On Trade Trump may be right and it may also good for Africa

On Trade Trump may be right and it may also good for Africa

Since coming to office President Trump has done on international trade what few thought was possible. He first tore up the Trans-Pacific trade agreement on coming into the White House a move which Hilary Clinton had supported. He has torn up NAFTA and has picked a major trade war with the Chinese which is likely to continue because the disagreement runs to very heart of the Chinese development model.

At present China has some US$3 trillion in foreign exchange reserves from past trade surpluses with the US and the rest of the world. With that fat padding China has been able to invest heavily in the development of its own industry and you help local firms subsidize exports. It is these subsidies that Trump wants to see abandoned by China as part of a new bilateral deal. As long as China continues to subsidize industry in the way they have then the Chinese will grow to completely dominate global manufacturing industry. Much of the subsidies come from massive injection by the Chinese state in the wake of the  2009 Great Recession. The Chinese communists, ever fearful of mass unemployment and revolution, poured 4 trillion Yuan ( $600 billion in 2009) into supporting their firms after the onset of the Great Recession post 2009. Many of the loans that were given out to Chinese companies then were written off by the government. It was these and earlier subsidies that have been the main support for Chinese heavy industry. At first the subsidies were poured into various heavy industrial goods such as steel, aluminum copper and nickel. But China has used more pointed subsidies to develop solar power as well as electric cars.

Beijing knows well that it is precisely these targeted subsidies that have been at the very heart of China’s return to the world stage as what will soon make it the world’s largest economy. On a commodity by commodity basis China is already number one in virtually every heavy industrial sector. If Trump could actually succeed in reigning in Chinese subsidies then this would inadvertently help what Trump calls ‘Nambia’ and other ‘s..thole’ countries in Africa establish industry. Africa’s role in the new modern 21^st century Chinese order is to be the ‘diggers of holes’ for Chinese industry ( as opposed to hewers of wood and drawers of water) and we will never be able to beneficiate and progress beyond digging holes so long as China subsidizse the processing of  minerals in the middle of its value chain.

Last week Donald Trump did something that most thought impossible- he surprised the world. He had just agreed to  a revised Nafta trade agreement with Canada and Mexico now called the USMCA ( impolitely dubbed ‘you shmucks’ in the New York vernacular) which was supposed to end the on- going trade war that had erupted at Trump’s instigation  between the USA and  two of its biggest trading partners and neighbors- Mexico and Canada.

Then, after having agreed to a trade deal with Mexico just a few months previously in a tweet last week Trump announced that he would impose a 5% tariff on all imports from Mexico and he would increase it to 25% by October if Mexico did not stop the illegal immigration across the US southern border. Trump would fulfil an election promise that he would get the Mexicans to pay for the wall that he has long wanted to build but the US Congress had blocked funding. The Mexicans will no doubt retaliate with higher tariffs on US goods but in the end their choice is simple- either they help block illegal immigration from their side of the border or face a destruction of their most important trade relationship and one which creates millions of Mexican industrial jobs.  This, seen from the perspective of Trump’s power base which is among America’s white blue collar workers, is a brilliant commercial stroke.

 If you look at illegal immigration not from the perspective of an American elite who want cheap Mexican maids and gardeners but from the perspective of the white American worker it was automation, international trade and lastly migration that has eliminating a large swathe of American industrial jobs post 2000 and kept workers’ wages at such low levels for the past 30 years. American workers will almost certainly applaud Trump’s move but the danger is simple enough. It is now clear that to the world that Trump is so utterly erratic in his decision making that you have to be a real ‘shmuck’, after Mexico, the Iran nuclear deal and the Paris accords on climate change to believe that when America signs an agreement that it means anything as long as Trump is in the White House. That however is a problem for the Washington elite and the world but not for Trump’s working class power base.

Trump may be able to brow-beat the Mexicans into slowing illegal migration but unfortunately for Africa he is unlikely to succeed with China because the subsidies have worked for China and they will not change their economic model until it is in their economic interest to do so. China, after a 150 years of European and Japanese imperialism and 30 years of idiotic Maoist economic policy will soon return to its proper place as the world’s biggest economy and nothing short of World War III will stop them.

Whatever one thinks of Trump as the so-called ‘leader of the free world’ or even as what passes for a human being, his economic policy, viewed from the perspective of his own base has been a remarkable success. His tax cuts which mainly benefited the US rich has created a boom in the US economy. Unemployment has fallen to record low levels of 3.6% unseen since the 1960’s. This is a rate we can only dream of in ‘Nambia’ and the rest of ‘s..thole Africa’. Because of this labour is now scarce and median wages have actually started to rise again in the US over the last few years since came to office. Looked at from the perspective of the American worker Trump has done what he promised and what no previous president over the last thirty years has which is to lift the position of  working people. It will be really hard work for the opposition Democrats to put up someone to stop Trump being re-elected next year under America’s gerrymandered and undemocratic electoral system where Republicans can win with a  minority of the electorate as did Trump in 2016 and Bush junior before him.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.