Is the U.S. Leading or Retreating?

By Rayna Penelova

President Trump took another step toward his “America First” policy on Thursday as he pulled out of the Paris Climate Accord, saying “I was elected to represent the people of Pittsburgh, not Paris”. While climate change is certainly a partisan issue, President Trump is paving his own road when it comes to trade and foreign policy by embarking on a directional shift that is neither traditional Republican nor Democrat. Republicans have generally been pro-trade and free markets, but President Trump appears to be pivoting from this position.  What is unclear is whether the U.S. is leading a nationalist push away from globalization, that will be followed by many countries. Or is the U.S. retreating from the position of international leader?

Let’s first consider the case of the U.S. leading by becoming the first of many countries to focus internally without first contemplating the global effects. Well, if we are leading, it suggests that others will follow. Then it is reasonable to believe that the world would become much more fractured and trade as well as tourism will diminish sharply. Without any involvement by the developed world, the emerging economies will take longer to grow, which in comparison will mean more poverty and less consumer power. This in turn, is bad for our ever-growing global corporations, which rely on these newly enabled consumers.

As trade slows, consumers in the U.S. should expect to see higher prices and less choice.  In addition, if many countries turn nationalistic and decide to limit travel and impose more stringent visa rules, this would certainly diminish global tourism. The human rights aspect should also be considered as it also has an economic effect. If more human rights abuses and issues go unchecked by the international community, we should expect more civil wars and refugee crises going forward. Such crises are not only bad for the emerging world but are costly for the social and economic development of the western world. There are numerous examples of this in Europe today. So arguably defending America’s by focusing internally may benefit us in the short run, but could hinder America’s long-term interests.

So, what if the U.S. is retreating?  What are the effects this would have on our economy long term? A retreating U.S. would mean turning away from our global leadership role in economics and human rights, unless those issues directly affect U.S. security.   By not meddling in foreign affairs, we would certainly save funds that could be re-directed toward projects within our borders.  However, by doing so, we lose our role as international leader, which will no doubt be filled by another country.  In this case, it is very likely that China will fill that void.

China is already working hard in this direction by pushing for more renminbi-settled trade and adding their currency to the IMF basket of reserve currencies.  In addition, China is launching their One Road One Belt initiative, which could become the world’s largest trade, manufacturing, and infrastructure collaboration deal.  It is comparable to the Marshall Plan the U.S. embarked on after World War II. Of course, this is a massive undertaking by the Chinese with many unknows and challenges. However, if the U.S. is retreating, the Chinese push is coming at the perfect time (at least from a Chinese perspective). As the U.S. becomes internally focused while globalization continues, the U.S. will almost certainly lose competitive and comparative advantages.

Whether we are leading the world in an anti-globalization movement or retreating from globalism as the world continues to globalize, the long-term outlook from the current trend in policy is concerning.   Of course, the President could decide to take a more balanced approach where he renegotiates numerous individual trade deals and aims to keep the U.S. as an international leader.  However, if recent comments from Europe and Asia are any indication, this will likely be a challenging task.

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