The Chilling Irony of Trump’s Economic Experiment

By: Joseph Stiglitz – November 7, 2017

Vanity Fair

Whatever happens during the Trump administration, globalization after Donald Trump will be different than it was before he came into office. America is losing its position of leadership as well as its status as a source of aspiration and inspiration: if the failures of George W. Bush showed the limits of “hard” (military) power, Trump is eviscerating America’s soft power—its influence arising out of admiration or respect, though sometimes also out of fear of its economic power.

Trump has been brazen in his call for American selfishness. His stand on protectionism makes this clear: if the United States doesn’t get what it wants, it will take its marbles and go home. To ensure that he gets the good deal—the “America First” deal—that he demands, he will not bargain with developing countries and emerging countries as a group, but rather insists on doing so one by one, bilaterally, a process in which the balance of power will be clear, especially in the case of the poorer countries. And yet, what Trump is focused on—the overall trade deficit of the United States—will be unaffected by these power plays. The trade deficit, determined by the country’s macro-economics, including its budget deficit, will only get worse under his policies.

The rule of law is essential for any economy, including for the global economy. Trump has announced that he will not honor even past deals—for instance, that he will ignore rulings by the World Trade Organization. What use is a rules-based international system if the strongest country announces: by the way, the rules are for you, not for us?

America has long held itself up as a model of good governance. But here is a president who can announce that there was no such thing as a conflict of interest within the presidency. The conflicts of interest in his plutocratic cabinet are obvious—starkly revealed most recently by the so-called Paradise Papers.

Around the world, Trump has served as a source of humor and media entertainment. In Italy, I hear, “Trump has made Berlusconi look good.” In Africa, “Trump has made even our dictators look good.” Leadership matters. We would not have the rules-based global system that we have, and which for the most part has worked so well to maintain peace and prosperity, were it not for American leadership. But for any country to exercise that leadership, it has to be seen as not just serving its own interests, but also as having a vision which sees the benefits of cooperation, without the use or threat of force.

Even as the United States began to pursue its inward-looking “America First” strategy, China was creating a “new silk-road initiative,” also called “One Belt, One Road,” encompassing some 60 countries in Asia, linking them to China. It is as grandiose in scale as the Great Wall of China, an attempt this time not to protect itself from “outsiders,” but to tie the rest of the world to China. The initiative seeks to overcome economic geography with man-made infrastructure. Construction projects are providing an economic boon to previously moribund regions—a Marshall plan on steroids. China has understood what Western economists have been saying for decades: a world with zero-percent interest rates is ripe for a massive infrastructure program. China will benefit, both from the increased influence, already palpable, and the increased demand for its steel and cement, which otherwise would be in excess supply. Rather than selling these products in the United States at low prices, which elicits condemnations of “dumping,” it sells or gives them to its neighbors, who extend profuse thanks.

In much of the world, China’s rhetoric comes across far better than Trump’s “America First” stance or the policy of “conditionality” that preceded it, in which the U.S. signs trade agreements with those who give in to our corporate interests, and helps very poor countries that follow the precepts of good government and market economics that we dictate through the I.M.F. and the World Bank. Knowing the resentment that these stances had engendered, at the first assemblage of the leaders of 29 of the 60 silk-road countries last year, China’s President Xi Jinping talked about a world based on friendship and partnership, in contrast to one based on divisive alliances. He repeated China’s call for every country to “respect each other’s sovereignty, dignity, and territorial integrity, each other’s development paths and social systems, and each other’s core interests and major concerns.”

In diplomatic terms, these words take on certain meanings. China and developing countries have been highly critical of the conditionality that has accompanied Western assistance, with China being especially sensitive to conditions concerning human rights. Echoing Cold War arguments, China suggests that the massive inequalities built into the American economic system in and of themselves represent an abuse of human rights. It believes that it is hypocritical for the United States to constantly criticize China’s human-rights violations when there is such massive racial discrimination in America.

This then is one of the critical ways that a China-led globalization would differ: there would be less pressure put on countries around the world to maintain political systems that guarantee human rights. The current system is admittedly weak: for instance, there have been few, if any, repercussions for Turkey as President Recep Erdoğan took measures undermining basic freedoms. Still, the fact that the West constantly raises the issue has been a markedly positive force, and this is true even if the West is far from pure itself. The good news is that these ideas have been globalized in the decades after World War II, taking root around the world. (Trump, of course, is undermining these ideas, as he cozies up to old dictators as well as new, established ones as well as leaders with dictatorial aspirations. His friendship with members of the new club of illiberal democracies, such as Andrzej Duda in Poland, seems to have put America squarely on the wrong side of the fight for democracy and human rights.)

Labor and environmental standards are also likely to take a less prominent place, though China’s population is demanding stronger environmental protection itself, and with the rise of personal incomes, labor standards have increased there too. Critics say that, in any case, the weak standards included in recent international agreements have never been enforced. On the important issues for American workers—like overtime pay—there is backsliding under Trump in the United States; an American Republican administration may thus be as much a threat to the creation of high global standards as China.

With China committed to the Paris climate-change agreement, there is hope that the standards that will eventually be evolving for carbon emissions might be put into any trade agreements they sign—they have an incentive to do so. And again, a Republican administration in the United States represents as much of a threat to this agenda as China does, and at this point, maybe more so.

As for global order, economic and otherwise, the silver lining is that, at last, the world is likely to move toward multipolarity. Having excessive power in the hands of one country meant the fate of the world was too dependent on what happened in that one country. This is now only too evident. The diminishing economic role of the United States in the global economy means that global political power will also become more dispersed. The world will become multipolar. By clumsily re-asserting a wish for U.S. dominance, Donald Trump is accelerating the opposite.

Read the full article here: Vanity Fair