Chinese students watch live broadcasting of the U.S. presidential debate between Democratic presidential nominee Hillary Clinton and Republican presidential nominee Donald Trump, at a cafe in Beijing, Tuesday, Sept. 27, 2016. (AP Photo/Andy Wong)
As the U.S. elections approach, a Donald Trump presidency is still within the realm of possibility. This presents an existential threat to existing economic, political and security frameworks that have been in place for more than 70 years.
A backlash against globalization has spawned virile populist movements in the U.S., France, Germany and the UK and drawn attention to the failures of the global establishment— for which, admittedly, there have been many.
But if the populist trend carried the day in the U.S. elections, what would the trade policies of a Trump White House look like and how might they impact trade across the Pacific?
Trump’s mercantilist trade plan calls for using the power of the Executive Order to impose a 45% tariff on a broad swath of imports from China, 35% tariffs on items produced in Mexico, and arbitrary tariffs of between 15% – 45% for any country deemed to be a “currency manipulator.” Prime targets include the European Union, Japan and South Korea, which, taken together with China and Mexico, represent five out of America’s top six trading partners.
These protectionist tariffs would be the precursor to a destructive chain of events that would harm manufacturers and consumers in both the U.S. and Asia and would lead to disrupted supply chains, imploded trade relationships and, ultimately, trade wars.
Ironically, Trump’s populist constituency would be most harmed by short-sighted protectionist tariffs; as consumers, they would face fewer choices and deal with higher prices for every day purchases. They would suffer as export-related job opportunities decline.
Disrupted Value Chains
The Peterson Institute of International Economics, a non-partisan think tank, estimates that Trump’s trade policies would cost the U.S. 4 million jobs and send the U.S. into a recession.
Consider the damage and disruption that a protectionist trade policy would have on global supply chains. GE, for example, employs about 125,000 people in the United States. Its global footprint provides jobs for over 300,000, including operations in China and Mexico, where it manufactures parts, components, and sub-assemblies for a broad range of its products. Myriads of items must pass back and forth between the United States, China, Mexico — and other countries — before a finished product can be fully “manufactured” in the U.S.
Protectionist tariffs could kill these value chains.
This scenario would be repeated throughout business ecosystems involving U.S.-based subsidiaries of Japanese, South Korean, Chinese companies and other multinational enterprises. There would be job losses in manufacturing plants across the U.S., which would further deprive other sectors such as services, retail and real estate from trickle down income.
Free Trade Agreements
Both Trump and Clinton have vowed to block ratification of the Trans-Pacific Partnership (TPP). This is a setback for entire business networks, whether in emerging Asian economies such as Vietnam and Malaysia, or in more mature markets such as Japan, the U.S. and Singapore. Mrs Clinton — who worked hard to promote the TPP as part of the U.S. “pivot” to Asia when she was Secretary of State — has stated she would be open to supporting the TPP if certain portions were renegotiated.
Do not count on Mrs. Clinton softening her position on the existing TPP should she win the election. She owes a political debt to Bernie Sanders supporters — most of whom are staunchly against the TPP and grudgingly gave her their support when she won her party’s nomination for President. She will likely have to turn her attention to domestic infrastructure and capacity building initiatives before she can focus on the TPP and other free trade opportunities.
Donald Trump has vowed to tear up the TPP agreement and pull the U.S out of the North American Free Trade Agreement (NAFTA) and other long-standing trade deals. He has even stated that his administration would consider withdrawing the U.S. from the World Trade Organisation (WTO), one of his most reckless and dangerous utterances, to date. If the U.S., as the world’s largest economy, were to pull out from a rules-based trading system like the WTO, it would destabilize the entire international trading system.
Continued from page 2
The U.S.-China bilateral relationship is arguably the most important on the planet. Slapping a 45% tariff on Chinese goods would not only do harm to China’s already slowing economy, it would severely damage U.S.-China relations and spill over into other areas including the risk of military escalation in the South China Sea. It would galvanize a more confrontational Chinese foreign policy posture in Southeast Asia and beyond. And it would invite a trade war.
It’s hard to imagine that China — or Japan or S. Korea, or even Mexico — would not retaliate with their own retaliatory tariffs. This would affect hundreds of billions of dollars of U.S. made products and lead to an inevitable outcome: trade protectionism and populism would hurt everyone.
Whoever wins the 2016 election will inherit the most disrupted and complicated economic landscape, both at home and abroad, to ever face an American President. Yet it appears Washington will continue to be as divided along partisan lines as ever.
What’s needed is a more centrist, deep-thinking U.S. President. Hillary Clinton certainly has her flaws, but her political instincts will compel her to pursue a more civil, collaborative tone in Washington. Her understanding of the international system and her geopolitical acumen is sorely needed at such a precarious time in history.
A Trump Presidency, however, could spell the end of the neoliberal global economic order, after 70 years of progress and prosperity.
Page 2 / 2