Wednesday, June 12, 2024

Rethinking The New Global Mercantilism


Since last year, scores of notable economic analysts seriously argued that if President Donald Trump has his way, the liberal market economy of the post-II World War period is ending. On the other hand, the Trump camp proudly and unapologetically embraces mercantilism.
Recently, Henry Kissinger made an interview with the Financial Times. In his interview, the grand master of global diplomacy made this breathtaking confession. Henry Kissinger said “Trump may be one of those figures in history who appears from time to time to mark the end of an era and to force it to give up its old pretences. It doesn’t necessarily mean that he knows this, or that he is considering any great alternative. It could just be an accident”.
Could it be that, via his trade mark tweets, President Trump is laying out a new paradigm for the world economy? This is supported by the fact that President Trump finds ever more supporters in the world for his illiberal views. At a minimum, the liberal world order, as we knew it and came to rely on it in economics and business, is not only punctured in the United States.
Martin Hufner, the former chief economist of Germany’s HVB Group argued that it is high time to rethink the global model. He noted that if President Trump has his way, the liberal market economy and globalization are giving way to the brave new world of unvarnished mercantilism.
As an economic analyst, Martin Hufner sketch out what this world seems to look like. According to him, the emerging mercantilist world order can be revealed in seven brief principles. First, not open, but closed borders: Tariffs and protectionism are deemed to create jobs. These walls are instituted to limit competition on the job market.
Second, interventionism rather than free markets. If the economy does not develop in the way President Trump wants it, he does not hesitate to threaten individual companies with the lobe “state intervention.” Rule of law is different.
Third, forget striving for any consistency in economic policymaking. What matters now is creating deliberate surprise and uncertainty in the markets through unexpected measures and using it to one’s national advantage.
Fourth, reign in the independence of the central bank. Better yet, subordinate monetary policy under the executive power of the president. The United States Federal Reserve is still independent, but President Trump has already made it clear that he does not like any Fed policy of raising interest rates.
Fifth, use of interest rates unabashedly to promote business and to create jobs. The goal of price stability is virtually absent in President Trump’s vocabulary. Sixth, forget balanced budgets. The federal public deficit in the United States so far this year is $70 billion higher than in the same period last year. Seventh, instead of aiming for redistribution as a form of economic and social justice, make no apologies for favoring the rich in society. Witness the last United States tax reform.
Of course, not all of these Trumpian goals are shared by all neo-mercantilists. Robert Hicks of Michigan University said that it is very far from a consistent system. But it will undoubtedly shape investment prospects on global capital markets. Key elements of the new equation are: Economic growth is being inflated via tax cuts on short notice.
Robert Hicks noted that in the long run, however, growth under the aegis of global mercantilism will be lower. Capital is not used so efficiently, market uncertainty is greater and world trade is less dynamic. Productivity is not growing so fast anymore. In addition to the demographic brakes on growth, economic policy is added as a slowing factor.
At the same time, inflation tends to be higher because nobody cares. However, governments may intervene in prices for specific goods, which are particularly important for people. In the long term, price controls in individual sectors are conceivable.
According to Martin Hufner, the interest rates of banks and on the capital market will be lower in the long term. This should stimulate the economy, not least the construction sector. Corporate profits will be higher than under previous conditions. That helps the stock markets. At the same time, exchange rate fluctuations will tend to be greater.

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