government. Considering at present China’s manufacturing business is being outsourced to Vietnam and countries in Africa, the re- shoring of manufacturing operations in the US on a large scale is unlikely to be achieved. Thus it will be even more difficult for the US to balance costs in infrastructure projects without resurrecting domestic manufacturing.
Second, the US’ trade deficit with China has been a lightning rod for criticism. But it should be noted that China is only one part in the global value chains ( GVCs). For instance, the country’s imports of raw materials are from Australia, electronic products such as chips are from Japan and South Korea. If the US decides to strengthen relevant tariffs toward Chinese products, it’s likely to negatively effect GVCs as a whole. Besides, will the US’ own industrial capacity be enough to be selfsufficient?
Third, on US retrenchment, the country has military bases in 80 countries, and in about 130 countries the US has military personnel on the ground, according to an article from US- based Politico Magazine in September. This can be extremely costly, but US military presence around the world has precisely secured the supremacy of the dollar. Withdrawing military presence could impact the dollar’s status as a global currency, which would consequently weaken the competitiveness of the US’ services sector. It wouldn’t be a great idea for the US to reduce its competitive edge in services to compete with China in manufacturing.
The key issue for the US is that the increase in domestic economic volume has been unable to satisfy the demand of all interest groups, a situation which cannot be resolved by Trump’s above policies. One solution is to reshape the country’s distribution of the existing economic pie, which would be extremely difficult for any nation. Another way is to seek room for external demand and grow the global economic pie, which is also in line with China’s intention. Given that China and the US are on the same page in gaining more through expanding markets, wouldn’t it be a wise choice to make profits through joint efforts. In that regard, the US is welcome to join the Asian Infrastructure Investment Bank and the Belt and Road initiative.
It is unlikely to “Make America Great Again” by rebuilding infrastructure, along with his calls for raising trade tariffs and US retrenchment.