New year heralds change
COMMENT: The world order of things has changed, populism has thrown politics and economics into a new mixing bowl, not necessarily for the good, writes Ben Hackett.
Trump is here and we should not ignore what Trumpism will bring to the world. The threat of tariff walls, something that has been battled since the end of WWII, has reared its ugly head. Trump continues to enunciate his threats of US tariffs against imports of goods that could be produced in the US, never mind the price.
The first industry to feel the pressure is the motor car industry. Threats of tariff barriers on imports from Mexico to the US are showing results. The Mexican currency is in a tail-spin and employment will be down, perhaps leading to more immigrants wishing to enter the US.
Threats against Chinese imports will be next in line and one can imagine that Europe will be on the list thereafter. But, the raising of tariff barriers is a two-edged sword. Ultimately it will ensure that the price to the consumer will rise and inflation will return, two things that are not good for the economy.
If the US leads the way to the tariff wars, the rest of the world will follow. We can expect to see retaliatory tariffs put in place and the net result of all of that will be a slowdown in trade. Where does this put consumption of goods in general? Again, if we are to believe Trump then his call for a massive infrastructure investment, touted to be up to $1bn, then the multiplier effect on the economy will be significant. Consumption will increase, but it will be for goods that are produced at prices higher than previously, due to the protectionism. High prices have a nasty tendency to reduce consumption of non-essential goods.
The 2017 change will see an increase in trade due to the initial surge of confidence and euphoria of populism. Thereafter we may well see a decline in economic growth and the world will potentially slide into a major recession and possibly even more protectionist measures. So, 2018 and 2019 may not be such good years; someone seems to have forgotten that the US is a major exporter of goods and services, it is not immune to trade wars.
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