Inauguration of Trump; The rhetoric of President Trump represents a break with 70 years of US policy and will cost the US international support; Trump stands against science, knowledge and a multilateral world order
Wuppertal, January 20, 2017
Trump Policies Expected to Contradict 70 Years of American Principles & Rationale
Donald Trump is new US President and countries across the globe need to come to terms with a fundamental change in US policy – in terms of both content and style. According to Trump’s announcements, his Administration will pursue an extremely contradictory economic policy with regard to domestic fiscal policies, which considering that capacities are already stretched will soon result in rising inflation. Together with the appreciation of the US Dollar due to speculative capital inflows, there will be a decline in net exports in the medium term, which will overshadow perspectives for growth. It is very unlikely that Trump will realize a 3.5% growth rate without high inflation. The signaled foreign trade policy raises deflationary pressures outside of the US, since as a large economy, import protectionism on the part of the US accounts for excess supply in many other regions and countries of the world, respectively. China’s growth will also be dampened, which will decrease Chinese demand for foreign exchange reserves – to the disadvantage of the US. China’s central bank may soon also reduce interest rates, which will only increase the appreciation of the Dollar. In the US, this appreciation may, however, act as a constraint on inflation and could lead to the central bank adopting a more conservative position.
Trump’s xenophobic and misogynistic rhetoric couples with his own polarizing style represent a negative signal for the West, his anti-scientific comments – for example in the context of climate change – go against more than 100 years of US policy tradition of production cooperation and links between top universities, government and other authorities. Trump’s position against US foreign direct investment (FDI) outflows is economically contradictory, as US firms generate higher returns through investments abroad than investments within the US, which for many years has benefitted the intrinsic value of firms and insurance policies – such as life insurance – and, in doing so, helped to establish America as a global power. Higher incomes through US direct investment in the destination country raises the import demand of that country, which also benefits the US and many US-partner in the form of higher exports. The US has been a pioneer in terms of investing FDI abroad since about 1880, and the country’s role as a global leader would be unthinkable without the international activities of US multinationals.
Trump-Economics is, to a large extent, voodoo economics and finds little to no support amongst leading economists – with the exception of Arthur Laffer. Initially, one can expect two turbulent years in terms of US politics, the mid-term elections, i.e. the next US parliamentary elections which take place two years from now, could lead to the Republican Party losing its majority and, in turn, the downfall of President Trump; however, it cannot be rule out that Trump will indeed serve out his full four-year term. The longer he stays in office, the greater the rise of populist politicians in EU and other countries.
Trump, the political late-comer, who garnered attention during the presidential campaign for various violations, will from January 20 be faced with new rules and regulations which now apply to him in his first public office. As with the previous presidents, Trump will take the oath of office on the US Constitution by swearing to abide by and defend it. In the medium term, this is likely to serious cause some problems for Trump when one considers his lack of political experience and his spontaneous and unpredictable nature. That the policy stance of the Trump Administration will deviate much from the large body of tweets Trump himself sent announcing the main points of is program during the presidential campaign is unlikely; the power of office of president in the US is too high and the US as not seen many cases of officials willing to leave office, at least due to a difference of political opinion with the president of the day. The Trump Administration is thus likely to follow the lead of President Trump in the coming years. Trump is certain to try and seek out new allies, with the United Kingdom one of the few countries which will be by his side; the UK does not have many other options in the West, after splitting with the other 27 EU member states. The economic adventure of BREXIT, which the May government – which also employs xenophobic rhetoric, building upon Cameron’s perfidious misleading rhetoric in relation to immigration – wishes to enforce, will not result in a global leadership role for the UK (a possibility which could celebrated in London as some form of resurgence of the Commonwealth). In this regard, Dean Acheson, then a retired former US Secretary of State, in a 1962 speech at the US Military Academy at West Point, said the following: “Great Britain has lost an empire and has not yet found a role. The attempt to play a separate power role apart from Europe, a role based on a “special relationship” with the US and on being the head of a “commonwealth” which has no political structure, unity, or strength – this role is about played out.”
Trump’s exit from office will need to be left up to the US political system. However, what is threatening to the EU, and indeed Europe as a whole, is the combination of political irrationality in London and Washington DC. In the UK, a referendum on a withdrawal from the EU which lacked in legitimacy has served as the foundation for BREXIT, which – if actually carried out – could lead to a disintegration of the UK itself, should Scotland decide to leave that union, and damage the whole of Europe economically. The 16-page official information brochure for the referendum, commissioned by the Cameron government and which was sent to all households in the UK, made no reference to a study by Her Majesty’s Treasury (the UK finance ministry) which found that the long-term effect of BREXIT would be a 10% loss in income. Prior to the Scottish independence referendum in 2014, however, Cameron’s government provided households with the information that Scottish independence threatened to lead to a loss in per capita income for Scots of £1,400 GBP. Before the BREXIT vote, on the other hand, Cameron apparently did not see the threatened income loss of £4,000 GBP per capita worthy of mentioning – that failure amounts to either political fraud or incredible stupidity – both scenarios reprehensible. On the basis of popularity functions for the UK, it can be calculated that a correct information policy by Cameron would have resulted in a Remain, i.e. pro-EU, majority of 52%. Thus it can be argued that the referendum is lacking in real legitimacy and the glib remark by Prime Minster May that “BREXIT means BREXIT” could yet lead to a ‘may-day, may-day’ call on behalf of the British government.
It is shocking that almost nothing in terms of defending the benefits of the EU occurred to any EU politician, or indeed leading national politician from the EU27 countries, and that no sensible, vigorous reforms were discussed – even the case of a 52% in favor of the UK remaining in the EU could hardly have been seen as an overwhelming vote of confidence in EU integration. Here are just some of the advantages of the EU:
- Raising incomes in the EU customs union – which are also realized thanks to the supranational external trade policy of the European Commission (and common institutions are part of the common institutional capital of the EU)
- Market liberalization and the related impulses for innovation, for example in the fixed-line telephony market and the electricity market
- Competition policy which benefits consumers through controls on mergers and a partially good framework for regulation policies
- State aid supervision, which prevents unnecessary subsidization from being carried out by government at the expense of taxpayers
- The cross-border networking of people via town-twinning programs, which are culturally and socially enriching for those involved
- Higher growth dynamics through the EU single market, including freedom of movement
US President Trump is a vocal proponent of BREXIT and thus an opponent of the EU; the first US president to adopt a position of not supporting European integration since the Second World War. If the Trump Administration should weaken NATO new instability in Europe and worldwide is likely; a strong NATO can generate stability for everybody and reduce the burden of defense expenditures in all NATO member countries. Lack of multilateral policy orientation seems to be a new problem of the incoming Trump Administration. – this is undermining the role of smaller countries and might encourage regional integration approaches.
The EU27 will, in the medium term, increasingly turn away from the US and China will certainly see an increased preparedness on the side of the EU to engage in cooperation in many fields. The claim by Prime Minister May in her BREXIT speech, that the UK is overburdened by immigration from other EU countries, and the emphasis that the country needs full control of migration, is odd considering that prior to the referendum EU immigration did not account for a population growth of more than 0.2%: According to the OECD, EU immigrants had a higher employment rate than native British on average and that EU immigration actually represents a net fiscal benefit to the British state.
The wage reductions due to immigration, also claimed by May in her BREXIT speech on 17 January 2017, can, according to a Bank of England study from 2015, only really be determined amongst unskilled workers in the services sector. That the UK should divorce itself from the single market and the customs union after 45 years of membership, and in doing so incur a 10% loss in income in the long term, is politically absurd and irrational. The May government can, however, hope for some help from the US in the form of a mini-TTIP, a UK-US bilateral transatlantic trade and investment partnership – here, Germany and France blundered in 2016, as they could not finalize a possible agreement on TTIP, an EU-US transatlantic free trade agreement, due to ideological delusions in sections of their respective national governments. Instead, in Germany in particular, elements from the Green political scene and some other groups torpedoed TTIP in an odd way: First and foremost, Thilo Bode, head of NGO foodwatch, with his anti-TTIP book “Die Freihandelslüge” (The Free Trade Lie), which is overwhelmingly comprised of economic nonsense and seems to be written without the required specialist knowledge in crucial aspects.
Trump has already declared that he will not ratify the Trans-Pacific Partnership Agreement. Trump only wants to conclude bilateral free trade agreements – expecting to achieve good deals for the US. That is a rejection of US policy since 1944 in terms of multilateralism in the context of international organizations and cooperation amongst Western, and indeed many other, countries. The motto of the World Trade Organization is “To make the weak strong and the strong civilized”; with his philosophy of protectionism and the recurrent stressing of ‘America First’, billionaire Trump infringes upon the ideas of enlightenment and humanity that gave rise to this guiding principle and which served to make the leading role of the US at all acceptable to dozens of countries in the first place. European countries and indeed Asian countries will not follow an egotistical American president in terms of policies which undermine the spirit of the World Trade Organization going forward. Trump’s idea to steer American trade using purely bilateral trade deals – and to agree free trade deals only with countries with a high per capita income – contradicts seven decades of successful multilateral US policies.
The EU countries should, as a reaction to the egocentric and selfish Trump policies, come together even more and move towards a new integration debate. The UK should get the chance for a second referendum on EU membership in 2018 and the EU-institutions should also be vigorously reformed. Partial debt relief for Greece, linked to reasonable constitutional reforms in the country, is both necessary and sensible. The Venice Commission, a body of independent experts – including excellent legal experts – under the auspices of the Council of Europe, could offer good advice for Greece here. The US would do well to reconsider its electoral laws. That Hillary Clinton is the second victor of the popular vote in the last 20 years not to become President of the US – following Al Gore against George W. Bush – seems bizarre. Perhaps the US should consider a constitutional amendment to change the antiquated and democratically questionable role of the Electoral College in the presidential elections. With BREXIT and Trump, the role of the West and the Western influenced world economic order in under threat. This should be resisted: With rational arguments and sound analyses. It is unfortunate that in 2017 a land as big as the US should inaugurate a president hostile to EU integration, which would weaken the concepts of integration which offer hopes of peace and economic progress, both regionally and indeed globally. That cannot be in the long-term interests of the US. That the British government should, at the same time, become entangled in its own large and odd contradictions, reflects an historical descent of the West and of the two aforementioned countries in particular. Now, it greatly depends on political astuteness in continental Europe, whether or not the West can be stabilized – and on whether in Europe a naïve populism can be rejected and a new voice for reason and sanity in the West can emerge.
Prof. Dr. Paul J.J. Welfens is President of the European Institute for International Economic Relations (EIIW) at the University of Wuppertal; Professor in Macroeconomics and Jean Monnet Chair in European Economic Integration at the Schumpeter School of Business and Economics, University of Wuppertal. He is also Chairman of the Research Institute of the bdvb. Non-resident Senior Fellow, AICGS/Johns Hopkins University, Washington DC and IZA Research Fellow, Bonn.
Paul J.J. Welfens Brexit aus Versehen Europäische Union zwischen Desintegration und neuer EU, 2017, 401 p. Hardcover € 19,99 (D) |ISBN 978-3-658-15874-3 Also available as an eBook (€ 14,99)
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English Version of the book is An Accidental Brexit, forthcoming