Policy Paper §3: Economic Consequences of the Western protectionist emancipation

Policy Paper §3: Economic Consequences of the Western protectionist emancipation, Teodor Kalpakchiev, the-enpi.org

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Since his election Trump has embarked on a more restrictive economic policy, which includes reshuffling domestic policies, re-negotiating trade deals, as well as restricting America’s participation in multilateral organizations, thus reviewing traditional relationships with other countries.

The impending economic disjuncture

Globalization, as per popular conviction and theoretical underpinnings, is a result of the expansionary industrialization of England and USA combined with an attempt to structure value chains via exploiting the natural and human endowments of former colonial territories. Additionally, the block has been a stark proponent of deregulation, which provides a boost to emerging domestic economic operators by allowing them to float freely in the global economy. In order to secure a global market for its companies, the Obama administration embarked on coalescing these by materializing the interregional trans-Atlantic and trans-Pacific deals respectively with EU and East Asia. The strenuous process had a sobering effect on these counterparts, which realized that the globally present American companies would relish excessive advantage in competing with theirs, as well as sizeable extra-judicial protection. Trump’s motives mirrored a number of contrasting concerns, such as China’s GDP growth being continuously three times bigger while retaining parity in purchasing power and leverage in high-tech exports and monetary reserves[1]. The strong dollar and retrieving value chains from the regional NAFTA meant to him an opportunity to foment job places and incentivize growth, thus increasing American citizens’ ability to purchase imported goods and restoring USA’s place as the leading global economy. We may define his pledge to cut regulation by 75%[2], reduce corporate taxes and instigate trade barriers as protectionist neoliberalism, aimed at absorbing the waning fossil fuel prices and stagnant commodity prices’ growth. Thus, in contrast to Russia’s willingness to pave its way towards expansionism to the poles, Trump rather aims to maximize the attraction force of the Singaporean economic freedom and accumulate capital for the further modernization of America.

The trade – sustainability nexus

The juxtaposition between USA and China is expected to lead to a war between two camps in the global economy – that of neoliberalism and of regulatory statehood. Concerning trade, the new constellations are already taking shape. The first camp will be under the leadership of the English speaking-western camp, which will attempt to align to itself India, Australia and potentially Brazil. The second camp will be under the leadership of the European Union and China, which are the ripest emanations of regulatory statehood. The EU’s exclusive competence over the trade domain has led to the proliferation of trade negotiations with the different state and regional counterparts in Asia, as well as with Mercosur and South Africa[3]. While TTIP is still high on the agenda of the EU, it has become clear that the EU and the US would find it difficult to find a common denominator of the negotiations. Rather, the EU would reverse its available expertise in negative economic integration into a positive one by transforming its environmental and market standards into trade barriers. For the environmental domain is one of the essential legitimizing factors for the existence of the European Union, the European leadership would potentially adjust to the new reality by increasing its ownership over the environmental domain together with China. This would accrue further losses for the English-speaking world, as environmental goods hold the key to future economic growth.

Post-sovereignty or realist hegemony?

Trump and May have advanced themselves as proponents of a realist world, where hegemonic core-states would assume the role of agenda-setters globally. Their preferences clash substantially with the EU’s externalization of a post-sovereign order, whereby the EU uses its market to externalize both standards and organizational patterns[4]. The USA would rather prefer countries from the developing world to lack a form of self-organization, which would give them leverage in the trade negotiations. On the contrary, the EU sees in these potential like-minded collaborators, who are interested in advancing a forward-looking, post-sovereign agenda. Trumps’ and May’s neoliberal protectionism is an attempt to redirect taxpayers’ money from multilateral and regional organizations back to their own states. In addition to the financial disruption of post-sovereign establishments, Trump is deliberately propagating further „Exits“ of European Union member states, defining NATO as redundant[5] and phasing out the sustainable development goals from his agenda. For UK and US are nominal net payers, who are securing the functioning of regional and multilateral organizations, their phasing out would drastically cut available expenditures.

The consequences in the security domain would necessitate the reinvigoration of the existing security architecture in Europe. Although the OSCE has lived through a downfall, the revival of the East-West dichotomy will possibly necessitate a revision of the consensus-driven, non-binding rules making, as well as the low degree of institutionalization[6] of the organization. The possible withdrawing of NATO has resulted in the strengthening of the European Defence Agency’s capacity, as well as in programs for pooling of the capacities of EU member-states, which is rather directed at creating a pan-European defence procurement market, as well as increasing the effectiveness of research and innovation in the domain. In the environmental sustainability domain, the EU would continue with its manifold efforts at exporting its regulatory standards and shaping multilateral environmental negotiations. Concerning global multilateral efforts, it is quite probable that the EU would focus on increasing investment in environmental goods and technological transfer through the liberalization of trade in environmental goods among the highly industrialized states. It is namely there, where the EU would probably focus its protectionist efforts to undermine deregulation trends.

Effects on different regions

Along the security problematic, further research will explore whether the economic effects of the transition towards protectionism and the erosion of transnational institutions will actually take place, as well as how the new cooperation constellations will look like.

The most profound changes will be happening in East Asia, where China’s appetite for the territories in South China Sea is combined with an effort to step up globalization along domestic convictions for an uptake of inclusivity and sustainability. With the fall of the Trans-Pacific Partnership, China has reoriented itself into creating a free-trade area with ASEAN, Central Asia and other smaller countries that surround it. Its accession in the WTO, as well as the availability of capital reserves would allow it to prop up investments in the modernization of the economy, as well as the rewriting of the trade rules alongside new developments. Its One Belt, One Road initiative has increased the competition among other regional establishments in Asia and is likely to have substantial effects on Russia’s immediate neighbourhood, as well as on the programming of EU’s collaborative action eastwards. The American isolationism is rather seen as an opportunity for China to take over its place as global hegemon via the discussed plans.

Seemingly, OPEC countries in the Middle East have realized that the falling oil prices would result in maintaining good export volumes. However, the revenues from these are likely to be reinvested in an infrastructure that increases their own energy independence. While militant groups and issues with public health shake most of West and Central, and partially East Africa’s stability, regionalization and ceremonial public diplomacy is on the rise. African leaders are concerned mainly with development-oriented goals, such as securing access to water, food, shelter and education as a mean to offset expansionary growth. The European Union is readily investing in these sectors with its development aid, while attempting to build state institutions via horizontal cooperation. The expectation that Africa’s population will increase from 1.2 billion to almost 2 billion also makes such actions a necessity, as to avoid another migration crisis that will completely shatter Europe. Potentially, should UK exit the European Union, East and South Africa could be compelled to join the Global Britain project together with India and Australia.

South America, which was severely shaken by the oil bust, is focusing on diversification and poverty alleviation, with regionalism being largely on the rise with projects such as MERCOSUR, the Andean Communities, UNASUR and CELAC. The European Union is largely interested in a horizontal sharing of expertise, as well as the conclusion of an inter-regional trade agreement, modelled possibly on the lessons from ASEAN. While traditionally the North-South exchange on the continent was much stronger, Trump’s retaliation towards Mexico would serve as a lesson for the continent, which would seek alliances that will make it more independent.

[1] World Economic Forum, The world’s top economy: the US vs China in five charts, 05.12.16 https://www.weforum.org/agenda/2016/12/the-world-s-top-economy-the-us-vs-china-in-five-charts/

[2] The Atlantic, Trump’s Promises to Corporate Leaders: Lower Taxes and Fewer Regulations, 31.01.2017 https://www.theatlantic.com/business/archive/2017/01/trump-corporate-tax-cut/514148/

[3] European Commission, DG TRADE, Overview Of Fta And Other Trade Negotiations, February 2017 http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf

[4]  Sandra Lavenex & Frank Schimmelfennig (2009) EU rules beyond EU borders:

theorizing external governance in European politics, Journal of European Public Policy, 16:6,

791-812, http://tandfonline.com/doi/full/10.1080/13501760903087696

[5] Piotr Buras, Prepare for a New Europe, Stefan Batory Foundation, February 2017, p. 5-7 http://www.batory.org.pl/upload/files/pdf/rap_otw_eu/Prepare%20for%20a%20new%20Europe.pdf

[6] Leah Pybus, To Be or Not to Be: The OSCE in the ‘New Europe’, Interstate – Journal of International Affairs Vol. 1996/1997 No. 1.