Giorgio Barba Navaretti
By : Giorgio Barba Navaretti
Trump’s goal to bring manufacturing jobs back to the US seems to ignore the economic realities and business practices that dominate the global economy.
Did Donald Trump’s congressional speech set a new tone to his presidency? Many commentators have praised the much milder and considered rhetoric he took, finally breaking out from his harsh and contrarian persona. But this is not very reassuring for those who still believe in and champion liberal democracies and globalization. Reality might be much harder to mold in Trump’s vision than he is willing to admit, but globalization has its limits.
The world has grown faster, but the costs of adjusting to a competitive global market have been underestimated, especially in rich countries. Income inequality has soared, and what wealth has been gained has been distributed unevenly. Yet raising protectionist barriers in the US is not the best way to reassure and improve the welfare of those economically left behind.
Imports will be more expensive and translate into more retail tax for consumers. If this tax targets cheaper, low-quality products from emerging economies such as China and Mexico, it will especially harm low-income consumers, many of whom voted for Trump.
It is not through moral suasion or fiscal threat that manufacturing activities returning to the US will create the jobs lost in the recent “offshoring” season. Companies moving their plants back will use highly automated production processes. They will create jobs, but in the medium to high range of the salary scale, not for the unskilled blue collars.
Protectionism is not a zero-sum game. It leads to a rapid, devolved tit-for-tat process of knee-jerk action and reaction. If the US erects trade barriers, the same will happen with its products in its export markets.
Giorgio Barba Navaretti
So, protectionism is not a zero-sum game. It leads to a rapid, devolved tit-for-tat process of knee-jerk action and reaction. If the US erects trade barriers, the same will happen with its products in its export markets. US companies will lose, or rather be forced to produce directly in those markets where they wish to do business.
Trump’s protectionist strategy might die down quite a bit, given that it would be economically costly and because of its inability to achieve his ultimate goal of giving back hope to the dispossessed. Yet this prediction might be wishful thinking if ideology prevails over realism. “America First” is nothing but revived nationalism, the vision of “let’s make our country richer even if our policies are costly for others.”
Globalization has been a hesitant yet steady path toward dialogue, integration, the spread of the values of liberal democracies and reciprocity — the principle that all countries, through integration and competition, share a common space to grow together. The US has always been in the driving seat of this process.
“America First” says it is no longer worth pursuing. This is very powerful rhetoric. It is a policy that will immeasurably change the underlying principles that have governed global economic policies for the past 70 years. Changing course implies moving toward uncharted waters. But if Trump’s rhetoric is strong enough, “America First” will unfortunately keep sailing through.
Giorgio Barba Navaretti is professor of economics at the University of Milan, scientific director of the Centro Studi Luca d’Agliano. He has a Ph-D. in economics from Oxford University and a degree in economics from Bocconi University in Milan. He is specialized in international and development economics.
Disclaimer: Views expressed by writers in the Column section are their own and do not reflect RiyadhVision’s point-of-view.
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