by From Jayati Ghosh Mr Trump’s policy stance will, however, mean that the United States – which has been providing less and less of a positive demand stimulus to the rest of the world economy ever since the Global Financial crisis – will continue to shrink its import demand and add to the forces that are making global trade decelerate and even decline. What does all this mean for developing countries? First, that those who are worried are right to be worried, but perhaps not for the reasons most commonly cited, such as the threat of trade protectionism. Rather, Mr Trump presents a disruptive force in an already febrile and volatile global economic environment, which is weakened not by his election, but because global capitalism had clearly reached the limits of pushing that particular strategy of accumulation. This was increasingly evident in the “secular stagnation” that seemed impervious to massive injections of liquidity and near zero or even negative interest rates, and in economic trajectories that no longer seem to generate stable and regular employment. In turn, the disruption that Mr Trump generates in turn is only partly because of his actions, and probably even more because of the very impact that his statements and the surrounding chatter have on expectations, both in financial markets and in real economic activities.
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from Jayati Ghosh
Mr Trump’s policy stance will, however, mean that the United States – which has been providing less and less of a positive demand stimulus to the rest of the world economy ever since the Global Financial crisis – will continue to shrink its import demand and add to the forces that are making global trade decelerate and even decline.
What does all this mean for developing countries? First, that those who are worried are right to be worried, but perhaps not for the reasons most commonly cited, such as the threat of trade protectionism. Rather, Mr Trump presents a disruptive force in an already febrile and volatile global economic environment, which is weakened not by his election, but because global capitalism had clearly reached the limits of pushing that particular strategy of accumulation. This was increasingly evident in the “secular stagnation” that seemed impervious to massive injections of liquidity and near zero or even negative interest rates, and in economic trajectories that no longer seem to generate stable and regular employment. In turn, the disruption that Mr Trump generates in turn is only partly because of his actions, and probably even more because of the very impact that his statements and the surrounding chatter have on expectations, both in financial markets and in real economic activities.
The most immediate likely concern is that of capital leaving emerging markets once US interest rates are raised, and the potentially disorderly situations this can create. Developing countries have already experienced this several times in the past decade, and have learnt the hard way that policy decisions taken and economic processes in the US are far more significant in determining capital inflows and outflows from their own countries than any measures taken within. The resulting volatility is likely to be compounded by further financial deregulation that will spread from the US to other countries. Since the already inadequate re-regulation of finance that occurred after 2008 in the US is on its way to being dismantled, this will create pressures for associated deregulation even in other developed countries, and add to similar tendencies in emerging markets. This is doubly dangerous for many “emerging markets” because many of them had responded to the global crisis by allowing massively leveraged expansion, and much of that is currently in the process of winding down. Asset markets – particularly of land and real estate – are experiencing a downswing in most countries, rendering them especially vulnerable to financial crises that could originate from an initial outflow of capital to the US.
Obviously, this would be exacerbated by the disruptive impact on global trade that several proposals of the Trump administration are likely to have. The ongoing slowdown in international trade is likely to get worse, and also more uncertain with the unpredictability of US moves. Conflicting signals coming from different elements of the US Government, and even from its leader over time, only add to confusion and reduce the incentive for even medium terms investment in tradeable sectors. Export of commodities from South to North, which powered the expansion of some economies and provided much cheaper goods to consumers in the North, is unlikely to be an engine of growth in the immediate future. This sounds like bad news for many developing countries, and will be so in the short term, but it need not be so bad if it forces a different approach from one that focusses on exports to the North (and therefore treats wages only as a cost), to one that looks at potential in domestic markets and regional arrangements (and therefore treats wages also as an important source of demand).
Certainly, no tears should be shed for the Trans Pacific Partnership. It was a bad deal, that did little to enhance desirable trade; instead it provided inordinate power to corporations, through stringent and unwarranted acceptance of tight intellectual property rights monopolies, reducing possibilities of public regulation in the interests of workers, the environment and the health and other human rights of citizens; and allowing investor-state dispute settlement in wide-ranging cases. These would definitely have harmed workers and consumers in all the member countries. Developing countries that had put so many eggs into that particular basket will now be forced to think more creatively about both trade and policy options, which would not be an adverse outcome. The danger is that – despite the breakdown of this agreement – such deregulation and greater power to corporations will be granted anyway by the Trump administration, and sheer competitive pressure will then force governments across the world to fall in line. Avoiding this worst-of-all-worlds scenario will require constant public vigilance and mobilisation in all countries. read more