Perhaps the most important among all the many uncertainties surrounding the economic policy of the Trump administration are those related to trade and protection. During the election campaign, the president-elect made blood-curdling promises in this area, and his official campaign documentation was no less strident. If he intends to implement a large part of this agenda in office, the chances of a global trade war would be high.
Last week, trade issues moved to centre stage in the transition. The president-elect released a video confirming that America would immediately withdraw from the Trans-Pacific Partnership, a trade deal that had been intended to be the culmination of President Barack Obama’s political and economic pivot towards Asia.
This was no surprise, since the political supporters of the deal ran for cover during the 2016 elections, but it does mean that any further liberalisation of US trade (including the Transatlantic Trade and Investment Partnership with the EU) is now dead in the water.
It also provides China with a clear opportunity to take the lead in forming an Asian trading bloc, and they have eagerly stepped up to the plate. None of this will have immediate adverse consequences for global markets. It is an opportunity missed rather than a step backwards.
The second big development is the rumoured appointment of Wilbur Ross as commerce secretary (see Gillian Tett). Mr Ross is a business person rather than an ideologue on trade. If anything, he seems to be from the supply side wing of the Republican party. The market would vastly prefer this appointment to a feasible alternative such as Peter Navarro, who is an outright hawk on trade relations with China (and, somewhat ironically, the only PhD economist in Trump’s advisory team).
Although Mr Ross clearly believes that the US should be far more assertive in its trade negotiations with other countries, he has played down the likelihood of dramatic initiatives such as Mr Trump’s threat of a 45 per cent tariff on all imports from China. He has also said clearly that “there will be no trade wars”.
If this turns out to be the dominant tone of the Trump administration, then the tide of globalisation may not be rolled back very far in the next few years, and the global markets will breathe a huge sigh of relief. Read more