The danger of Trump's economic policies

By Global-Gathering: Trump is the most hated and least popular president-elect in the history of polling. Updated at 2017-01-18 04:07:30 +0000

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Protectionism has a certain appeal in every age and every nation, because of what we might call a piece of faulty wiring in the human brain. Our instincts were evolved on the savannahs of Pleistocene Africa. We have an ingrained tendency to provide against famine, to hoard food. Translated into the modern economy, this makes us fret about "dependency" on overseas suppliers.

On every measure, Humankind is enjoying a golden age. We are living longer, happier, healthier lives than our grandparents could have imagined. The improvements are most dramatic in developing countries where, as in Europe a century ago, agrarian economies are turning into consumer societies.
What has made this transformation possible? What is lifting our species to an unprecedented level of wealth? What is reducing infant mortality, educating girls, creating leisure time, incentivizing eco-friendly technologies? Free trade. The spectacular improvements in literacy, longevity and calorie intake have coincided with the post-war development of a global market.
The countries that are now embracing that market most readily, such as India and China, are benefiting from the most miraculous transformations. Those that stay outside it, such as Zimbabwe and North Korea, remain mired in misery.
Yet, bizarrely and tragically, the United States is in danger of turning its back on the free-trade system that it played such a brave role in establishing. I can't think of a previous presidential election in which both main candidates were so hostile to liberalizing international commerce.
Donald Trump has come out against the Trans-Pacific Partnership (TPP). To give you an idea of how countercyclical this is, the United Kingdom, which voted to leave the EU partly because it wanted the freedom to sign its own trade deals with non-European countries, has floated the idea of signing up to TPP.
True, UK is not a Pacific country, but it has exceptionally close links with lots of the signatories, including Australia, New Zealand, Canada, Singapore and Malaysia — as well, obviously, as the United States, which is the largest destination for overseas investment. Joining TPP might be quicker and easier than negotiating separate trade deals with its individual signatories.
To be fair, there are criticisms to be made of the TTP — and of its sister, the Trans-Atlantic Trade and Investment Partnership (TTIP). Some argue that these deals have more to do with regulatory control than with trade liberalization, and that they will make life easier for established cartels but harder for start-ups.
This, though, doesn't seem to be the objection of either presidential candidate. Their position owes far more to 1930s-style protectionism. Donald Trump, in particular, rages against the idea of signing trade deals with countries that have lower production costs than the U.S. — which rules out more than 90 percent of the world.
Protectionism has a certain appeal in every age and every nation, because of what we might call a piece of faulty wiring in the human brain. Our instincts were evolved on the savannahs of Pleistocene Africa. We have an ingrained tendency to provide against famine, to hoard food. Translated into the modern economy, this makes us fret about "dependency" on overseas suppliers.

In fact, it is by concentrating on what we do best, and buying other goods and services from elsewhere, that we generate prosperity. If you want to see a place that has elevated self-sufficiency as the supreme goal of economic policy, go to North Korea.
Free exchange is beneficial even when overseas suppliers can undercut us across the board. Two centuries have passed since the economist David Ricardo demonstrated why, logically, free trade must always benefit all its participants, even if one country is less productive than another in every single sphere of activity.
His theory, known as "comparative advantage," has been described as the only idea in the whole of the social sciences that is both surprising and true.
The trouble is that it is counterintuitive. Free trade between the United States and China would lower costs for American consumers, giving them more disposable income and boosting the entire economy. But the winners would be unlikely to notice, let alone attribute their good fortune to free trade.
The losers, by contrast — and there are always some sectors that suffer, though the net impact on the economy is positive — would know exactly whom to blame, and would vote accordingly.
I suspect that, deep down, Donald Trump understand all this. He understand that reflecting people's gripes back at them is easier than explaining a complex idea. And so, from a combination of laziness, cowardice and opportunism, he is in danger of inflicting upon America the same autarkic thinking that has blighted Zimbabwe, with this difference: Zimbabwe is tiny. Its protectionism hurts only one country. American protectionism, by contrast, would impoverish an entire planet.
Dan Hannan is a British Conservative MEP.



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THE RISKS OF PROTECTIONISM

ECONOMIC AND MONETARY DEVELOPMENTS


German Chancellor Angela Merkel warns Trump about dangers of protectionism

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Industries across the euro zone cranked up output in 2016 and Germany ended the year with its strongest growth in five years.

German Chancellor Angela Merkel urged the United States to stick to multilateral cooperation, and warned that US President-elect Donald Trump's protectionist attitudes could threaten the global economy.
"My profound conviction is that there are more advantages ... to moving forward together than when everyone resolves their problems for themselves. I am truly convinced of this," she told a press conference at the end of a two-day meeting of her Christian Democratic Union (CDU) party in the town of Perl in the western German state of Saarland.
When asked whether or not Trump's "protectionist tendencies" could pose a threat, Merkel recalled the international response to the 2008 global financial crisis, which "came from the United States," she noted.
"The response to overcome that financial crisis was not a response based on closing oneself off, but a response which called for cooperation, for common rules, for regulation of financial markets," Merkel said.
"I think this way worked, and naturally we are going to seek dialogue with the new American president," who will be inaugurated on Friday, January 20.
As the United States is Germany's most important trading partner, Trump's protectionist rhetoric has unnerved business in Europe's largest economy. Merkel also underscored the importance of the G20 industrial powers group, which will meet in Hamburg, Germany, this July.

Security in all states

Merkel also renewed her pledge to improve security in Germany following last month's deadly truck attack on a Berlin Christmas market.
To reach that goal, however, Merkel emphasized that Germany's 16 states must have the same security standards, arguing that it is not sensible for states to have different rules regarding video surveillance and random police checks.
The CDU party leader also went after German states which are governed by rival parties, the Social Democrats (SPD), the Left party and the Greens.
Life is better for the people living in states governed by the CDU or its Bavarian sister-party, the Christian Social Union (CSU), Merkel said, because they feel they can "live more securely."
'Most difficult election yet'
The leaders of Merkel's CDU met on Friday and Saturday in Saarland to kick off the election year. Three states will hold elections, beginning with Saarland in March, before Germany's general election in September.
Merkel, who is seeking a fourth term, has said she expects this election to be the most difficult yet. However, the CDU leader was confident that despite differences with the CSU over an annual refugee cap, the joint conservative campaign will be successful.
The CSU has been pushing for capping the annual number of refugees that Germany accepts at 200,000 - an idea that Merkel opposes. In 2015, Germany saw 890,000 asylum-seekers arrive and 280,000 arrivals in 2016.
Merkel said leaders of her party agreed "that we can live with such a disagreement."

(dpa, AFP, AP, Reuters)



China will 'take off the gloves' if Trump continues on Taiwan


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China has shown restraint in the face of provocations by U.S. President-elect Donald Trump over Taiwan, but if he continues after assuming office Beijing will "take off the gloves", an official Chinese state-run newspaper said on Monday.

Trump broke with decades of precedent last month by taking a congratulatory telephone call from Taiwan President Tsai Ing-wen and has since cast doubt on America's commitment to a "One China" policy that recognizes the island as a part of China.

In an interview with the Wall Street Journal published late on Friday, Trump said the "One China" policy was up for negotiation. China's foreign ministry said "One China" was the foundation of China-U.S. ties and was non-negotiable.

"If Trump is determined to use this gambit in taking office, a period of fierce, damaging interactions will be unavoidable, as Beijing will have no choice but to take off the gloves," the English-language China Daily said.

The United States, which switched diplomatic recognition from Taipei to Beijing in 1979, has acknowledged the Chinese position that there is only "one China" and that Taiwan is part of it.

The China Daily said Beijing's relatively measured response to Trump's comments in the Wall Street Journal "can only come from a genuine, sincere wish that the less-than-desirable, yet by-and-large manageable, big picture of China-U.S. relations will not be derailed before Trump even enters office".

But China should not count on the assumption that Trump's Taiwan moves are "a pre-inauguration bluff, and instead be prepared for him to continue backing his bet".

"It may be costly. But it will prove a worthy price to pay to make the next U.S. president aware of the special sensitivity, and serious consequences of his Taiwan game," said the national daily.

Trump will be sworn in on Jan. 20.

(Reporting by John Ruwitch; Editing by Michael Perry)

Trump: Brexit is going to end up being a great thing

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Trump promised he would offer the United Kingdom a trade deal within weeks of taking office to help make Brexit a "great thing,” in a joint interview published on Sunday with German tabloid newspaper "Bild" and British newspaper "The Times of London."

"We're going to work very hard to get it done quickly and done properly. Good for both sides,” Trump said.
"I will be meeting with [British Prime Minister Theresa May]. She's requesting a meeting and we'll have a meeting right after I get into the White House and it'll be, I think we're going to get something done very quickly.”
May said on Saturday she would lead the country towards a "hard Brexit."
Others will leave
Trump warned that other countries in the 28-member EU would follow suit after Brexit because of immigration.
"I think it's very tough,” he said. "People, countries want their own identity and the UK wanted its own identity.”
"If refugees keep pouring into different parts of Europe ... I think it's going to be very hard to keep it together because people are angry about it."
He said the mass arrivals in 2015 were "the last drop that made the barrel overflow" in convincing British voters to back leaving the bloc in a June 24 referendum.
"If they hadn't been forced to take in all of the refugees, so many, with all the problems that it... entails, I think that you wouldn't have a Brexit. This was the final straw that broke the camel's back."
He further said the European Union had become "a vehicle for Germany”.

Trump slams Angela Merkel's refugee policy

Trump heavily criticized Chancellor Merkel's open-door policy on refugees.

"I think she made one very catastrophic mistake and that was taking all of these illegals, you know, taking all of the people from wherever they come from,” he said.
"And nobody even knows where they come from. So I think she made a catastrophic mistake, very bad mistake.”
In 2015 about 900,000 migrants, many coming from Syria, entered Germany after Merkel opened the country's doors, famously saying "we can do this."
The bilionaire businessman said Germany had "got a clear impression" of the consequences of her policy from a Berlin terror attack that killed 12 people in December.
Trump insisted he had "great ­respect” for Merkel and would start his presidency trusting the "fantastic leader," but that his trust might not last long.

Germany and EU economy ended the year with its strongest growth


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By Francesco Guarascio | BRUSSELS
Industries across the euro zone cranked up output in November and Germany ended the year with its strongest growth in five years, data showed on Thursday, pointing to an economic spurt that may be arriving earlier than some ECB policymakers expect.

Euro zone industrial output in the 19-country currency bloc surged 1.5 percent on the month and 3.2 percent year-on-year as firms stepped up production before Christmas. Both figures were far better than expected.

That gelled with a surprisingly large increase in Italian industrial production, also reported on Thursday, and similarly robust numbers earlier this month from France.

The German statistics office, meanwhile, estimated growth in the euro zone largest economy was around 0.5 percent for the fourth quarter and expanded by 1.9 percent in 2016, the strongest rate in five years.

Economists said these figures added to the evidence that euro zone gross domestic product will have picked up in the last quarter of last year.

The numbers are also relatively unexpected. Indeed, investment bank Citi ranked the euro zone at the top of its Economic Surprise Index at year-end, higher even than the rating for Britain's unforseen post-Brexit performance.

The strong rise of industrial output "reinforces our belief that euro zone GDP growth could well have reached 0.5 percent quarter-on-quarter in the fourth quarter of 2016," said Howard Archer, economist at IHS Global Insight.

Euro zone GDP grew a modest 0.3 percent in second and third quarter of last year, after a 0.5 percent rise in the first quarter.

Thursday's figures add to a jump in the bloc's economic sentiment which in December reached its strongest level since March 2011.

Euro zone consumer confidence also hit a 20-month high in December and has been rising for four consecutive months, European Commission's estimates showed.

Monthly retail sales in the bloc did fall by 0.4 percent in November but only after a rise by 1.4 percent in October, by far the largest in years.

CAUTION

The surprising burst in economic activity may fire up criticism from economists and politicians in countries such as Germany that the European Central Bank is hanging on too long to its ultra-easy monetary policy, including asset purchasing.

The ECB, however, remains cautious about the outlook and will need sustained evidence before it moves.

Indeed, the improved outlook for the last quarter of the year may however not carry over to 2017 in part because it brings with it an increase in prices.

"We expect rising inflation to weigh on consumer spending growth, causing overall GDP growth to slow in 2017," Jack Allen of Capital Economics said.

Euro zone consumer inflation in December was 1.1 percent, the highest level since September 2013, as oil prices are going up. It remains under the roughly 2 percent target sought by the ECB, however.

A Reuters poll of over 65 economists released on Thursday showed little change in forecasts for euro zone growth and inflation with respondents citing uncertainty from rising protectionist sentiments after the Brexit vote last June and Donald Trump's U.S. election win.

In addition, the November euro zone industrial output data confirmed caution is still prevailing among firms, as political uncertainty over the coming months restrains investment.

The monthly output rose strongly for non-durable consumer goods, such as clothing or foodstuff, a sign that companies were betting on more consumption ahead of the Christmas shopping.

Production grew markedly on the month also for intermediate goods and energy, but it rose only slightly for capital goods, like machineries, a sign of only limited appetite for long-term investment.

Output of durable goods, such as cars or refrigerators, was the only component of the indicator to record a drop, by 0.1 percent on the month, confirming firms' cautious approach as consumers were less keen to purchase more expensive items.

(Additional reporting by Philip Blenkinsop Editing by Jeremy Gaunt)

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