Mao Zedong must be chuckling in his grave to see one of his successors as Chinese leader espousing the cause of global free trade and capitalism while the new president of the US argues for protectionism, insularity, and what appears to be state direction to create jobs.
The changing nature of the world can be summarised by comparing key sections of Donald Trump’s inauguration speech with phrases from Chinese president Xi Jinping’s speech at the World Economic Forum in Davos.
Xi Jingping declared: “Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries, and people between economies, and channel the waters in the ocean back into isolated lakes and creeks, is simply not possible. Indeed, it runs counter to the historical trend.”
Donald Trump’s view is the exact opposite: “We will follow two simple rules – buy American and hire American.”
To that end, Trump pulled the US out of negotiations for the proposed Trans-Pacific Partnership (TPP) on his first working day in office. That may well be the start of the burning of many trade agreements.
Renegotiating the North American Free Trade Agreement has already been declared a priority with Trump scheduled to begin talks soon with Canadian prime minister Justin Trudeau and Mexican president Enrique Pena Nieto.
That philosophy makes the UK’s ability to craft an attractive post-Brexit trade agreement with the US a struggle at best and wishful thinking at worst - as the UK may discover despite the promises made by Trump during UK prime minister Theresa May’s visit last week.
There has been much criticism of China’s trade policies and concern that China is not playing fair by “dumping” products such as steel on the world’s markets. Whether countries such as the US are better off by accessing cheap steel from China to rebuild its infrastructure, or producing more expensive steel locally is clearly debateable.
What is more striking is the stark contrast in attitudes to the idea of global trade.
Xi Jinping declared: “We must remain committed to developing global free trade and investment, promote trade and investment liberalisation and facilitation through opening up, and say no to protectionism. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air. No one will emerge as a winner in a trade war.”
For the leader of a supposedly communist party, accepting global trade in goods with prices set by markets would have been inconceivable 40 years ago.
Yet what Donald Trump had to say would have been inconceivable just a year ago – no other candidate had such extreme ideas: “From this day forward, it’s going to be only America first, America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.”
Trump ended his speech by declaring: “Protection will lead to great prosperity and strength.”
Yet such ideas run counter to both mainstream academic theory and the historical experience of the 1930s’ Great Depression.
Where this will all end, no one knows. But as the apocryphal Chinese curse goes: “May you live in interesting times.”