We Need US President to Defend Free Trade; Economic Analysis

The Evening Standard (London, England), November 7, 2016 | Go to article overview

We Need US President to Defend Free Trade; Economic Analysis


Byline: Hamish McRae

THIS is going to be a difficult week for anyone trying to understand the shifts and turns of the world economy. US politics will drown out everything. But if you think back, the influence of previous presidents over the development of the American economy has been quite limited and over the world economy barely at all.

That is not to say that politics doesn't affect economics. The greatest economic story of our generation, the take-off of China, was triggered by a series of reforms started by Deng Xiaoping in 1978. The transformation of the German labour market, driven by the Hartz reforms from 2003 to 2005, enabled Germany to cut unemployment from 11% in 2005 to 7.5% in 2007, and to below 5% today. In France, economic policy has had the opposite effect, with unemployment stuck at about 10%.

But in the US? Bill Clinton's economic policies following his election in 1992 did establish the long Nineties boom, and he must take some credit for that. He did, in a sense, deliver on his brilliant slogan "the economy, stupid", coined by James Carville for that election.

But he was lucky with his timing.

The second half of the Nineties saw a cyclical boom in the world economy from which everyone benefited. The rising tide lifted all ships. The boom was driven by two features, the IT revolution and globalisation. The former got rather out of hand and ended in the dot-com bust, though we live with its benefits today in the internet and mobile telephony. That revolution got its second wind with the development of Facebook, the iPhone, apps and so on from the mid-2000s onwards. It races on now.

Globalisation, defined by a rising share of world trade as a percentage of global GDP, seems stuck. We regard it as normal that our iPhones should be made in China and did you know that one town there, Datang, makes eight billion pairs of socks a year? You are probably wearing Chinese socks. But China is less dependent on exports to the US than it was 10 years ago, a small fact of which Donald Trump, who is proposing a 45% import levy on Chinese goods, may not be aware.

That particular idea may, of course, be just a bit of campaign rhetoric but the fact that he should use it, and that it should apparently be so wellreceived, says something profound and disturbing. It is hard now for politicians to make the case for globalisation. Even Hillary Clinton who as Secretary of State helped negotiate the early stages of the Trans-Pacific Partnership, a trade deal between 12 Pacific Rim countries now feels unable to defend it. She says the current draft does not meet her standards.

You can argue that regional trade deals are a second-best when set against the multilateral approach of the World Trade Organisation (WTO). …

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