When Donald Trump began his 2016 presidential campaign he ran under the motto “Make America Great Again.” Part of this “greatness” he is talking about is restoring American economy by improving the job market and industry growth at home. But while that sounds like an admirable goal, economists and foreign policy experts alike fear that this kind of economic nationalism will actually disrupt the global institutions in place today which have led the way to roughly 70 years of international economic cooperation and security.
Indeed, they claim, this approach could actually result in absolute chaos.
Looking at history, high international tariffs and currency manipulation were major contributors to the severity of the Great Depression. Furthermore, these two factors contributed to the growth of militarism in Japan, Germany, and Italy (so, basically, the Axis Powers) after World War II. As a matter of fact, it was the Allied Powers’ recognition of this trend that led to General Agreement on Tariffs and Trade—that later became more commonly known as the World Trade Organization—that effectively lowered tariffs and other significant barriers to trade. This movement also introduced the International Monetary Fund—whose purpose was to police national exchange rate regimes—and the World Bank—whose purpose was to provide financial assistance to developing countries.
The GATT was supposed to bring together market economist that shared similar institutions and to encourage international commerce that was based on comparative advantage. The goals was to create better paying jobs within the export industries to replace the jobs lost to import industries.
Unfortunately, that is not what happened. Instead, the GATT expanded to include [forer Axis Power enemies] Japan and other Asian nations, as well as more arcane protectionist philosophies and mercantilism; and, sure enough, currency manipulation actually began to replace high tariffs and those transparent trade barriers. In all, American industries lost ground to foreign—read: “cheaper”—companies.
Now, since the election of Donald Trump, his team has been squarely focused on reducing the power of these tariffs; they see them as a tool that could be used, potentially, as a means to accept concessions from our trade partners.
“Everybody talks about tariffs as the first thing,” explains investment banker Wilbur Ross, who happens to be Trump’s choice for Commerce secretary. “Tariffs are part of the negotiation.”
But that is risky, as Renmin University (Beijing) economist, Song Lifang, comments, “It will only result in collateral damages to both sides.”
For example, China is actually both the largest producer and consumer on the planet. Cutting trade with them, then, could not only see big changes in America’s economy but also China’s—and that could have a ripple effect on the rest of the planet.