Welcome to Trump’s New World Order
Welcome to Trump’s New World Order
The incoming president’s loathing of free trade is only part of a global backlash
Chinese bombers rumble across American skies. The aircraft, emblazoned with communist red stars, unload bombs labelled “export tax rebates” and “income tax rebates”, obliterating the factories below in an explosion of flames and dollar bills.
The cartoon sequence, from a documentary called Death By China, leaves the viewer in little doubt that China has launched “a sustained and devastating attack on America’s factories and jobs” — in the words of the voice-over by Martin Sheen.
The film garnered little attention when it was released in 2012. But it is worth watching today: the director, Peter Navarro, is one of Donald Trump’s economic advisers.
While the president-elect has been in conciliatory mode since Tuesday’s shock victory, one of the few intellectual consistencies throughout his campaign has been his opposition to the forces of globalisation.
There may be Trump-branded hotels and golf courses scattered around the world, yet the Donald repeatedly told his fan base that international trade was their enemy.
“Globalisation has made the financial elite who donate to politicians very, very wealthy, but it has left millions of our workers with nothing but poverty and heartache,” Trump told supporters in a dilapidated former steel town in Pennsylvania in June.
Even the most rabid, trucker-capped Trump voter is familiar with acronyms such as TTIP (Transatlantic Trade & Investment Partnership) and TPP (Trans-Pacific Partnership) — the trade deals they have been told are responsible for stealing their work.
“America has lost one-third of its manufacturing jobs since Nafta — a deal signed by Bill Clinton and supported by Hillary Clinton,” Trump railed last Sunday on the stump in Minnesota, referring to the North American Free Trade Agreement. “America has lost 70,000 factories since China entered the World Trade Organisation (WTO) — another Bill and Hillary-backed disaster.”
Trump’s promises of “huge” infrastructure spending, tax cuts and regulatory repeal have calmed the worst fears of the stock markets. Yet there is no sign that the president-elect has backed away from the ideology borrowed from Navarro, a University of California professor and the only academic on his council of economic advisers.
Mexican president Enrique Pena Nieto and Canadian prime minister Justin Trudeau have already addressed the prospect of a Nafta renegotiation. That is just the start.
Trump’s victory has not come in isolation. Across the world, electorates are telling their governments they have had enough of globalisation.
Britain’s EU referendum outcome was a vote to leave the world’s most deeply integrated free trade zone. The concerns about open borders that fed into the Brexit vote have similarly fuelled growing anti- establishment movements across continental Europe.
Until two years ago, global trade had grown steadily since the Second World War with peacetime and political co-operation lowering barriers to trade. Trump is the strongest sign yet that this is in reverse.
Trump considers it a Bill and Hillary Clinton-backed disaster for America since China entered the World Trade Organisation (WTO)
“Globalisation has been running into headwinds for a while, but until recently few appreciated that it had already passed its high-water mark,” said Gervais Williams, a City fund manager and author of a forthcoming book, The Retreat of Globalisation.
“With the benefit of hindsight, we can now see Brexit as a key data point in the context of a new social trajectory. The election of Donald Trump . . . has gone on to reinforce and underline the new bearing,” said Williams, who manages more than £1bn of equity funds at Miton Asset Management.
“Globalisation is under threat,” said Mohamed El-Erian, chief economic adviser at Allianz and chairman of Barack Obama’s global development council.
According to El-Erian, politicians have done little to speed up the glacial pace of recovery since the financial crisis. Major economies have relied on the life support of low interest rates and quantitative easing, policies that increased inequality and fed a “politics of anger”.
El-Erian thinks the world is nearing a tipping point, with two possible routes out of the current impasse: either governments invest in pro-growth policies, or the anti-globalisation movement will gather pace, leading to a “vicious cycle” of trade wars, lower growth and higher inflation.
“If Trump goes down the road of slapping tariffs on China and Mexico, we could be in for worse than just a recession. The risk is stagflation,” he said.
When Trump took to the stage at the New York Hilton in the early hours of Wednesday to make his victory speech, he promised to be a president “for all Americans”.
“The forgotten men and women of our country will be forgotten no longer,” he said, echoing Franklin D Roosevelt’s post-Depression rhetoric.
Many economists trace the origins of the anger among Trump voters — at least in part — to the aftermath of the financial crisis.
David Blanchflower, a former Bank of England rate-setter and a professor of economics at Dartmouth College, New Hampshire, says the sluggish recovery since 2009 has done less for the average worker than meets the eye.
While official statistics show very low US unemployment, many have simply left the labour force, Blanchflower said. Last month, the proportion of working-age Americans in work was 59.7%, down from 62.7% at the end of 2007. (Britain has not seen a similar decline, but instead those in work have experienced a 7% decline in real wages.)
“The story is the economy has recovered since the crisis. But people in the rust belt aren’t buying the story,” Blanchflower said.
Yet Trump’s win is not just a revolt by the dispossessed. After all, the majority of voters earning less than $50,000 a year voted for Hillary Clinton. Still, relative to previous Republican candidates, Trump did well in poorer areas, particularly among white voters.
His promise of tax cuts seems to have been crucial in bringing him such a large swathe of richer voters. Years of low interest rates and money-printing left those upper middle class savers frustrated.
Although his views on monetary policy have swung wildly, in general terms the president-elect has conflated loose monetary policy with the same global trade conspiracy operated by the international elite to impoverish ordinary Americans. “Relative wealth matters,” said Blanchflower. “If some people are seen to be doing better than others, that creates resentment.”
That resentment is being directed against globalisation, a term that is hard to define but usually includes the increasingly free movement of goods, people, money and ideas, around the postwar globe.
By many measures, it is already in retreat. The number of new free trade agreements is at a 20-year low. WTO data released on Thursday showed a total of 85 new trade-restricting measures were introduced by leading economies in the five months to October. The portion of world trade affected by such policies is on the rise, to the alarm of business leaders.
“Globalisation is not a phenomenon that can be turned around. We want to keep employing the best people around the world and we expect the free trade of goods to remain, but we will have to wait and see,” said Pascal Soriot, chief executive of pharmaceutical giant Astra Zeneca.
“Any impediment to free trade of goods in this new world will be quite a substantial problem for our industry and the world economy.”
The next vote against international trade could be in Italy. Prime minister Matteo Renzi will struggle to win a December 4 constitutional referendum seen as a vote on the pro-EU leader’s political future.
Meanwhile, the Five Star Movement, an anti-establishment party led by comedian Beppe Grillo, is ahead in the Italian polls, with its demand for a vote on euro membership.
Next year, France and Germany face national elections where anti-EU (and anti-globalisation) parties are expected to make big gains. “The big question now is: does the Trump victory provide more fuel to anti-establishment parties in Italy, France, Germany and elsewhere? I certainly think it does,” said El-Erian.
But turning the clock back on globalisation is unlikely to achieve what Trump has promised. Free trade advocates point to the Smoot-Hawley tariffs — levies on more than 20,000 imported goods introduced in 1930 and widely blamed for hastening America’s slide into the Great Depression.
To return coal mining jobs to West Virginia would mean erecting massive barriers to imports. The result would be much higher coal prices and a probable shift to alternative sources of energy such as oil from the US shale boom. So no more mining jobs, ultimately.
Much of US manufacturing , meanwhile, involves hi-tech products that draw on cheap components and materials.
Consider Apple. The tech giant has built huge riches on the back of globalisation, harnessing China’s skilled, low-cost workers and Ireland’s friendly tax regime. A return to “made in America” would not only crush its profits but drive up the price of iPhones, too.
Trump made many promises on the campaign trail. Throttling America’s biggest success story was not one of them.
Words of unity pay dividends
IT was over in the blink of an eye. Ahead of the presidential election, analysts were predicting a plunge in global markets if Donald Trump made it to the White House.
They were right, but only for a matter of hours. By Thursday, US shares were soaring, with the S&P 500 index touching all-time highs. Many investors had expected a rebound from an initial drop of about 5% as buyers stepped in to pick up stocks on the cheap. But the sheer speed of the turnaround left them scratching their heads.
The key, according to fund managers, was Trump’s victory speech — in which he adopted an unexpectedly conciliatory tone. There was no mention of “crooked Hillary” or the proposed wall along the Mexican border.
Instead, he focused on his plan to rebuild America’s infrastructure. Investors bet the promised spending spree could help lift growth. “For the first time the world heard a message of unity from a candidate who’s been very divisive,” said Mark Haefele, global chief investment officer of UBS Wealth Management.
The swift rebound gave Carl Icahn a second reason to celebrate last week. The billionaire hedge fund manager left Trump’s victory party in the early hours to make a $1bn (£794m) bet on US equities. It had paid off big time before the sun came up.
“The world was going nuts. Last night it was amazing, the world was going into a panic with no reason,” he said.
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