United States' new mercantilist scenario

United States' new mercantilist scenario

Geminello Alvi | Columnist and writer
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Trump's economic ideas conflict with those of the globalizing era initiated by Bush Senior and brought to triumph by Clinton, but there is no period in American history that has seen such globalizing qualities in abundance. Mercantilism is the name for customs policies, public infrastructure and rising prices and provides for war as well as foreign exchange

The shock and anger at Donald Trump’s election has made us forget that during the nineteenth century, the United States was a stubbornly protectionist nation. However, it was also so during the more delicate years of the twentieth century, when President Franklin Roosevelt aggravated the international economy by removing American from the gold standard and launched a policy of reflation that only managed to generate growth and inflation with the advent of the Second World War. Trump’s economic ideas conflict with those of the globalizing era initiated by Bush Senior and brought to triumph by Clinton, but there is no period in American history that has seen such globalizing qualities in abundance. Mercantilism is the name for customs policies, public infrastructure and rising prices and provides for war as well as foreign exchange. Mercantilism must be considered with liberalism as a recurring phase of the international economy: it was so in the seventeenth century, in the eighteenth century, in the twentieth century after the ‘30s and at least until the '70s. President Trump’s economic policy scenarios, if he stays true to the thrust of his electoral campaign, must therefore be framed within a range of choices that are far more complicated than the fiscal or monetary policy of recent years. Moreover, there will be implications that will, I fear, be a very powerful influence on the price of commodities and energy sources. A massive policy of infrastructure development, of increases in Chinese import fees of up to 45 percent, and the inflationary effect that follows will subvert the entire framework of the U.S. economy. Suffice it to say that last year, the U.S. foreign accounts were in deficit with over one hundred nations, and that China’s pressure on American workers is generated by imbalances in the U.S. economy and is not separately negotiable.

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For decades, and more so since the Clinton years, the deficit of U.S. foreign accounts has been fed by the lack of saving in the United States. In other words, Americans are living beyond their means. In the fourth quarter of last year, the total saving of the U.S., including the public sector, amounted to a mere 2.6 percent of gross domestic product, a figure half that of the not so high average of the final three decades of the last century. Chinese blackmail isn’t credibile, as selling American debt would make its value collapse and would first weaken its holder. Rather more complicated is to increase the savings rate and that choice would imply higher interest rates, and that increase is also required to support a huge growth in infrastructure spending such as that promised by Trump. A weaker exchange rate and the replacement of imported with domestic goods would then imply inflation. The U.S. economy grew at an average annual rate of 3 percent in the decades after 1945, but has not had three consecutive quarters of growth at 3 percent in the last ten years. However, the U.S. economy is much less dependent on foreign trade than the European or Chinese economy and, therefore, better suited to Trump’s protectionist and inflationary intentions. However, in this mercantilist scenario, the entire commodity price scenario would change and diversify.

The U.S. economy grew at an average annual rate of 3% in the decades after 1945, but has not had three consecutive quarters of growth at 3% in the last ten years

A future yet to be determined

It is difficult to imagine a general boom like that of the seventies or a collapse like that of the thirties. Price trends, including those related to energy, would instead be the result of negotiations between geopolitical areas that would create scenarios of instability and significant fluctuations before finding a new balance, a process that would have its paradoxes. Regarding Trump’s energy policy, he could get along better with the Chinese and Russians than with the Europeans (not to mention global warming). However, only in the coming months will we be able to better understand to what extent the scenario of the U.S.’s inflation, investments and domestic growth promised by Trump will be effective in inducing a certain stability or growth in energy prices. However, as a cautionary final thought, in FDR’s time, what drove up the prices of all commodities was the Second World War, and even at the time of the American War of independence, Adam Smith was declared the enemy of the people. In any case, wars are the least predictable variant of a mercantilist scenario.