Trump and the rise of protectionism in the West

Trump and the rise of protectionism in the West

President-elect Donald Trump’s promise to throw up barriers to Asian imports is impractical, and is unlikely to destroy the rules-based system of international trade

Trump and the rise of protectionism in the West

As he rattled through the US’ hollowed-out blue-collar communities on his way to the presidency, Donald Trump reserved some of his most emotive language for his attacks on China. “We can’t continue to allow China to rape our country, and that’s what they’re doing,” he told a rally in May. Trump has long said Beijing should be censured for “manipulating” its currency to boost the competitiveness of its exports and to undermine the US’ manufacturing base.

Protectionism, and a roll-back of the system of unfettered free trade was not just a feature of Trump’s campaign, but has reverberated in populist rhetoric throughout the West. This has prompted a degree of panic within the international community over the survival of the rules-based system of international trade that has been the underpinning of global cooperation since the end of the Cold War.

The impact on Asia

The debate has particular resonance in Asia, where many countries have used trade as the foundation of their development, and depend on the functioning of the system for their continued growth.

Haoliang Xu, assistant secretary-general of the United Nations, who oversees development in Asia-Pacific, says that it will not be easy to unwind decades of progress towards a rules-based system of international trade.

“We know that trade has done wonders for economic growth and job creation in Asia-Pacific. Many countries in Asia-Pacific are dependent on trade for their growth, for their jobs, their revenue,” he says. “Countries like Bangladesh, Vietnam, China, India, which are trying to move towards higher-level manufacturing sectors, these countries will definitely advocate for the continuation of the open, fair, rule-based trading system… I think the impact of US domestic politics will, to say the least, take time to be seen and felt.”

Impact on consumers

In November, the OECD warned that the protectionist rhetoric in developed and developing countries could put a drag on economic growth, with knock-on effects for employment. Before the election, a report from the Peterson Institute, a think-tank, warned that the impact of Trump’s proposed protectionist policies could be a tit-for-tat trade war that could cost 4 million US jobs.

“I think we also should recognise that fair trade benefits consumers. Protectionism increases the costs for consumers,” Xu says. “It will create a lose-lose situation. Rather than a fair trade system, which is win-win for consumers.”

Protectionism can create short-term benefits – for example by spurring investment into industries that replace imports that have been made uncompetitive by tariffs – “But we know that these are not the most efficient use of economic resources,” Xu says. “So it may not sustain over the long term. I think in the long run economic common sense will prevail.”

Mark Cliffe, chief economist of ING, the investment bank, agrees. “I think in the end, politicians will recognise that they have to deliver on growth,” he says. There could be some shift towards insular policies in response to populism, but pragmatism is likely to win out in the end.

“We won’t be always be moving in a straight line, and there may be some localised reversals, shall we say,” Cliffe says. “But I think in the end politicians will come to recognise that they need trade, they need investment, and that being purely inward-looking isn’t the route to success.”

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