Previous US presidents created Donald Trump

The recent American presidential election outcome is the manifestation of the behaviour of the leadership that preceded the current presidency


Had previous US presidents invoked Section 421 after China’s WTO accession, some of the manufacturing communities in the US would not have been badly damaged. Photo: AP
Had previous US presidents invoked Section 421 after China’s WTO accession, some of the manufacturing communities in the US would not have been badly damaged. Photo: AP

It has been only over 30 days since the 45th president of the US took office. But it feels like 30 years already, going by the amount of non-stop scrutiny he has been subjected to. There has been a neurotic or pathological obsession with his actions to the near-total exclusion of everything else, including common sense and proportion.

Recently, a journalist wrote that the new administration’s “America First” policy involved a civilizational clash with Islam and war with China. We do not wish to comment on the first since the focus of this column is on the second part of his statement. On the first part, we shall simply refer him to Bill Maher, who does not have much love lost for America’s new President. In a recent conversation with Sam Harris, he said and I quote: “We are never going to defeat terrorism until we reform Islam. And we’ll never reform Islam if we can’t talk about it.”

A good friend brought my attention to a research piece by Italo Colantone and Piero Stanig published by VoxEU.org on 20 February. Their conclusion, based on trade and election data, is that, in Europe, the radical right got its biggest boost in regions most exposed to Chinese exports. Importantly, within these regions, communities voted homogenously whether the individuals worked in affected industries or not. The same authors had done work on Brexit earlier and had reached a similar conclusion.

This very closely follows the work of Peter K. Schott and Justin R. Pierce with respect to US manufacturing employment. In their oft-cited paper, The Surprisingly Swift Decline In American Manufacturing Employment, they showed that the conferment of Permanent Normal Trade Relations (PNTR) status on China by the US, coinciding with China’s accession to the World Trade Organization (WTO) in 2001, hurt employment in US manufacturing. The impact was not evident in Europe, which had conferred PNTR on China in the 1980s itself.

Brad Setser, who had tracked China’s foreign exchange manipulations and the consequent foreign exchange reserve accumulation in the period between 2003 and 2007, had recently written a detailed note on China’s accession to the WTO, 15 years later. China’s foreign exchange intervention in the years before the crisis of 2008 was rampant. It amounted to 15% of the gross domestic product (GDP) in 2007. The market for foreign exchange was not allowed to work for a long time. It is true even now except that the intervention now is to prevent the currency from collapsing. In terms of trade, the 3-to-1 advantage in manufactured goods even now shows that nothing much has changed. Xi Jinping’s embrace of globalization in Davos was hence similar in spirit to the way China embraced its free trade commitments with its WTO membership in 2001.

On trade, China benefited immensely from its WTO accession. However, while an export surplus for China in light manufacturing goods was expected, America had expected to achieve some surplus in capital goods. But even that was not to be. Setser’s broad point is that China is far less open to imports than it commits to, on paper. He notes that, currently, “China supplies roughly three times as many manufactures to the world as it buys for its own use (net of processing imports, manufactured exports around 12.5% of China’s GDP; net of processing imports, manufactured imports are around 4.5% of China’s GDP, for a manufacturing surplus of around 8% of China’s GDP).”

Constantine Menges had echoed Setser years ago. In his book, China: The Gathering Threat, he had noted that China had conceded far less than what it had received in return for normal relations with the US. Incidentally, WTO membership requires the full consent of all member states. India was a founding member of the WTO and it meekly waved China in without demanding any quid pro quo. Learning to use unreason is part of exercising geopolitical heft. China is a master in that. India is (still) an apprentice.

Setser notes that China’s accession had protection clauses for other members such as non-market economy status for China and special safeguards provisions (Section 421). The safeguards provision “lowered the standard required for imposing temporary tariffs against a surge in imports from China for twelve years after China’s WTO accession.” Yet, he reports that it was not invoked either by George W. Bush or by Barack Obama despite surges in imports between 2002 and 2007 and between 2010 and 2014 that had a material impact on many manufacturing-dependent communities.

This is important. Had they invoked Section 421, some of the manufacturing communities in the US would not have been badly damaged; the anger over the loss of control over one’s lives would have been contained and, who knows, the American election might have gone differently. Talk of the law of unintended consequences!

In other words, the recent American presidential election outcome is the manifestation of the behaviour of the leadership that preceded the current presidency. They did not act and their cheerleaders did not call them out. Now, they are losing sleep and sanity over an outcome that they helped create. Not only that, they are tearing the fabric of the republic apart because someone is belatedly taking action. Neither China nor the world’s terrorists would have counted on such support. But, don’t expect them to be grateful for it.

V. Anantha Nageswaran is the co-author of Economics Of Derivatives and Can India Grow?

Comments are welcome at baretalk@livemint.com. Read Anantha’s previous Mint columns at www.livemint.com/baretalk

More From Livemint