Trump’s zero sum economics, mercantilism…..Making America great again may not be good for emerging economies

15 Sep, 2017 - 00:09 0 Views
Trump’s zero sum economics, mercantilism…..Making America great again may not be good for emerging economies Donald Trump

eBusiness Weekly

Chris Chenga
Donald Trump is a brash politician; self-assertive in an aggressive, audible, and overbearing way. Casual political observers have largely found his demeanour distasteful. Maybe it is also in part because observers had become accustomed to much more calm, modest, and approachable political figures.

Trump is a brute alpha dog. He is far from what observers are primed to favour — the preferable individual that behaves and postures “presidential”. There has always been a purpose for this kind of predecessor politician. For most of the twentieth century, US foreign policy has been premised on zero sum economics and mercantilism.

Affable politicians served to make the exceptionalism behind this ideology palatable as it expanded its course.

But today, the world has gotten much more competitive. Emerging economies started to find independent footing not through aid and concessions or mere dividends of conformity, but from the intellect and discipline for customised governance that exploits local comparative advantages in a modern global economy.

Accordingly, globalisation grew to frustrate beneficiaries of a once dominant American zero sum economics and mercantilist wave.

Trump is a man nurtured and matured to conceptualise business in an era where hard-hand diplomacy sufficed in paving the way for favourable American bi-lateral deals.

Great did not mean progressive ideals

In context, this is what making America great again implies. Evident in Trump’s divergent views from progressive societal ideals, one can confidently surmise that greatness implies forceful zero sum economics and mercantilism.

Such “greatness” at one point found traction in lucrative business and enterprise. The tilted philosophy of trade and cross territory enterprise first conceptualised in the 1600s still offered returns up to the generation of Trump. Progressive societal virtues such as jobs, increased welfare, human rights, gender respect, and civic liberties in America are merely bi-products of unrivalled American economic conquest; at least this is how Trump and his cohorts perceive the world to work.

Materially, in certain perspective it did. What diplomacy carried by affable predecessors to Trump served to portray was a glaze of mutually beneficial engagement — an equitable global order- yet outcomes in bi-lateral deals were leveraged towards greater US returns in comparison to foreign policy counter-parties. An invisible hard-hand kept things so.

Consider the Plaza Accord in 1985 where amongst a handful of finance ministers, the US issued stern threats to restrict Japanese imports.

Succumbing to this pressure, Japan conformed and did not devalue the yen as planned, leading to bring Japanese growth to a halt.

This was at a time where all credible indications such as the real exchange rate of the Yen, as referenced by renowned economist Jeffrey Sachs, showed a justifiable need for Japan to devalue its currency.

Shinzo Abe

The Japanese economy has struggled since and has lost significant ground in competitiveness. This pivotal moment in American trade history, one which reasserted markets and competitiveness in crucial automotive and electronics sectors, serves as illustrative memory for Trump. The hard-hand worked.

As the Chinese industrial ascent of today required similar hard-hand to confine, Trump was dismayed when consecutive administrations seemingly failed to control and enforce discipline on China.

Once in power, he did not waste time to brand China the “grand champions” of currency manipulation, firmly promising punitive tariffs in what could turn out to be an outright trade war.

Trump’s authoritative aura reverberates, worrying others who may fit into his definition as “offenders”. So other emerging economies proceed with caution. India’s foreign exchange reserves continue to inch closer to US$400 billion supported by strong inflows and competitiveness of Indian goods in global markets.

Instead of garnering compliments for astute monetary management, the Reserve Bank of India finds itself within a paralysing paranoia of whether or not its monetary management falls within currency manipulation and if such reserves are accumulative of an undervalued Rupee to the USD. If the Trump administration deems this so, the repercussions as Trump overtly warns, would be punitive tariffs to fend off Indian goods from global markets.

Why Trump is a problem

Herein lays the problem, and it is two pronged. Firstly, the Trump administration’s worldly outlook restricts policy utility for emerging economies to manoeuvre towards desirable outcomes for themselves. It is a zero sum and mercantile outlook.

Zero sum economics is a situation in which each participant’s gain or loss is exactly balanced by the losses or gains of the other participant. That means as emerging economies nurture enterprises and economies that gain market share and growth, America loses equal market share and economic growth.

Forewarned by Greg Ip in article titled “The Rise of Zero Sum Economics” in the Wall Street Journal just before Trump was elected, this was exactly the resounding Republican platform informing foreign policy and local protectionism.

Secondly, Trump really believes hard-hand diplomacy is an effective strategy to rectify global trends that are increasingly diverging from the zero sum economics and mercantile outlook; an outlook that once materially brought prosperity to him and those he fraternises with.

Since assuming office, he has shown no hesitation using hard-hand diplomacy in its varied forms; structurally through tariffs and sanctions, or verbally through threats and outright insults.

The global order has shifted

There is no reason for emerging economies to taper their policy utility, especially if it could secure market share or economic growth. As the global economy warrants, for instance, emerging nations require foreign reserves for import and short-term debt cover. Emerging economies cannot sustain trade deficits. Others that are commodity dependent on fiscal revenues will belabour to retain a firm grip on commodity supply and prices on global markets. It is within their economic interests, and will utilise policy at effective discretion.

Outwardly, emerging economies today are presented with wider diversity in the global economy. Some decades ago, the world was rigidly divided along narrow ideologies of capitalism and communism; economic and business relations were not as extensive as they are now.

Today, the global economy offers more clusters of co-operation from regional integration to monetary and custom unions.

To shrewd negotiators, China’s One-Belt-One-Road vision can represent a construction and developmental option similar to what the Marshall Plan was for Europe after 1945. So is the Asian Infrastructure Investment Bank (AIIB).

The upcoming visit of Japanese Prime Minister Shinzo Abe to India is expected to see the launch of the Asia Africa Growth Corridor (AAGC).

Officials familiar with the development say it can be regarded as a counter to China’s Belt and Road Initiative, with India and Japan committing about $40 billion initially and there is room for willing participants. The New Development Bank, established by the BRICS (Brazil, Russia, India, China, and South Africa), was launched last year albeit less ceremoniously, becoming the first major international financial institution led by emerging countries.

More options less patience

Indeed as emerging markets find greater stature amongst themselves with diverse options, their own business and developmental attitudes towards the US change. It took China, the world’s second largest economy, years to get the Renminbi admitted to the basket of currencies that constitute the International Monetary Fund’s reserve asset, Special Drawing Rights (SDRs).

Moreover, it took almost half a decade after the Obama administration initially agreed to modest changes in the voting rights of China and other emerging markets at the IMF, for the US Congress to finally approve of the reforms. Emerging economies find no need to be subject to US political representation. Hence, Bretton Woods’s institutions have diminishing stature.

Furthermore, a gripe exists amongst emerging economies in the legislative enforcement of unilateral bond settlements. In instances such as Argentina’s 2001 default, only American bondholders (who made up 7 percent of bondholders) refused a restructuring of bond payments. American courts seized Argentine assets within US jurisdiction. When Argentina made payments of restructured coupons to NML Capital and Aurelius Capital Management, US courts threatened to hold the Bank of New York in contempt if it transferred the money.

The Argentine government eventually settled. Bracebridge Capital, which purchased bonds worth about $120 million, received about $1,1 billion. Aurelius, another hedge fund, walked away with about $759 million for the $299 million in bonds it purchased.

More aggressive enterprises

At a micro-enterprise level, corporations from emerging economies see greater opportunity to win market share and growth across the globe. Not only are they becoming significant players in home markets, but they are increasingly looking to their governments for supportive structural regulations to enable trade and cross border enterprise.

In response, emerging economy governments are emboldened in their structural capacity in a manner that is perceived by Trump administration as contesting American business, and wounding to that ideological wave of American conquest.

Consider in the EU, where finance ministers are set to discuss changing rules so that tech giants such as Google or Facebook are on the hook to pay more taxes in Europe. In an information age, value and competitive advantages for American enterprises is retained in intellectual property, patents, and trademark frameworks.

However, American enterprises are struggling to penetrate emerging economies. For instance, Netflix’s struggles include standardised data streaming, copyright infringement on its shows, and regulatory resistance for some of its content.

Local competitors then get the upper hand.  IP, patent, and trademark disputes are not new. However, American enterprises have not been as protected in global markets as they have been on shore. While some of these decisions do go the way of American enterprises, at some point a few decades ago, its seemed American multinationals enforced regulatory will on bi-lateral counter-parties.

Trump’s incorrect approach

It would be unreasonable to expect American passive acceptance to these trends. Competitive responses are necessary. The difficulty is in the chosen outlook and responsive course of action. A zero sum economics and mercantile outlook is deficient in ethics and pragmatism. The global economy does not function in that manner. Moreover, hard-hand diplomacy is futile to multilateral interests. Trade wars and antagonism does not sustain business or economic growth.

There is a sliver of hope. Last week, American Congress dismissed the Trump administration’s “doctrine of retreat” which meant to distance the United States from collective and multilateral dispute resolution frameworks. Congress had a 30 percent disparity between its own foreign policy budget and that of the Trump administration. Perhaps these are signs that Trump’s ideologies are policy outlook are not pervasive.

What does all this mean for Africa?

After nine months of a four year first term, the Trump administration has made minimal mention of African policy. Trump himself has not once mentioned the continent in any incumbent capacity. This is understandable. In terms of a trade balance, US — Africa trade is inconsequential to US macroeconomic outlook and stature.

Currently, only 1,5 percent of US exports are to sub-Saharan Africa. US imports from Africa are 0,8 percent of its total import bill. 90 percent of this US — Africa trade is in crude oil. Agriculture, our greatest continental sector after commodities exported $261 million worth of produce to the US in 2014. Total US agriculture imports were $114 billion.

US enterprises pursue middle income markets with disposable spending power. Africa has struggled to uplift its population to such income stature. American perspectives towards Africa are not necessarily of business counter-parties but a continent with civilisation matters to resolve.

They are clarified within a policy narrative of AGOA which is an ounce of business and humanitarian heavy. Basically it is about rule of law, functional markets, and getting 40 percent of its population above the poverty line through sustainable developmental goals.

Hence, consulates serve as humanitarian and ideological outposts, not business facilitators.

 US imports under AGOA, excluding crude petroleum, 2001-2013

 

Source: United States International Trade Commission (USITC) DataWeb/USDOC.

Percentage of Export and Import BRICS in World Trade, 2000-2014

 

Source: Eric Osigwe, 2016. “Analysis of South Africa in BRICS: What does the future holds?”

But, African countries should be weary of the Trump administration’s attitudes towards emerging economies. Emerging economies are our greatest trade partners and most significant counter-parties in financial flows. Thus, as emerging economies develop in stature, there are derivatives to be gained from Africa.

Moreover, occurrences between the US and emerging economies set a precedence of policy and attitudes towards African countries if we are to follow similar emerging ascent. We shall want more markets too.

The same macroeconomic fiscal and monetary strategy in which emerging economies pursue, we shall pursue as well. Thus, African economies must be pre-emptive and take heed of American attitudes.

Making America great again would be to sober to the realities of the modernity ushered in by globalization. There are many structural and regulatory means for the American economy to retain influential                                                                                                               stature.

These include palatable diplomacy at governmental level and inspiring innovation and competitiveness at enterprise level. Trump only knows a hard-hand, and if that is making America great again, it may not be good for emerging economies.

Share This:

Sponsored Links

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds