Joseph Mariathasan questions the chances of bringing back high-quality jobs by focusing on manufacturing

The world anxiously awaits what a Donald Trump presidency in the US will actually bring beyond the populist, garbled and inconsistent rhetoric that has been the experience so far. His Cabinet appointees are a mega-wealthy collection of businessmen, including many Goldman Sachs alumni, which belies his campaign slogan of “draining the swamp”, referring to the Washington establishment.

Fortunately, America’s greatest strengths may lie in the maturity and independence of the many competing sources of power to the White House. They will provide a brake on the exercise of presidential power, as Trump will find when it comes to actually exercising it – and as outgoing president Barack Obama also found to his cost, when it came to enacting legislation.

The US still attracts the best in the world to come to study, work, set up businesses and become its citizens. Europe can only look in envy as European countries put up increasingly tough barriers to entry in an environment of economic malaise. Yet there are similar, deeply rooted problems for both Europe and the US that can be looked on in many different ways – an excess of debt, a loss of productivity, etc.

Perhaps the simplest way is to recognise that countries are unable to generate enough wealth for the population at large to enjoy the lifestyles and public benefits they have come to expect. Deficit financing means paying for current consumption by issuing debt. QE allowed that debt to be issued at low cost. But it has not resolved the problem that economies in developed markets are not producing enough decently paying jobs for populations to enjoy what they perceive are the levels of comfort they are entitled to, and certainly what previous generations have been enjoying.

Emerging markets, by contrast, are in a phase where their economies are generally growing fast, existing populations have few if any social security benefits, and many are close to or below the poverty line. The future looks brighter for new generations that can still expect to do better than their parents and grandparents. Wage levels are sufficiently low as to be attractive to outsource manufacturing from developed markets. But even if Trump does put up tariff barriers to bring back manufacturing, countries such as China and India have sufficiently large domestic economies and numbers of consumers that they are perfectly capable of developing their already extensive manufacturing capabilities to supply the growing domestic consumer base.

The problem for the developed nations is that being innovative has not been enough to create jobs for the population at large that pay decent wages. Apple may be the most valuable company in the world, but now it employs barely 80,000 direct jobs in the US compared with General Motors which at its height in 1979 employed more than 600,000 in the US. Service industries, rather than manufacturing, are seen as the post-industrial future for developed economies.

The problem has been that the employment created has been concentrated at the McDonald’s end of labour rates. Rising inequality has been the characteristic of the US at a time of rising employment. QE has made the owners of capital more wealthy without having any noticeable impact on the creation of decently paying jobs to replace those lost through outsourcing manufacturing. Trump has come in promising that will change, and that is the hope that has driven so many to vote for him. But, unfortunately, for the US and the world at large, it is unclear whether he can change that without tipping the world into trade wars and possibly recession by imposing tariffs.

QE caused massive outflows from emerging markets to developed ones, pushing up developed-market stock markets. The US has now seen a Trump-induced rally of its stock markets that has led to all-time highs. But if creating higher-quality jobs requires a greater focus on manufacturing – and if that can only be achieved through protectionist measures – then there is not an easy solution. Perhaps it is time to reconsider the merits of emerging markets.

Joseph Mariathasan is a contributing editor at IPE