Saturday, September 23, 2017

Is Globalization Anti Nationalism?

Vijay K. Mathur

Greenspan did not like the word globalization, and George Orwell stated, “Nationalism is power hunger tempered by self deception.”   However, to me globalization implies interaction of people, exchange of goods and services, information and technology between countries.  Nationalism is loyalty to your own country and working for its welfare and prosperity.  This interaction between countries is no different than interaction between states, except with different currencies.  The prosperity of any state within the US is interlinked with others’ prosperity.  Similarly, US prosperity is affected by other countries’ prosperity through trade and interaction with other people, thus creating an environment for the transmission of information and technology.  This is in our national interest.

President Trump has spread the myth that US trade deficit is against our national interest.  This phobia against trade and trade deficit is misguided and exaggerated.  In 2016 the deficit in goods and service trade and income payments to foreign countries (current account) was merely 2.42 percent of GDP (gross dollar output of the economy).  The percentage of this deficit has not varied much since 2013.  Most of the trade deficit is due to deficit in the trade of goods.  We have had a surplus in service trade and income receipts from foreigners for some time.  However, it is not enough to offset deficit in goods trade.  In addition, most of our deficit is with European Union countries, followed by China.   Hence, it is perplexing to hear President Trump constantly blaming China for the deficit.  

President Trump must also note that in 2016 US exports and imports combined constituted 36 percent of the GDP (17 percent are exports), a very significant part of the total economy. Any protectionist policy, followed by retaliation from other countries in response, would have a devastating effect on the economy in terms of income, employment and growth; it would be contrary to the national interest.  Trade promotes competition and an efficient allocation of resources, such as labor and capital.  Support of industries that cannot compete in the world markets would deprive other competitive industries’ demand for scarce resources.  Efficient allocation of resources would promote innovation, technical change and productivity.     

National income accounting would show that trade deficit is partly home-made.  If private saving is not enough to finance private investment and government deficit, it would result in trade deficit.  Trade deficit implies borrowing from abroad to finance our demands.  In US, household saving rate ranges from 4 to 5 percent of disposable income, while in China it ranges from 30 to 35 percent (  Even if private saving is enough to finance domestic private investment, trade deficit will arise when the government has a substantial fiscal deficit.  This is the twin deficit problem we face.  CBO’s baseline budget projections in June 2017 show government deficit was 3.4 percent of GDP in 2016 and is expected to increase in the next decade.  

If President wishes to pursue a nationalist agenda, he should consider the fact that trade deficit in goods is due to Americans’ consumption beyond output of goods.  Perhaps President Trump should go on a campaign to persuade Americans to save more and consume less output of goods to “make America great again”.

If Americans save more it could help reduce the trade deficit as well as the burden on government transfer payments.  Americans would also be wealthier to support their pensions in old age.   By providing tax incentives to increase saving among poor, low-income and middle-income Americans, President Trump’s budget could partly ameliorate the trade deficit problem and the burden on government assistance.  Giving tax breaks to the rich is futile and would lead to government deficits and trade deficits.  Obtaining some concessions in trade negotiations with EU and NAFTA countries would have only marginal effect on trade deficits, since they will be subject to WTO rules and regulations.

The catchiest argument President Trump advanced in his presidential campaign was that job losses in manufacturing were due to bad trade deals and outsourcing.  Mr. Matthew J. Slaughter, Dean of the Business School at Dartmouth College, cogently argues in his opinion page article, The Wall Street Journal, June 15, 2015, that trade and movement capital between countries is not a zero sum game. He shows that between 2004 and 2014, US parent multinational companies hired as many people as their foreign affiliates.  Their value added of and investment in parent companies grew faster than in foreign affiliates.  The parent companies also contributed more to exports, expenditure in R&D, employee compensation and stimulus to the supply chain.

President Trump’s slogan “make America great again”  lacks substance and is without merit.  National prosperity and economic dynamism require international trade and a well thought-out immigration policy.  Americans who were displaced from jobs should ask their lawmakers to provide resources and opportunities, so they can prepare themselves for the new competitive global environment.  This approach would assure a more prosperous future for them and their children.

It is worthwhile to remember the words of Mother Teresa
Yesterday is gone.  Tomorrow is not yet come.  We have only today.  Let us begin.”

Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio.  He resides in Ogden, Utah.    

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