Kenneth Rogoff
Kenneth Rogoff, Professor of
Economics and Public Policy at Harvard University and recipient of the
2011 Deutsche Bank Prize in Financial Economics, was the chief economist
of the International Monetary Fund from 2001 to 2003. The co-author of This Time is Different: Eight Centuries of Financial Fol… read more
CAMBRIDGE
– As US President Donald Trump proceeds to destabilize the post-war
global economic order, much of the world is collectively holding its
breath. Commentators search for words to describe his assault on
conventional norms of leadership and tolerance in a modern liberal
democracy. The mainstream media, faced with a president who might
sometimes be badly uninformed and yet really believes what he is saying,
hesitate to label conspicuously false statements as lies.
But
some would argue that beneath the chaos and bluster, there is an
economic rationale to the Trump administration’s disorderly retreat from
globalization. According to this view, the US has been duped into
enabling China’s ascendency, and one day Americans will come to regret
it. We economists tend to view abdication of US world leadership as a
historic mistake.
It
is important to acknowledge that the roots of the anti-globalization
movement in the United States run much deeper than disenfranchised
blue-collar workers. For example, some economists opposed the
Trans-Pacific Partnership (a 12-country trade deal that would have
covered 40% of the global economy) on the questionable grounds that it
would have harmed American workers. It fact, the TPP would have opened
Japan far more than it would have affected the US. Rejecting it only
opens the door to Chinese economic dominance across the Pacific.
US
populists, perhaps inspired by the writings of Thomas Piketty, seem
unimpressed by the fact that globalization has lifted hundreds of
millions of desperately poor people in China and India into the global
middle class. The liberal view of Asia’s rise is that it makes the world
a fairer and more just place, where a person’s economic fate does not
depend quite so much on where they happen to have been born.
But
a more cynical view permeates populist logic, namely that in its
excessive adherence to globalism, the US has sown the seeds of its own
political and economic destruction. Trumpism taps into this sense of
national mortality; here is someone who thinks he can do something about
it. The aim is not just to “bring home” American jobs, but to create a
system that will extend US dominance.
“We
should focus on our own” is the mantra of Trump and others.
Unfortunately, with this attitude, it is hard to see how America can
maintain the world order that has benefited it so much for so many
decades. And make no mistake: America has been the big winner. No other
large country is nearly as rich, and the US middle class is still very
well off by global standards.
Yes,
Democratic Presidential candidate Bernie Sanders was right that Denmark
is a great place to live and does many things right. He might have
mentioned, however, that Denmark is a relatively homogeneous country of
5.6 million people that has very low tolerance for immigration.
For
better or for worse, the globalization train has long since left the
station, and the idea that one can turn it back is utterly naive.
Whatever might have been done differently before US President Richard
Nixon visited China in 1972 is no longer possible. The fate of China,
and its role in the world, is now in the hands of the Chinese and their
leaders. If the Trump administration thinks it can reset the clock by
starting a trade war with China, it is as likely to accelerate China’s
economic and military development as it is to slow it down.
So
far, the Trump administration has only sparred with China,
concentrating its early anti-trade rhetoric on Mexico. Although the
North American Free Trade Agreement, which Trump reviles, has likely had
only modest effects on US trade and jobs, he has attempted to humiliate
Mexicans insisting that they pay for his border wall, as if Mexico were
a US colony.
The
US is ill-advised to destabilize its Latin American neighbors. In the
near term, Mexican institutions should prove quite robust; but in the
long run, Trumpism, by encouraging anti-American sentiment, will
undermine leaders otherwise sympathetic to US interests.
If
the Trump administration tries such crude tactics with China, it will
be in for a rude surprise. China has financial weapons, including
trillions of dollars of US debt. A disruption of trade with China could
lead to massive price increases in the low-cost stores – for example,
Wal-Mart and Target – on which many Americans rely.
Moreover,
huge swaths of Asia, from Taiwan to India, are vulnerable to Chinese
aggression. For the moment, China’s military is relatively weak and
would likely lose a conventional war with the US; but this situation is
rapidly evolving, and China may soon have its own aircraft carriers and
other more advanced military capabilities.
The
US cannot “win” a trade war with China, and any victory will be
Pyrrhic. The US needs to negotiate hard with China to protect its
friends in Asia and deal with the rogue state of North Korea. And the
best way to get the good deals Trump says he seeks is to pursue a more
open trade policy with China, not a destructive trade war.
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