Once again politics matters
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It is 2017. Politics matters.
A slow trend that began with Vladimir Putin’s return to the presidency of Russia in 2012, Xi Jinping’s elevation as general secretary of the Communist Party of China that same year, Narendra Modi’s election as prime minister and Recep Tayyip Erdoğan’s re-election as president of Turkey in 2014 built into a crescendo of strong, nationalist leaders taking the political stage in the UK after Brexit and in the US with the election of Donald Trump in late 2016.
France will likely choose its president this May, with Marine Le Pen of the National Front party considered a strong candidate to unseat her centrist rivals. Later in the year, most probably in September, Federal elections will be held in Germany and many expect the Alternative for Germany (AfD) party, a right-wing nationalist party led by chairperson Frauke Petry, to post a strong showing, possibly even dethroning Chancellor Angela Merkel.
Closer home, while no central elections are due, elections in continent-sized Uttar Pradesh now scheduled for February will determine the trajectory of political power in India for some years to come. Prime Minister Narendra Modi’s New Year’s Eve speech to the nation was demagogy at its best—with his self-assigned role alternating between victim, messiah, friend, (big) brother, risk-taker and problem-solver.
If 2016 was about attempting to understand why this massive political trend had taken hold—in China, Russia, India, Turkey, the UK, US, Philippines, Poland and Hungary among other places—2017 will be about understanding what the impact will be on individual countries and on cross-country phenomena like trade, globalization and migration.
The nature and type of anti-establishment nationalism is in some ways unique to each country. In the UK and in Europe, the issues are about immigration and the rigidity of the European Union, in the US, there are shades of racial issues intertwined with immigration, in Turkey, India and China, corruption, regional conflict and religion dominate the rhetoric. And yet there are some discernible cross-country patterns.
One clear idea appears to be that fiscal policy will take over from monetary policy as the primary weapon to fight slow growth in developed economies. In the US, the first 100 days of Trump’s presidency will reveal what form fiscal policy will take—whether it will be an infrastructure-led programme (Keynesian) or whether it will be about tax cuts for the rich combined with spending cuts for universal programmes (classical Republican) is still unclear.
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A newly sworn-in US senate last week introduced a Bill to repeal Obamacare within hours of its first sitting. At the conservative party conference in October, Prime Minister Theresa May of the UK spoke of the “bad side effects” of low rates and quantitative easing and suggested a substitution with fiscal stimulus.
For emerging markets, the implication is that the era of easy money that fuelled foreign investment is likely to get a whole lot less rosy. The consequent decline in capital flow will likely have an impact on all emerging currencies, particularly of those countries that run large current account deficits.
A second implication is that trade and tax friction between countries is likely to increase. The most watched trade friction will be between China and the US. One scenario is for a series of tit-for-tat measures on specific companies and sectors escalating into a minor trade war.
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Already, Taobao, the Alibaba-owned Chinese consumer-to-consumer platform, has been included on the “notorious marketplace” blacklist of the US Trade Representative (USTR).
Trump’s pick of Robert Lighthizer, a former trade official under the presidency of Ronald Reagan and noted free trade sceptic, as the USTR implies trade spats are likely. India will suffer collateral damage from these disputes—some of it unpredictable.
There are likely to be many changes on visa and immigration rules. Just last month, Hong Kong announced that it has scrapped visa on arrival for Indian citizens.
In the US, Trump plans to undo all executive orders issued by President Barack Obama on immigration and has already requested information on resources to build a border wall with Mexico. The H-1B category visa used by most technology companies is likely to come under heavy scrutiny that will likely result in much stricter standards to be applied for displacing equivalently qualified US citizens. Stiff penalties for violating H-1B regulations are likely to be enforced.
It would not be a surprise if the F-1 optional practical training (OPT) visa, widely used by Indian students, were to be significantly tightened, though it may not be a priority in initial years.
On each of these fronts, Indian interests are affected significantly. India has elected to remain open to the world on trade and migration but many countries in the world may not reciprocate in this environment. This will complicate India’s development path and will require greater reliance on internal wealth transfer for inclusive development. Depending on how permanent the global shift is, India’s strategy of betting on foreign capital, trade and diaspora remittances may have to be overhauled.
P.S.: “Nationalism is an infantile disease. It is the measles of mankind,” said Albert Einstein.
Narayan Ramachandran is chairman, InKlude Labs. Read Narayan’s previous Mint columns at www.livemint.com/avisiblehand