With the swearing-in of Donald Trump as the 45th president of the United States on Jan. 20, the US officially ushered in the Trump era. Whatever uncertainties may arise from his policies, however, it is certain that Trump came to power riding resentment and wrath over globalization as a high-profile anti-establishment advocate. This not only portends an upending of the global economic structure, but may also indicate higher barriers to the global flows of resources.
The core of the Trump policies is “America first”. His policies on employment, industry, trade, energy and foreign affairs would all be oriented towards his so-called rectification of the deviated globalization. However, further analysis reveals paradoxes in his policies, which could pose risks to the US economy.
First, trade protectionism won’t bring new opportunities to the US. The anti-globalization attitude, as represented by Trump, is not rare in the developed economies, which are supposed to be built on liberalism. The transnational capital and the elite class, after having reaped exorbitant gains through globalization, are now “concerned” about globalization and tend to be more conservative. Facts show that nine years after the global financial crisis, the potential growth rate and total factor productivity of the US economy still remain stagnant, even after the Obama administration had vigorously implemented strategies of “manufacturing reshoring” and “re-industrialization”.
According to statistics from the Conference Board, the growth rate of US productivity since 2008 has declined to the levels of the 1980s. Figures from the US Department of Labor also showed that non-agricultural productivity continued to decline for three consecutive quarters since the fourth quarter of 2015. From 2007 to 2014, the average annual growth rate of total factor productivity was a mere 0.5%, even lagging behind the 1.4% level registered during the 1995-2007 period. This means that the reshoring strategy failed to produce a substantial effect in lifting economic output and efficiency.
In fact, the global economic system has been undergoing changes since the beginning of this century. A major feature of the changes is the rise in the trading volume of intermediate products in the global value chain. With the development of the value chain, industrial chain and supply chain on international production, trade and investment, the global markets have become highly intertwined and interdependent, and “global production” is the new trend and stands to replace the “made in US”, “made in Germany” and “made in China”. In the era of a global value chain, the levels of industrial correlation and interdependence among countries have greatly upgraded. The industrial structure of a country must interact with that of other nations to make dynamic adjustments and upgrades for mutual benefit. During this process, countries could enjoy win-win cooperation and common development through increased efficiency of resources integration, factor distribution and total factor productivity.
In terms of China-US trade, China’s exports to the US are shifting from labor-intensive commodities to technology-intensive products, with the total export volume of the latter rising. If Trump adopts trade protectionism, China would naturally take countermeasures. In this tit-for-tat process, both Chinese exporters and US companies that export automobiles, airplanes and special equipment to China will suffer. At the same time, if high tariffs are levied on consumer goods from China, the interests of US consumers will be hurt and they will have to pay higher prices.
Second, Trump’s massive fiscal stimulus plan conflicts with contractionary monetary policy. After the global financial crisis, the US implemented four rounds of quantitative easing, leading to a fourfold rise in the monetary base in just six years, and a rise in the proportion of Fed’s balance sheet in total GDP from 6.3% in 2007 to 26% in 2014 (the peak level).
In terms of global economic rebalancing and debt structure, the era of low-cost financing for the US has gone. The global economic rebalancing has gradually improved the financial and money flows. Along with the global economic rebalancing and a weakening external demand, trade surplus of the emerging economies is shrinking, and the ratio of foreign exchange reserves to GDP would drop to about 2%, far lower than the average level of 5% before the financial crisis. This means that the global interest rate level, which is based on the real interest rate of the US, will rise further, along with the rise in bond financing costs including US treasury securities. At present, the proportion of Federal government’s fiscal revenue in total outstanding debt has amounted to the risky level of 21%. If Trump continues to implement massive tax cuts and the plan for infrastructure investment amounting to $550 billion to $1 trillion, the US fiscal deficit will further expand and the real interest level will surge. This would not only lead to a worsening budgetary deficit, but also increase the risks of a worsening debt problem for the US.
Third, the isolationist immigration policy preached and adopted by Trump could hurt the US economy. At present, the US is witnessing a turning point in its demographic cycle, because the birth rate has been declining since the early 1990s and particularly from the turn of this century. According to the US Census Bureau, the US population is 321 million. In 2000, its population growth rate was 1.099%, but the rate further slowed to 0.706% in 2013. In this span of 13 years, the US population increased by 12.06%, translating into an annual average growth of merely 0.88%. From 2015 to 2016, the growth rate was below 0.7%, a record low unseen since the 1936-1937 period.
Under Trump’s policies that will crack down on illegal immigration, the annual number of people who manage to enter the US via illegal channels and would later obtain US citizenship would drop drastically. The joint effect from such factors as low birth rate, aging population and a drop in the number of immigrants would probably lead to an even lower growth rate of US population. Therefore, the Trump policies not only have strong impact on the world, but may also hurt the US economy.
