Globalisation: beginning of the end?

Trumponomics seems to be aiming for short-run and medium-term gains


Dr Pervez Tahir January 28, 2017
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“A nation without borders is not a nation,” asserted the newly installed President of the United States. Does that bid farewell to globalisation, viewed in simple terms as a world without borders, not in physical terms but in the form of freer movement of goods, services, investment and people? I always thought that with Trump, you get what you see. All the talk about the system taming him in time has drowned in the flurry of executive orders issued soon after assuming the office of the President. The latest relates to what was considered unthinkable — the building of a wall on the border with Mexico and the insistence on making the Mexicans pay for it. While Mexico has flatly refused any payment, Trump insists she will pay in one way or the other, an apparent reference to the threat to renegotiate the agreement on the North American Free Trade Area. Another executive order issued earlier scuttled the hard negotiated Trans-Pacific Partnership. Strict measures have been announced that illegal immigrants will be deported, federal funding will be stopped to cities providing sanctuaries to them. Immigrants from seven Muslim countries and refugees from Syria will face special sanctions.

Besides trade and immigration, Trump took anti-globalisation stance on the one issue that is global by definition, i.e. the environment. By an executive order, the Keystone and Dakota Access pipelines that were stopped following protests by environmentalists, have been revived on the condition that the use of US steel must increase. This will make the rust belt workers happy but suggests which way the wind will blow vis-a-vis the Paris agreement on climate change. The Buy American policy is accompanied by the Hire American policy. The first executive order, as promised in the campaign, was to ease the regulatory burdens of ObamaCare on the companies. A recruitment ban has been imposed to send the message that jobs will have to come from the private sector. The President met with representatives of the construction workers unions, a sector after his heart. His plans to build a wall on the border with Mexico and upgrading of infrastructure are good news for their members. To bring the jobs back, the US corporations abroad have been promised a reduction of corporate tax rate from 39 per cent to 25 per cent. This may not be enough incentive as most corporations find many loopholes in the cumbersome tax code to effectively pay much less. The Trump answer to this is the threat of a 35 per cent border tax on, say, import of American cars assembled in Mexico.

While the media and the politicians in the United States debate the validity of the executive orders and the battles ahead with Congress for funding and legislation, and the economists dismiss the possibility of bringing back the lost jobs as nonsense, the world stands by wondering whether the 19th century national system of political economy in Germany is returning, or the United States is retreating into the protectionist world of Alexander Hamilton. The worst scenario is the reemergence of the tariff or trade wars of the thirties.

Trumponomics, however, seems to be aiming for short-run and medium-term gains. China, the other economic giant, is taking the first step to begin the journey of a thousand miles. President Xi reaffirmed his faith in globalisation and climate change while speaking at the World Economic Forum in Davos. The Regional Comprehensive Economic Partnership between 10 Asean and its six FTA partners other than Japan, together with OBOR, is likely to come into its own. The end of globalisation is, therefore, not nigh.

Published in The Express Tribune, January 29th, 2017.

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COMMENTS (1)

Frank | 4 years ago | Reply The Chinese economy is a midget compared to the American. Moreover, China is nowhere near the USA in creativity, innovation, dynamism and efficiency. America and Britain together initiated globalization in the late 80s and now that they both have withdrawn their support for it, globalization is doomed. China, and to a lesser extent India, has gained enormously from globalization and it's therefore natural that it's nervous about globalization's demise.
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