Media  Global Economy  2016.12.16

Mr. Trump Will Destroy World Trade―The world economy may go back to the 1930s just after the Great Depression.―

The article was originally posted on Webronza on November 16,2016

Taiwan symposium where the participants had heated discussions

I was invited to a TPP (Trans-Pacific Partnership) symposium held in Taiwan on November 10 and 11, and participated in presentation and discussion meetings. When I arrived at the hotel in Taipei on November 9, I saw on TV that Trump had declared his victory. I could hardly believe my eyes.

Taiwan's Ministry of Health and Welfare had invited experts from foreign countries and held the symposium to discuss how Taiwan should respond to participating in the TPP with a focus on the fields of medical care and food safety.

On the day before the symposium began, the US got into difficulties regarding its participation in the TPP. However, the participants took part in heated discussions with the additional participation of jurisprudential researchers from Taiwan, taking the standpoint that because a similar treaty would be concluded in the future, Taiwan should hear the experts' opinions on the TPP and the WTO.

Both outside and inside the symposium forum, the participants discussed how the US would treat the TPP. An economist from Japan forecasted that the US would have to participate in the TPP because of the importance of free trade. The US think tank members strongly objected to this forecast, stating that Trump would without doubt withdraw from the TPP.

These participants from the US were advocates for free trade and did not support Trump. On November 12, after I returned to Japan and watched the TV and read the newspapers, many Japanese economists were making optimistic comments to the effect that because Trump is a businessperson, he will not do unreasonable things.

The US people elected a person who advocates eccentric opinions

Japanese economists and businesspersons have an overly optimistic outlook.

I have been interested in this presidential race since the presidential primaries of both the Republican Party and the Democratic Party. I watched the TV debates during the primaries and the general election. From the primaries, the primary emphasis was placed on the economy - especially, trade. The candidates made objections to free trade. Their logic was simple. They said that employment in the US had been damaged by free trade. This simple logic was attractive to many people. Before the presidential primaries, most of the American people did not know about the TPP; now, everyone knows about it.

During the Democratic Party presidential primaries, Senator Bernie Sanders, who was a minor candidate at first, attracted a wide range of support by insisting that the US should withdraw from the TPP. This threatened Hillary Clinton. Clinton, who had promoted the TPP as Secretary of State, was driven into a corner and was forced to express an objection to the TPP.

During the Republican Party presidential primaries, Trump placed more emphasis on the problem of Mexican and Muslim immigration than on trade. He made extreme statements, such as building walls on the border with Mexico at Mexico's expense and prohibiting Muslim immigration. He also made contemptuous statements against women.

However, when he battled with Clinton during the general election, he started to frequently make statements about trade, such as withdrawing from the TPP immediately; renegotiating NAFTA (the North American Free Trade Agreement), which resulted in more unemployment of American workers; imposing a customs duty of 38% on Japanese cars if Japan imposed a customs duty of 38% on Nebraska beef; and imposing a customs duty of 45% on all products from China, which has been increasing exports to the US by manipulating exchange rates.

Trump labeled Clinton as a spokesperson for the establishment, such as Wall Street. He also objected to the free trade promoted by the establishment, which caused much hardship for the poorer workers. He stated that he would make great changes because he would not be under the establishment's thumb. He adopted the same strategy that Bernie Sanders successfully carried out during the Democratic Party presidential primaries.

This is surely eccentric. It is certain that normal and ordinary people do not think that such a policy can be carried out, and that they will not do it. This is also true for Japanese businesspersons. However, do not forget the fact that Trump has been chosen by the US people who decided to give him their votes.

The strength of the US people's anger and antipathy against trade

Responding to the ABC Television Network's interview on election day, Kellyanne Conway, Trump's Campaign Manager, said that trade and the immigration problem had been the major issues in the presidential election.

According to exit polls on election day, 52% of respondents placed an importance on economic and employment problems. The ratio of those who placed importance on diplomacy was only 13%. According to the result of ABC's public opinion poll, 47% of the respondents in the State of Ohio thought that trade was reducing employment. This ratio far exceeded the ratio of those who thought that trade was increasing employment, which only accounted for 32% of the respondents. In the neighboring State of Michigan, 50% of the respondents thought that trade was reducing employment.

The States of Wisconsin, Michigan, Ohio, and Pennsylvania, where many outdated smokestack industries are located, are collectively known as the Rust Belt. In past elections, except for Ohio, where the election usually became a close race and has been called a swing state, the other States have been strongholds for the Democratic Party, supported by the labor unions. However, Trump not only won by a margin of 400,000 votes in Ohio but also won in Wisconsin and Pennsylvania. In Michigan, the election has become a close race and it has been finally determined that Trump won it long after the election was over.

If a candidate tries to gain votes, they tend to try and avoid being disliked by any class of voter. In addition, in the previous presidential election, the prime cause of the Republican candidate Romney's defeat was thought to be that he acquired only a small number of votes from Hispanic people (Spanish speaking). As a result, it was said that the acquisition of their votes this time was important for winning the presidential election.

Ignoring this, Trump repeated that Hispanic people brought drugs and crime into the US and that illegal immigrants should be deported. In addition, scandals were uncovered about his relationships with women and he also made contemptuous statements against women. In spite of this, he received many votes and won the election. Although his competitor was a woman, more than 40% of female voters chose Trump.

This shows how strong the US people's antagonism is toward trade.

The view that free trade will cause damage to employment in the US has been around for a long time. In the past, however, this view did not become an issue during presidential elections. This time though, the same view pushed Trump right up to the office of President.

Because many people had been ignored politically and were not given the benefits of economic growth, they piled up their complaints like magma. Neither the media nor the professional politicians noticed that the circumstances had changed and Trump, who is an amateur politician, caused the magma to erupt.

It is useless for government officials in Japan to attempt persuasion

Trump cannot ignore what the US people are demanding. It also cannot be said that Trump spouted rhetoric just to win the presidential election. It is useless for the government officials in Japan to attempt to persuade the Trump Government.

As a matter of course, the US will withdraw from the TPP. But, that's not all. The WTO member countries have promised that they will not raise customs duties in excess of the ones specified in their own country schedules submitted to the WTO for almost all of the items. In addition, they must indiscriminately impose the same tariffs on any WTO member country. This is the most important principle of the WTO (known as the principle of most-favored-nation treatment). If Trump uniformly imposes a tariff of 45% on China, the US will also have to withdraw from the WTO.

It's terrifying that withdrawal from the TPP could be carried out just by presidential authority under the US Constitution, but this is possible. Trump can withdraw based only on his personal judgment.

The global economy may then enter an era similar to that just after the Great Depression, when the US greatly increased customs duties through the enactment of the Smoot-Hawley Tariff Act in 1930 and further worsened the world economy.

(Titles have been omitted in the body of the article above)

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on November 16,2016.)