Colombo Telegraph

ABC Of Trumponomics: Can It Make The US A Great Nation?

By W. A Wijewardena

Dr. W.A Wijewardena

Addressing a joint session of the Congress

US President Donald J. Trump outlined his economic philosophy – known as Trumponomics – to a joint session of the Congress last week. He received a standing ovation, sentence after sentence, initiated by his own Vice President and House Speaker and followed soon by fellow Republicans. That would have certainly boosted his morale in delivering the address since it was a living confirmation of what he was saying. The only bemused onlookers were his rivals in the Congress, the Democrats.

Americans endorsing the Trumpian views

A survey conducted by the Cable News Network or CNN immediately after the address revealed that about 78% of the Americans who had watched the address live on TV had had positive hopes about what Trump was planning to do for the US: making it a great nation once again. However, the rating which Trump has received has been a little less than the approval rate of Barack Obama’s maiden speech to the Congress at 88% and George W. Bush’s rating of 84%.

However, given the controversies which Trump had created for Americans as well as for the rest of the world during the first few weeks of his presidency, a rating at 78% is an impressive endorsement of his policies.

Riding on wave of global nationalism

Trumponomics is a new economic philosophy introduced by Trump to rescue the US from the depths to which it had fallen in the last few decades. But it is not totally new; nor is it exclusively Trumpian. It has been there in the past, is in the present and will be in the future rising and falling in cycles of acceptance and rejection.

He is not alone in triumphing it because there is a wave of the fundamentals of his philosophy being practised elsewhere in the world, in both rich and poor countries. This wave has now emerged as ‘global nationalism’, quite distinct from the traditional type of nationalism which had been confined to a nation state.

The new wave of global nationalism is directly in competition with the wave of globalisation which had ruled the world for many decades now. In this global nationalism, the citizens of the country concerned come first for everything and all others have their respective places based on what priority which that nation would give to other nations.

In a nutshell, it rejects the idea of a ‘global citizen’ who has no national identity or distinctive characteristics in terms of ethnicity, religion or language to mention but a few.

Theresa May’s disputation of the concept of ‘global citizen’

This was amply articulated by the new British Prime Minister Theresa May who had declared in a Conservative Party Conference held in October 2016 to an applauding audience that if one believes that he is a citizen of the world, he is a citizen of nowhere.

Replies to Theresa May

It was left to Harvard economist Dani Rodrik, among many others, to counter her in an article first published in Project Syndicate and later picked up by Europe’s leftwing journal, Social Europe.

Rodrik has reminded Theresa May of the existence of citizens of the world by taking him as an example. Says Rodrik: “I know what a “global citizen” looks like: ‘I see a perfect specimen every time I pass a mirror. I grew up in one country, live in another, and carry the passports of both. I write on global economics, and my work takes me to far-flung places. I spend more time travelling in other countries than I do within either country that claims me as a citizen.”

Angered by May’s confinement of human beings to citizens of narrowly defined nation states, the British-Ghanaian-American Philosopher Kwame Anthony Appiah who delivered BBC’s Reith Lecture in 2016 has declared that the “need has never been greater for a sense of a shared human fate” than in the current period. Thus, the bone of contention between Trumponomics and the rest of globalised economics is a choice between a shared existence and a solitary existence. Trump and May favour a solitary existence while the rest of the world argue for a shared existence.

A new US is to be created by Trumponomic policies

In his address to the Congress, Trump has emotionalised the promise of making the US a great nation once again attributing it to a message delivered deeply from his heart. It is filled with so many new beginnings, implying that the US at the moment has a deficit in them: national pride, optimism, renewed spirit, ability to lead, strength and freedom. With that, when the US celebrates its 250th anniversary of independence in 2026, it will be a new America which would be awed by both friend and foe in the rest of the world.

These are certainly sentiments which would not fail to move any American who may be feeling sad at the moment about the perceived loss of its leading role in the global arena in politics, economics, military power, science and technology. So, Trump wants to build a new United States by first condemning everything which the US has today. The beauty of that strategy is that after nine years when the country celebrates its 250th birthday, the full credit for building that new US, if it is really attained by that country, would be apportioned to Trump alone.

Mantra to make US great once again: Buy American and Hire American

Trump reveals the secret door to this new power which the US is planning to acquire over all other nations. That is the mantra, ‘Buy American and Hire American’, which has been chanted by all those leaders who have adopted the path of economic nationalism before him. This mantra is followed by several other policy changes in US economic policy-making.

The US will refrain from being the global policeman and benefactor of poor nations and use the savings to develop infrastructure back at home, equip military forces with most modern weapons and strengthen the nation’s security.

He will make it easier for US flagship companies to do business in the country and make it harder for them to leave its shores. Instead of encouraging low skilled immigrants to enter the US, he would adopt a merit-based immigration system as is being practised in Canada and Australia. It will enable the US to expand its pool of high skills, increase the wages of existing workers and help struggling families including immigrant families to join the middle class with ease.

He has scorned the countries that send their goods to the US free of duty while charging high protectionist duties on goods that originate from the US. Though manufacturers have not asked him to rectify this imbalance, he has decided to do so in the interest of US industries. For him, such practices are unfair trade.

‘President of the Wall’

Globally, Trump is known as the ‘President of the Wall’, a name he has earned due to his insistence on erecting a wall along the US’s Southern border to insulate it from the evil influences from Mexico and other Latin American countries. But Trump is not the first world leader to do so, since China had started to construct a wall across its Northern borders to keep Nomads from the Steppes away from that country from around 7th century BCE and maintained that wall for more than 1,000 years till the 15th century CE.

The wall became irrelevant for China when influences began pouring into that country from another side, namely, the sea, from around the 16th century CE. The Chinese wall was built out of its own resources; but the Trumpian wall is to be built, as he has pronounced again and again, out of the resources to be raised from Mexicans.

To raise those funds, he declared after he was installed as President that he would impose a tariff of 20% on all Mexican goods crossing the border to the US.

Who will pay for the wall?

On the face of it, it appears that it is a plan that would work well. This is because Mexico exports merchandise goods worth of about $ 300 billion to the US annually. Hence, a 20% duty should bring some $ 60 billion to US coffers and it is pretty much above the needed funds for erecting a wall across the borders. But on closer examination, it is found that Trump advisors have given him a dead rope. There are two issues involved.

One is the reaction of Mexicans to the proposed tax. The other is the actual payer of the proposed tax.

Mexican reaction will hurt US farmers

In the first case, while the US imports goods worth of $ 300 billion from Mexico, it also exports goods worth about $ 240 billion to Mexico consisting mainly of corn, wheat and other agricultural products.

Mexico has reacted to the threat of a duty of 20% on its exports by announcing that it would buy those agricultural products not from the US but from Brazil and Argentina, two other main suppliers of those agricultural products to the world market. This would deprive the US farmers of access to a safe market just to the south of its borders and, according to reports, they have already begun to panic. The Trump Administration will have to pump money from the US Treasury to keep them afloat until they adjust themselves to the new situation.

It is the US consumers who will pay for the wall

With respect to who would actually pay the newly imposed tariff on imports from Mexico, it is the US consumers who would do so since their consumer prices will eventually move up. This is specifically true for crops like avocado – an American delicacy – over which Mexico holds the monopoly power. According to reports, there is no other source for the US to buy its preferred avocado. Hence, the proposed wall is being financed not by Mexicans but by Americans themselves. And worse, it would be done by US consumers by paying its cost upfront.

Reversing the wave of shared production

An essential feature of Trumponomics is that it wants to make the US a great nation again by reversing the wave of globalisation in which manufacturing industry has become a shared production throughout the globe today.

It was an American journalist, Thomas L. Friedman, who documented this wave worldwide in a book published in 2005 under the title ‘The World is Flat’. This was the natural reaction of manufacturing industry to keep its competitive edge undiluted in a background of a phenomenal rise in the manufacturing wages in developed countries. Thus, individual countries became just assembly plants while components came from a number of countries in the world.

iPhone is a globally shared product

A good example is Apple products. It is now documented that, for example, though iPhone 6 is assembled in a factory called FoxConn in China, the components for producing it has come from production facilities in 31 countries including the US.

If Apple brings back iPhone production to the US, it has been estimated that it would cost Apple an additional sum of $ 4.2 billion making it uncompetitive in the global markets. It would give an advantage to other producers and lead iPhone to a natural death, just like what happened to Nokia in the recent past.

According to Walter Isaacson, Steve Jobs’ biographer, Jobs had told President Barack Obama at a meeting with the latter that Apple could relocate its production unit in the US if Obama could supply him with 30,000 engineers in the US at the salary levels prevailing in China. The US was not producing that many engineers in the country and therefore, relocating the factory in the US was a near impossibility.

Trumponomics will force US industry to go for automation

Thus, Trumponomics can succeed in persuading US businesses to relocate back at home if and only if necessary skills are available at costs prevailing in host countries in Asia and Latin America. This would defeat Trump’s objective of increasing the earnings of US manufacturing workers through a policy of industry relocation. Instead of employing costly workers, US industry will go for automating the processes.

China’s reply to Trump

Trumponomics is known as mercantilism, which was very popular in the 18th century CE in Europe. But thanks to the sane arguments presented by Adam Smith in his Wealth of Nations, a book published ironically in the same year as the birth of the US in 1776, Great Britain threw away mercantilism and embraced free trade. But Trump is planning to move the US back to 18th century Europe through his economic populism.

The answer to Trump was given by Chinese President Xi Jinping when he addressed the World Economic Forum or WEF in Davos in 2016. China had learned a bitter lesson by adopting mercantilist policies for three decades after its Communist revolution in 1949. Drawing lessons from its experience, Jinping announced at WEF, that no one would emerge as a winner in a trade war.

Erecting a trade barrier wall around the US and withdrawing from global leadership

Trump has created a wall all around the US creating trade barriers and endorsing an isolated existence for the country. It has thus voluntarily withdrawn from global economic leadership. Ironically that leadership is now being assumed by China by being the champion of the new wave of globalisation. This was evident when Trump announced that the US will withdraw from the fledgling Trans-Pacific Partnership Agreement or TPPA of which the US was the leader. China moved to fill the vacuum being created by the withdrawal of the US by offering an alternative solution to other bewildered nations.

China to fill the vacuum with a vision

This was reconfirmed by Chinese Premier Li Keqiang when he addressed the Annual Session of the National People’s Congress or NPC in Beijing on Sunday 5 March 2017. He said that deglobalisation and protectionism is rising in the Western World. That is a worrisome development. But China opposes protectionism of different form, said Li. He reiterated China’s commitment to become involved in global governance and steer economic globalisation to see it more inclusive, mutually beneficial and equitable.

China’s message is clear. Trump is promoting selfishly determined private existence. China is promoting shared existence. Trump is concentrating on his $ 18 trillion economy in the US. China is targeting the rest of the global economy amounting to $ 57 trillion. Trump is closing down the US economy. China is opening up its economy. Thus, Trumponomics has voluntarily withdrawn from global leadership, paving way for China to fill the vacuum. Chinese leadership is determined to go for it as pronounced by Premier Li at the recently opened annual sessions of NPC.

*W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com

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