Populist Plutocracy and the Future of America


December 13, 2017

Populist Plutocracy and the Future of America

By Nouriel Roubini
http://www.project-syndicate.org

In the first year of his presidency, Donald Trump has consistently sold out the blue-collar, socially conservative whites who brought him to power, while pursuing policies to enrich his fellow plutocrats. Sooner or later, Trump’s core supporters will wake up to this fact, so it is worth asking how far he might go to keep them on his side.

Image result for Populist Plutocracy and the Future of America

 

NEW YORK – Donald Trump won the US presidency with the backing of working-class and socially conservative white voters on a populist platform of economic nationalism. Trump rejected the Republican Party’s traditional pro-business, pro-trade agenda, and, like Bernie Sanders on the left, appealed to Americans who have been harmed by disruptive technologies and “globalist” policies promoting free trade and migration.

But while Trump ran as a populist, he has governed as a plutocrat, most recently by endorsing the discredited supply-side theory of taxation that most Republicans still cling to. Trump also ran as someone who would “drain the swamp” in Washington, DC, and on Wall Street. Yet he has stacked his administration with billionaires (not just millionaires) and Goldman Sachs alumni, while letting the swamp of business lobbyists rise higher than ever.

Trump and the Republicans’ plan to repeal the 2010 Affordable Care Act (Obamacare) would have left 24 million Americans – mostly poor or middle class, many of whom voted for him – without health care. His deregulatory policies are blatantly biased against workers and unions. And the Republican tax-reform plan that he has endorsed would overwhelmingly favor multinational corporations and the top 1% of households, many of which stand to benefit especially from the repeal of the estate tax.

Trump has also abandoned his base in the area of trade, where he has offered rhetoric but not concrete action. Yes, he scrapped the Trans-Pacific Partnership (TPP), but Hillary Clinton would have done the same. He has mused about abandoning the North American Free Trade Act (NAFTA), but that may be just a negotiating tactic. He has threatened to impose a 50% tariff on goods from China, Mexico, and other US trade partners, but no such measures have materialized. And proposals for a border adjustment tax have been all but forgotten.

Trump’s bullying tweets against US firms that move production offshore or undertake tax inversions have been no more than cheap talk, and business leaders know it. Manufacturers who fooled Trump into thinking they would keep production in the US have continued to transfer operations quietly to Mexico, China, and elsewhere. Moreover, international provisions in the pending tax legislation will give US multinationals an even greater incentive to invest, hire, and produce abroad, while using transfer pricing and other schemes to salt away profits in low-tax jurisdictions.

Likewise, despite Trump’s aggressive rhetoric on immigration, his policies have been relatively moderate, perhaps because many of the businesspeople who supported his campaign actually favor a milder approach. The “Muslim ban” doesn’t affect the supply of labor in the US. Although deportations have accelerated under Trump, it’s worth remembering that millions of undocumented immigrants were deported under Barack Obama, too. The border wall that Trump was going to force Mexico to pay for remains an unfunded dream. And even the administration’s plan to favor skilled over unskilled workers will not necessarily reduce the number of legal migrants in the country.

 

Image result for Populist Plutocracy and the Future of America

https://www.salon.com/2016/12/26/what-populist-revolution-so-far-donald-trump-is-supercharging-the-failed-republican-policies-of-the-past/

All told, Trump has governed like a plutocrat in populist clothes – that is, a pluto-populist. But why has his base let him get away with pursuing policies that mostly hurt them? According to one view, he is betting that social conservatives and white blue-collar supporters in rural areas will vote on the basis of nationalist and religious sentiment and antipathy toward secular coastal elites, rather than for their own financial interests.

But how long can anyone be expected to support “God and guns” at the expense of “bread and butter”? The pluto-populists who presided over the Roman Empire knew that keeping the populist mob at bay required substance as well as diversion: panem et circenses – “bread and circuses.” Raging tweets are meaningless to people who can scarcely afford a dignified living, let alone tickets to the modern-day Colosseum to watch football.

The tax legislation that Republicans have rushed through Congress could prove especially dangerous, given that millions of middle-class and low-income households will not only get little out of it, but will actually pay more when income-tax cuts are phased out over time. Moreover, the Republican plan would repeal the Obamacare individual mandate. According to the nonpartisan Congressional Budget Office, this will cause 13 million people to lose health insurance, and insurance premiums to rise by 10%, over the next decade. Not surprisingly, a recent Quinnipiac poll found that a mere 29% of Americans support the Republican plan.

Nevertheless, Trump and the Republicans seem willing to risk it. After all, by pushing the middle-class tax hikes to a later date, they have designed their plan to get them through the 2018 midterm elections and the 2020 general election. Between now and the midterms, they can brag about cutting taxes on most households. And they can expect to see the economic-stimulus effects of tax cuts peak in 2019, just before the next presidential election – and long before the bill comes due.

Moreover, the final legislation will likely lower the federal deduction for mortgage interest and eliminate deductibility for state and local taxes. This will hit households in Democratic-leaning states such as New York, New Jersey, and California much harder than households in Republican-leaning states.

Another part of the Republican strategy (known as “starve the beast”) will be to use the higher deficits from tax cuts to argue for cuts in so-called entitlement spending, such as Medicare, Medicaid, food stamps, and Social Security. Again, this is a risky proposition, given that elderly, middle-class, and low-income Americans rely heavily on these programs. Yes, the working and non-working poor who receive welfare payments or food stamps include minorities who tend to vote for Democrats. But millions of the blue-collar, socially conservative whites who voted for Trump also rely on these and similar programs.

With the global economy expanding, Trump is probably hoping that tax cuts and deregulation will spur enough growth and create enough jobs that he will have something to brag about. A potential growth rate of 2% won’t necessarily do much to help his blue-collar base, but at least it could push the stock market up to its highest point ever. And, of course, Trump will still claim that the US economy can grow at a rate of 4%, even though all mainstream economists, including Republicans, agree that the potential growth rate will remain around 2%, regardless of his policies.

Whatever happens, Trump will continue to tweet maniacally, promote fake-news stories, and boast about the “biggest and best” economy ever. In doing so, he may even create a circus worthy of a Roman emperor. But if gassy rhetoric alone does not suffice, he may decide to go on the offensive, particularly in the international sphere. That could mean truly withdrawing from NAFTA, taking trade action against China and other trading partners, or doubling down on harsh immigration policies.

And if these measures do not satisfy his base, Trump will still have one last option, long used by Roman emperors and other assorted dictators during times of domestic difficulty. Namely, he can try to “wag the dog,” by fabricating an external threat or embarking on foreign military adventures to distract his supporters from what he and congressional Republicans have been doing.

For example, following the “madman” approach to foreign policy, Trump could start a war with North Korea or Iran. Or he could post further inflammatory tweets about the evils of Islam, thereby driving disturbed and marginalized individuals into the arms of the Islamic State (ISIS) or other extremist groups. That would increase the likelihood of ISIS-inspired attacks – for example, “lone wolves” blowing themselves up or driving trucks through crowded pedestrian areas – within the US. With dozens, if not hundreds, slain, Trump could then wrap himself in the flag and say, “I told you so.” And if things got bad enough, Trump and his generals could declare a state of emergency, suspend civil liberties, and transform America into a true pluto-populist authoritarian state.

You know it’s time to worry when the conservative Republican chairman of the Senate Committee on Foreign Relations, Bob Corker, warns openly that Trump could start World War III. And if you’re not convinced, consider the recent history of Russia or Turkey; or the history of the Roman Empire under Caligula or Nero. Pluto-populists have been turning democracies into autocracies with the same playbook for thousands of years. There’s no reason to think they would stop now. The reign of Emperor Trump could be just around the corner.

*Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

 

 

The Globalization of Our Discontent


December 8, 2017

The Globalization of Our Discontent

by
http://www.project-syndicate.org

Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US in recent years has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

Image result for globalization and its discontents stiglitz

NEW YORK – Fifteen years ago, I published Globalization and Its Discontents, a book that sought to explain why there was so much dissatisfaction with globalization within the developing countries. Quite simply, many believed that the system was “rigged” against them, and global trade agreements were singled out for being particularly unfair.what’s come apart in the past year, and anticipate what will define the year ahead.

Now discontent with globalization has fueled a wave of populism in the United States and other advanced economies, led by politicians who claim that the system is unfair to their countries. In the US, President Donald Trump insists that America’s trade negotiators were snookered by those from Mexico and China.

So how could something that was supposed to benefit all, in developed and developing countries alike, now be reviled almost everywhere? How can a trade agreement be unfair to all parties?

Image result for joseph stiglitz

Columbia University’s Dr. Joseph E. Stiglitz, Nobel Laureate in Economics

To those in developing countries, Trump’s claims – like Trump himself – are laughable. The US basically wrote the rules and created the institutions of globalization. In some of these institutions – for example, the International Monetary Fund – the US still has veto power, despite America’s diminished role in the global economy (a role which Trump seems determined to diminish still further).

To someone like me, who has watched trade negotiations closely for more than a quarter-century, it is clear that US trade negotiators got most of what they wanted. The problem was with what they wanted. Their agenda was set, behind closed doors, by corporations. It was an agenda written by and for large multinational companies, at the expense of workers and ordinary citizens everywhere.

Indeed, it often seems that workers, who have seen their wages fall and jobs disappear, are just collateral damage – innocent but unavoidable victims in the inexorable march of economic progress. But there is another interpretation of what has happened: one of the objectives of globalization was to weaken workers’ bargaining power. What corporations wanted was cheaper labor, however they could get it.

This interpretation helps explain some puzzling aspects of trade agreements. Why is it, for example, that advanced countries gave away one of their biggest advantages, the rule of law? Indeed, provisions embedded in most recent trade agreements give foreign investors more rights than are provided to investors in the US. They are compensated, for example, should the government adopt a regulation that hurts their bottom line, no matter how desirable the regulation or how great the harm caused by the corporation in its absence.

There are three responses to globalized discontent with globalization. The first – call it the Las Vegas strategy – is to double down on the bet on globalization as it has been managed for the past quarter-century. This bet, like all bets on proven policy failures (such as trickle-down economics) is based on the hope that somehow it will succeed in the future.

Image result for trumpian economics

The second response is Trumpism: cut oneself off from globalization, in the hope that doing so will somehow bring back a bygone world. But protectionism won’t work. Globally, manufacturing jobs are on the decline, simply because productivity growth has outpaced growth in demand.

Even if manufacturing were to come back, the jobs won’t. Advanced manufacturing technology, including robots, means that the few jobs created will require higher skills and will be placed at different locations than the jobs that were lost. Like doubling down, this approach is doomed to fail, further increasing the discontent felt by those left behind.

Trump will fail even in his proclaimed goal of reducing the trade deficit, which is determined by the disparity between domestic savings and investment. Now that the Republicans have gotten their way and enacted a tax cut for billionaires, national savings will fall and the trade deficit will rise, owing to an increase in the value of the dollar. (Fiscal deficits and trade deficits normally move so closely together that they are called “twin” deficits.) Trump may not like it, but as he is slowly finding out, there are some things that even a person in the most powerful position in the world cannot control.

There is a third approach: social protection without protectionism, the kind of approach that the small Nordic countries took. They knew that as small countries they had to remain open. But they also knew that remaining open would expose workers to risk. Thus, they had to have a social contract that helped workers move from old jobs to new and provide some help in the interim.

The Nordic countries are deeply democratic societies, so they knew that unless most workers regarded globalization as benefiting them, it wouldn’t be sustained. And the wealthy in these countries recognized that if globalization worked as it should, there would be enough benefits to go around.

American capitalism in recent years has been marked by unbridled greed – the 2008 financial crisis provides ample confirmation of that. But, as some countries have shown, a market economy can take forms that temper the excesses of both capitalism and globalization, and deliver more sustainable growth and higher standards of living for most citizens.

We can learn from such successes what to do, just as we can learn from past mistakes what not to do. As has become evident, if we do not manage globalization so that it benefits all, the backlash – from the New Discontents in the North and the Old Discontents in the South – is at risk of intensifying.

Mounting Pressure for Japan to tackle Immigration Policy


November 29, 2017

Image result for asia-pacific bulletin

Number 406 | November 28, 2017

ANALYSIS

Mounting Pressure for Japan to tackle Immigration Policy

By Toshihiro Menju

Prime Minister Abe has repeated over the past several years that he has no intention of formulating a new immigration policy. However, due to a population decrease and a serious shortage of workers, his administration is under pressure to change this policy. Japan has almost achieved full employment; the level of unemployment reached 2.8% in the latter part of 2017. This achievement is partly due to the success of Abenomics, but also due to the workforce shortage in Japan.

The working-age population (15-64 years old) has fallen since reaching its peak of 87 million in 1997. In 2015 it was as low as 76 million, and is expected to keep falling. Teikoku Databank recently announced that in the first half of 2017 business closures due to labor shortages were up by 290 percent from four years ago. The economic impacts of the labor shortage are becoming apparent.

To cope with the shortage of workers as well as depopulation, the Japanese government introduced a series of policies and created new ministerial posts such as Minister for the Promotion of Overcoming Population Decline and Vitalizing Local Economy in 2014, Minister in Charge of Promoting Dynamic Engagement of All Citizens in 2015, Minister in charge of Women’s Empowerment in 2015, and Minister for Human Resources Development in 2016. These measures have seen some success as female workers have increased to a record high level of 28.8 million. However, the birth rate remains low at 1.44 and the population continues to decrease.

Recent projections by the National Institute of Population and Social Security Research show that steeper population declines are ahead. The population is expected to fall by 6.2 million in the 2020s, 8.2 million in the 2030s and 9 million in the 2040s. While foreign residents have increased, the government has not changed the immigration policy at all. Vietnamese and Nepalese immigrants looking for work represent the largest increase of foreign residents. As of the end of June 2017, the number of Vietnamese residents reached 232,562 – 5.7 times higher than 10 years ago. Similarly, Nepalese residents increased sharply, reaching 74,300 – 6.4 times higher than 10 years ago.

How can foreigners come to Japan for work despite the Japanese government prohibiting foreign workers in blue collar jobs?

The main reasons for the increase are two-fold. In the case of Vietnamese immigrants, they come to Japan under the TITP (Technical Internship Training Program). TITP was ostensibly designed for technology transfer to developing countries; however, it has been used to hire foreign workers in the sectors which cannot attract Japanese workers or pay decent compensation. TITP has been internationally criticized for human rights violations including unlawfully long hours with very low compensation.

However, the government enacted a new TITP law which came into force in November 2017 to enlarge the program to include tight monitoring and penalty systems for companies acting illegally. Due to the severe worker shortage, the increase of TITP participants was increasing even before the enactment of the new law.

Another source of the sudden increase of foreign residents is the student visa program. Foreign students in Japan are allowed to work 28 hours per week legally. Many foreigners come to Japan as students registered at Japanese language schools which have been established everywhere by business corporations in the last few years. Local agents in Nepal send young Nepalese to Japan to enroll language schools, and many of them work beyond the 28 hour per week limit, often suffering under inhumane conditions.

If the Japanese government does not formulate an immigration policy, it heightens the risks of illegal work becoming more common and of more foreign nationals staying in the country illegally. For example, the number of absconders from TITP has nearly tripled in last three years. While TITP may help secure workers on a temporary basis, it will not serve as a medium to long-term solution to the population decline and aging.

It seems the government is overly afraid of the political consequences of admitting immigrants to Japan. It was regarded as almost taboo until a few years ago; however, the view of the general public towards immigrants has dramatically changed due to the severity of the population decline and labor shortage. In addition, the explosive increase in foreign tourists to Japan – which is championed by the government – has helped ordinary citizens to directly interface with foreigners at the grassroots level. In 2017 the number of foreign tourists is expected to reach 29 million, which is much higher than the 8.6 million in 2010.

The government also underestimates the grassroots experience of accepting foreigners. Mr. Kazuyohi Hamada, mayor of Akitakata city (population: 29,000), Hiroshima Prefecture publicly announced that his city welcomes foreign residents to support older Akitakata citizens, and presented the demography projections for 2035, when the largest population cohort will be over 80 years old. Akitakata is not an exception; rural cities of the same size will face the same challenge if Japan does not accept immigrants.

One of the main reasons that the government is slow in making decisions on tackling immigration policy is that there is a perception gap between people living in local regions and in Tokyo, where political and business leaders reside. Tokyo is still young compared with the rest of Japan and its population will continue to grow until 2025 although Japan started to suffer from population decline around 2010.

However, Tokyo is expected to eventually age rapidly as well, and it will not able to survive without foreign caregivers. The time has come for Japan to make decisions on immigration.

About the Author

Toshihiro Menju is Managing Director at the Japan Center for International Exchange. He can be contacted at tmenju@jcie.jp.
The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

APB Series Editor: Dr. Satu Limaye, Director, East-West Center in Washington
APB Series Coordinator: Peter Valente, East-West Center in Washington

The views expressed in this publication are those of the authors and do not necessarily reflect the policy or position of the East-West Center or any organization with which the author is affiliated.

East-West Center | 1601 East-West Road | Honolulu, HI | 808.944.7111

East-West Center in Washington | 1819 L Street, NW, Suite 600 | Washington, DC | 202.293.3995

Trump, Xi and the siren song of nationalism


November 28, 2017

Trump, Xi and the siren song of nationalism

A new generation of world leaders is embracing nationalist themes

by Gideon Rachman@www.ft.com

Image result for Trump, Xi and Macron

I will not dignify any event that disrespects our soldiers. . . or our national anthem.” So said Mike Pence, the US Vice-*resident, after walking out of a football match  — when some players had “taken a knee” during the playing of the “Star Spangled Banner”. The Trump administration’s row with high-profile athletes might seem like an “only in America” moment. But similar arguments about national anthems are taking place in China, India and Europe.

These anthem rows are a symptom of a global ideological struggle between nationalist and internationalists. In the US, China and India, the militant defence of national hymns is justified by the new nationalists as simple, healthy patriotism. But a shrill focus on national anthems also has a disturbing side — since it often goes hand in hand with illiberalism at home, and aggression overseas.

Earlier this month, China’s National People’s Congress passed a law, making “insulting” the country’s national anthem an offence, punishable by up to three years in prison. The move is part of a growing vogue for displays of patriotism in China, as part of what President Xi Jinping calls the “great rejuvenation” of his people. It also reflects rising tensions between the government of mainland China and semi-autonomous Hong Kong. At recent football matches in Hong Kong, the Chinese anthem has been booed by anti-Beijing protesters.

Image result for Modi the incredible Indian

 

The Indian version of this dispute was triggered by a supreme court ruling last year, directing that the national anthem be played before any film shown in a public theater. Supporters of the ruling argue that the anthem is an important glue in a multi-religious country that speaks hundreds of languages. Indian liberals worry that it reflects a rise in intolerant nationalism under Prime Minister, Narendra Modi — which is making life tougher for religious minorities and critics of the government. They also point to incidents of vigilantism in which cinema-goers, who failed to rise for the anthem, have been attacked.

A different kind of anthem controversy took place in France, when Emmanuel Macron celebrated his election victory, last May. The background music when the new president strode on stage was not the Marseillaise but Beethoven’s “Ode to Joy” — the EU’s anthem. This was a deliberate rebuke to his defeated opponents in the nationalist and anti-EU, National Front.

The fact that Mr Macron and Mr Trump have taken very different positions in the anthem rows is significant. For the US and French presidents are currently the two most important spokesmen for rival visions of international politics.

Image result for Macron and the New France

In his speech at the UN in September, Mr Trump made the case for an international order based around “strong sovereign nations” — a phrase that he used repeatedly. The US president has also often attacked “globalism”, defined by his campaign as — “An economic and political ideology which puts allegiance to international institutions ahead of the nation state.”Ten days after Mr Trump’s speech, Mr Macron offered a very different worldview. In a lecture in Paris, he said that — “We can no longer turn inwards within national borders; this would be a collective disaster.” The French president saw his enemies as “nationalism, identitarianism, protectionism, isolationism.”

It would be easy to assume that Mr Macron’s internationalist message has more global support. But the Trumpian vision also has international adherents — from a network of politicians and intellectuals that can be termed the “nationalist international”.

Mr Trump’s nationalism is fired by a sense that America is in decline and can only recover, by getting tough with the outside world. Mr Xi’s nationalism is fuelled by a sense that China is on the rise, and can finally avenge historic humiliations. Those two rival visions could easily lead to US-China clashes in the Korean Peninsula, the South China Sea or at the World Trade Organisation.--Gideon Rachman@www.ft.com

In a recent article , Eric Li, a Shanghai-based commentator, argued that Xi’s China and Trump’s America, “have more in common than it appears”. Both leaders emphasise national sovereignty and are intent on pushing back against an “overly aggressive, one-size fits all universal order”. Mr Li argues that Mr Xi and Mr Trump have many potential soulmates in the anti-globalist camp — including leaders such as Vladimir Putin in Russia, Rodrigo Duterte in the Philippines, Viktor Orban in Hungary, Mr Modi and Abdel Fattah al-Sisi in Egypt, as well as Britain’s Brexiters. It is quite a list — underlining the extent to which nationalism is resurgent. The new nationalists argue that “strong sovereign nations” should be the basis of a stable, international order that rolls backs the excesses of a utopian and elitist “globalism”.

But there is something a little naive about the idea of peaceful coexistence between nationalists. Strongmen leaders may have a shared contempt for international bureaucrats and human-rights lawyers. But nationalism is often associated with disdain for the views and interests of foreigners. So, sooner or later, rival nationalisms are liable to come into conflict — and that is particularly the case with the US and China.

Image result for The New China

The New China 7 Leadership

Mr Trump’s nationalism is fired by a sense that America is in decline and can only recover, by getting tough with the outside world. Mr Xi’s nationalism is fuelled by a sense that China is on the rise, and can finally avenge historic humiliations. Those two rival visions could easily lead to US-China clashes in the Korean Peninsula, the South China Sea or at the World Trade Organisation.

In his Sorbonne speech, Mr Macron warned that rising nationalism could “destroy the peace we so blissfully enjoy”. Sadly, it seems unlikely that anybody in Washington or Beijing was paying much attention.

gideon.rachman@ft.com

No End in Sight to the Brexit Madness


November 22, 2017

No End in Sight to the Brexit Madness

The slow-motion self-immolation that is Brexit continues for the U.K. Speaking in Brussels on Monday, Michel Barnier, the senior European Union official in charge of negotiating the terms of Britain’s departure, confirmed that British banks were set to lose their so-called E.U. passport, which currently enables them to offer services throughout the twenty-eight nations in the bloc. “On financial services, U.K. voices suggest that Brexit does not mean Brexit,” Barnier said. “Brexit means Brexit, everywhere.”

As if to reinforce the point, a meeting of E.U. ministers on Monday confirmed that two big E.U. agencies that are currently headquartered in London, the European Banking Authority and the European Medicines Agency, would be moving to Paris and Amsterdam, respectively. “The twenty-seven will continue to deepen the work of those agencies, together,” Barnier said. “They will share the costs for running those agencies. Our businesses will benefit from their expertise. All of their work is firmly based on the E.U. treaties which the U.K. decided to leave.”

In the months after the Brexit vote, which took place almost a year and a half ago, “Leave” supporters used the fact that the U.K.’s economy continued to expand and create jobs to claim that the prophets of doom had been mistaken. But to those Britons who are willing to acknowledge reality, these latest developments were the latest confirmation that the consequences of the historic vote are now starting to be felt. “While not surprising, these moves mark the beginning of the jobs Brexodus,” Vince Cable, the leader of the Liberal Democrats, and a prominent opponent of Brexit, said. “Large private-sector organizations are also considering moving to Europe, and we can expect many to do so over the next few years.”

To be sure, the country’s economy hasn’t collapsed. The gross domestic product is rising, and the unemployment rate has fallen to 4.3 per cent, its lowest level since 1975. But the rate of G.D.P. growth has fallen this year, and consumer-price inflation has risen because a fall in the value of the pound has made imported goods more expensive. This has hit living standards. Earlier this month, the National Institute of Economic and Social Research, an independent think tank, estimated that Brexit has already cost each British household about six hundred pounds, which is roughly eight hundred dollars. “It is almost certain that the relative deterioration in the UK economy and the accompanying fall in living standards over the past year are a consequence of the vote by the British people to leave the European Union,” Garry Young, a senior economist at the institute, wrote.

If Theresa May’s government had presented a credible path to the prosperity that it claims will accompany Britain’s departure from the E.U., the economic slowdown could perhaps be written off as an inevitable and temporary transition cost. But, of course, no such credible path has been offered. Beset by internal divisions, ministerial departures, and the hangover from a disastrous general election that saw it reduced to a minority in the House of Commons, May’s government has stumbled along, making barely any progress in negotiating the terms of Brexit, which was originally pegged for March, 2019.

In September, May announced that Britain wanted to push Brexit back two years, until 2021, and said that it would abide by all the E.U. rules during the transition period. But, even after that concession, the negotiations with Brussels remained bogged down. At the end of last week, Donald Tusk, the E.U.’s President, said that, if Britain wanted talks to begin a new trade agreement that would preserve its access to the huge European market, it would have to make concessions in a number of areas, including the settlement of Britain’s financial obligations to the E.U.; the legal protections that would be afforded E.U. citizens living in the United Kingdom; and the future of the border between Northern Ireland, which is leaving in the E.U., and the Republican of Ireland, which isn’t.

In his speech on Monday, Barnier, a former Foreign Minister of France, appeared to broaden the E.U.’s demands, strongly hinting that, if Britain wanted a favorable trade deal, it would have to abide by European regulations in many areas, even though it would no longer be a member of the Union. “The U.K. has chosen to leave the E.U.,” Barnier said. “Does it want to stay close to the European model or does it want to gradually move away from it? The U.K.’s reply to this question will be important and even decisive, because it will shape the discussion on our future partnership and shape also the conditions for ratification of that partnership in many national parliaments and obviously in the European parliament.”

Image result for Boris Johnson, the Foreign Secretary, and Michael Gove

Boris Johnson and Michael Gove are backing the embattled Prime Minister Theresa May

Although Barnier’s language was polite, his meaning was clear: the E.U. will not countenance Britain trying to set itself up as a haven from regulation and taxes for international companies that want to do business in Europe but don’t like being subject to oversight from Brussels. And, indeed, that is precisely the scenario that some of May’s colleagues—including Boris Johnson, the Foreign Secretary, and Michael Gove, the Environment Secretary—have in mind. In their vision, post-Brexit Britain would turn into a European version of Singapore or Hong Kong during the days of British colonial rule. “We may choose to remain identical to the EU or we may embrace a vision more aligned with pro-competitive regulation,” Johnson and Gove wrote, last week, in a letter to May. “Other countries must know this choice is in our hands, and they must know it on day one.”

To give them a bit of credit, May and Philip Hammond, the Chancellor of the Exchequer, seem to grasp that Johnson and Gove are pursuing a fantasy. They understand that the E.U. won’t allow Britain to both have its cake (access to the giant E.U. market) and eat it (freedom from E.U.-style regulation). They also recognize that if companies such as Honda and Nissan no longer have free access to and from Europe for the outputs and inputs of their British factories, they will have little choice but to relocate at least some of their facilities to the Continental mainland. The same goes for big international financial institutions, such as Deutsche Bank, JPMorgan Chase, and Goldman Sachs.

Image result for brexit and the future of  London as a financial center

 Bye, Bye, London Post-Brexit?

So May and Hammond are still trying to pursue a so-called soft Brexit, which would preserve as much market access as possible. But, at every turn, they and their allies are being undermined and vilified by the Little Englanders and the conservative Fleet Street newspapers. Last week, the Daily Telegraph published photographs on its front page of fifteen Conservative M.P.s who have had the temerity to suggest that the parliament should have the right to sign off on the final Brexit deal. The paper labelled them “The Brexit mutineers.” Some of these M.P.s subsequently received threats.

Image result for 2nd brexit referendum

With opinion polls suggesting that most Britons, if given a chance, would now vote to remain in the E.U., a second referendum seems like a good idea.

“How can this be happening in a country known for its pragmatism?” the Oxford economist Simon Wren-Lewis asked in a blog post. How indeed? With opinion polls suggesting that most Britons, if given a chance, would now vote to remain in the E.U., a second referendum seems like a good idea. But the opposition Labour Party, for reasons of its own, has already committed to accepting the first Brexit vote. About the only people calling for a do-over are the Liberal Democrats, who have just twelve seats in the Commons, and a few figures who are even less popular, such as Tony Blair and Lloyd Blankfein, the chief executive of Goldman. (In a tweet last week, Blankfein said, “So much at stake, why not make sure consensus still there?”) The country is still in the grip of Brexit madness, and, sadly, there is no relief in sight.

East-Asian Regionalism — A Bulwark Against a “Post-Liberal” International Order?


November 18, 2017

East-Asian Regionalism — A Bulwark Against a “Post-Liberal” International Order?

http://www.jpi.or.kr/eng/regular/policy_view.sky?code=EnOther&id=5325–www.eastasiaforum.org

By  See Seng Tan (RSIS, Nanyang Technological University)

In his January 2017 address to the World Economic Forum in Davos, Switzerland, Chinese President Xi Jinping positioned himself—unusually for the leader of Communist China—as a defender of globalization and free trade. Without a doubt, Xi’s remarks were directed at incoming US President Donald Trump, whose campaign rhetoric stressed resistance to globalization and promised the likelihood of an increasingly nationalist, isolationist, and protectionist America. Trump is not alone in wanting to reverse the tide of globalization the current pro-Brexit UK government has been singing a similar tune.

Image result for Asia's New Champion China's President Xi

This paper makes three interrelated points. First, the rising nationalist cum protectionist tide in the West is not a foregone conclusion due to mitigating factors that impel the great powers to cooperate, if only instrumentally and in the short term. Second, the history of East Asia from the Cold War to the present has been one where an emphasis on the preservation and protection of neutrality has given way in the post-Cold War period to so-called open regionalism, a broad-based preference for extensive and deep engagement with external powers and access to outside markets and resources. Third, East Asia’s shared commitment to open regionalism makes East Asian Regionalism, despite the present uncertainty surrounding regional trade deals like the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), an important counter-narrative and alternative model to the isolationist and protectionist zeitgeist.

Is the World Turning Protectionist?

Should Trump and other anti-globalists have their way, how might their behavior impact the liberal international economic order? According to a Brookings Institution report, despite holding the largest share of world trade and foreign capital, the US, relative to its size, is not as globally integrated as other countries.1) What could prove detrimental, however, is if other countries retaliate against US protectionist policies this fact serves as the basis for concerns that Trump could precipitate a trade war. Yet while retaliatory trade behavior might only be a short-term issue, the more fundamental risk is if countries repudiate global norms and institutions that underpin the globalized economy. This is possible if they feel that the US is no longer committed to upholding the liberal economic order and shouldering its burden—a worry that predates the Trump presidency but has since been reinforced by it.2)

Additionally, there is concern whether China, despite President Xi’s performance at Davos 2017, will honor the commitments it has made. These include accepting imported manufactured products and services as well as fully implementing TRIPS (the Agreement on Trade-Related Aspects of Intellectual Property Rights) as China promised to do when it joined the World Trade Organization (WTO) in 2001.3) Finally, there is also concern about various types of “covert” protectionism (i.e., the so-called behind-the-border barriers) rampant in China and other emerging markets that are challenging to address.4)

Image result for America retreat from Asia under Trump

Recent developments suggest that Trump has been forced by unanticipated events to delay or defer the pursuit of his anti-liberal agenda. The Trump administration has made a series of abrupt reversals in foreign policy, such as revising his earlier opinions about NATO, US involvement in Syria, burden sharing by US allies, the One China policy, US involvement in the South China Sea, and the US Export-Import Bank. It has also retreated from intended protectionist moves toward China because Chinese cooperation is sorely needed to manage a recalcitrant North Korea. Consequently, Trump has gone from accusing China of being the “grand champion” of currency manipulation to declaring they have not manipulated the China’s currency in months. Additionally, since initially proposing a 45 percent tariff on Chinese goods for allegedly hollowing out US manufacturing, the administration has gone quiet (whilst at the same time threatening to impose a 20 percent tariff on Canadian lumber). Crucially, Trump has also expressed strong support for bilateral free trade deals.5)

Whether this retreat from protectionism and isolationism is a temporary or expedient move remains to be seen. After all, there is evidence to suggest that, despite these reversals toward what some observers see as a more traditional US foreign policy,6) Trump appears to persist in his preference for transactional approaches.7) This was apparent during the Trump-Xi summit, where both leaders reportedly deliberated with “a cold calculation of interests” as they mutually exacted concessions from one another while still acknowledging their interdependence.8) In other words, the reversals merely reflect the Trump administration‟s pragmatic response to evolving international conditions that require corresponding changes in reciprocity. These are the quid pro quos that embody transactional diplomacy. Still, by acknowledging mutual dependence, even if only on a transactional basis, a slide towards full-blown protectionism and unadulterated solipsism has been kept at bay.9)

East Asia: From “Neutrality” to “Open Regionalism”

Image result for East-Asian Regionalism -- A Bulwark Against a “Post-Liberal” International Order?

A More Engaged and Assertive Japan under Prime Minister Shinzo Abe

It is worth noting that the emergence and evolution of East Asian Regionalism (EAR) did not occur outside the liberal international order but within it. If anything, EAR has sought to complement rather than compete against liberalism. When former Malaysian Premier Mahathir bin Mohamad’s idea of an East Asian Economic Grouping (EAEG)—later amended to an East Asian Economic Caucus (EAEC)—was proposed in 1990, the assumption then was that the EAEG/EAEC would form a Japan-led regional bloc that could serve as a counterweight to emerging—and potentially rival—regionalisms in Europe (such as the European Union, or EU) and North America (such as the North American Free Trade Area, or NAFTA). However, EAR would take a back seat to Asia-Pacific regionalism with the formation of the ASEAN Regional Forum (ARF) in 1994. Together with the earlier formation of the Asia-Pacific Economic Cooperation (APEC) trade forum, the emergence of ARF—with ASEAN as first its midwife and subsequently its anointed custodian—marked a strategic shift in the way ASEAN viewed the involvement of great and regional powers within Southeast Asia. For the ASEAN countries, the Cold War perspective of the great powers as outsiders seeking to intervene, exploit, and divide the region and who therefore must be checked—as embodied in the 1971 ASEAN declaration of the Zone of Peace, Freedom and Neutrality (ZOPFAN)—was gradually replaced by a post-Cold War perspective of those same powers as external actors with whom Southeast Asians ought to actively engage through multilateral diplomacy, among other means.

Image result for Xi and Hun Sen

Cambodia and China–Strategic Partners in Development

Far from exclusivist, the new regionalism that emerged in the early post-Cold War years in the Asia-Pacific is what some have termed open regionalism. This concept argues for cooperation across national borders in a region to reduce transaction costs through the collective involvement of governments in “trade facilitation,” or the expansion of open trade.10)

Second, open regionalism is meant to be inclusive in that it seeks to incorporate outside powers such as the US and other eastern Pacific Rim countries into APEC and ARF.11) Belief in such inclusivism—coupled with the perceived need to construct a stable regional balance of power by including outside groups to counter possible hegemonic ambitions—led to a push to enlarge the membership of the East Asia Summit (EAS) to include countries beyond the 10+3 of ASEAN plus Three (APT).12)

Third, open regionalism encourages groups to make their enterprises compatible with institutional arrangements and practices in other parts of the world, including world bodies. For example, the architects of ARF made it clear that the forum is not meant to replace the San Francisco system of military alliances. Instead, it serves as a supplementary mechanism for dialogue and consultation. Likewise with the Chiang Mai Initiative (CMI) reserve currency pool, an institutional expression of EAR and APT, was launched against the backof the crippling Asian financial crisis of the late 1990s. Speculations that the CMI—along with its multilateral component, the CMI Multilateralization (CMIM)—would surpass the International Monetary Fund (IMF) as the region‟s first port of call for financial assistance in times of crisis were put to rest when it became clear that regional countries either prefer IMF assistance or bilateral swap agreements that had no IMF links.13)

This is also evident in how ASEAN and its suite of regional offshoots have avoided asserting themselves as the region‟s savior organizations when troubles hit by limiting their aim and remit. As in the case of the CMI/CMIM, Asian countries involved in territorial disputes have looked to world bodies such as the Hague-based International Court of Justice (ICJ)—as in the cases of the Indonesia-Malaysia dispute over Sipadan and Ligitan, the Malaysia-Singapore dispute over Pedra Branca, and the Cambodia-Thailand disputes over Preah Vihear and its promontory—the Hamburg-based International Tribunal for the Law of the Sea (ITLOS), or the Hague-based Permanent Court of Arbitration (PCA) for UNCLOS Annex VII arbitrations—activated recently in the case of the China-Philippines dispute over the South China Sea (SCS). Alternatively, they rely on bilateral means of dispute settlement rather than ASEAN-based dispute settlement mechanisms.14)

Reinforcing the Liberal Message Though EAR

Since the knee-jerk reactions in the immediate aftermath of the US withdrawal from the TPP—in particular, Japan’s insistence that a TPP without the US would be “meaningless”—Australia and Japan have emerged as the loudest voices in favor of an 11-member TPP trade deal sans the US, without ruling out the possibility of the latter’s return to the fold.15) Meanwhile some are hoping that RCEP will launch by the end of 2017, though the best possible outcome is likely to be a framework agreement.16) Much was made at the RCEP Kobe meeting in February 2017 about an inclusive agreement that ensures roles for all stakeholders. The argument by RCEP Trade Negotiating Committee Chief Iman Pambagyo, for example, that RCEP balance the needs of both developed and developing nations implies that progress is likely to be slow and by no means guaranteed.17) APEC supports a third trade pact, the Free Trade Area of the Asia-Pacific (FTAAP), but it remains at the consultative stage despite receiving strong support from China when it chaired the 2014 APEC summit.18)

Image result for modi's new india--Act EastIndia’s Act East Policy

Open regionalism inherently and intuitively liberalizes trade and refutes protectionism. Or it tries to. Despite the uncertainty surrounding TPP-11 and RCEP, they remain key reference points for any defense of trade liberalization. There is a longstanding debate over whether regional trade agreements compete with the world trade system.19) But, as we have seen, the ways in which open regionalism has hitherto been conceptualized and practiced in both the economic and security domains in East Asia render EAR a key political counterpoint to the anti-globalization fever that has seized the geo-economic cum geopolitical imaginations of the West. This is perhaps the most important role that EAR can and hopefully will play in the future, namely, as a bulwark against the anti-globalization tide through reinforcement of a liberal message.

Footnotes:

1) Brina Seideland Laurence Chandy, “Donald Trump and the future of globalization”, Brookings, 18 November 2016,
https://www.brookings.edu/blog/up-front/2016/11/18/donald-trump-and-the-future-of-globalization/
2) Kati Suominen, Peerless and Periled: The Paradox of American Leadership in the World Economic Order (Stanford, CA: Stanford University Press, 2012), p. 243.
3) Douglas Bulloch, “Protectionism May Be Rising Around The World, But In China It Never Went Away”, Forbes, 12 October 2016,
https://www.forbes.com/sites/douglasbulloch/2016/10/12/protectionism-may-be-rising-around-the-world-but-in-china-it-never-went-away/#359ae9bc73da
4) “Protectionism: The Hidden Persuaders”, The Economist, 12 October 2013,
http://www.economist.com/news/special-report/21587381-protectionism-can-take-many-forms-not-all-them-obvious-hidden-persuaders
5) Geoffrey Gertz, “What will Trump‟s embrace of bilateralism mean for America‟s trade partners?” Brookings, 8 February 2017,
https://www.brookings.edu/blog/future-development/2017/02/08/what-will-trumps-embrace-of-bilateralism-mean-for-americas-trade-partners/
6) David Ignatius, “Trump moves slightly toward pillars of traditional foreign policy”, USA Today, 13 April 2017,
https://www.usatoday.com/story/opinion/columnists/2017/04/13/trump-moves-slightly-toward-pillars-traditional-foreign-policy/100413776/
7) Greg Jaffe and Joshua Partlow, “Trump phone calls signal a new transactional approach to allies and neighbors”, The Washington Post, 2 February 2017,
https://www.washingtonpost.com/world/national-security/trump-phone-calls-signals-a-new-transactional-approach-to-allies-and-neighbors/2017/02/02/dcb797fa-e989-11e6-b82f-687d6e6a3e7c_story.html?utm_term=.97755b835303
8) Lexington, “A coldly transactional China policy: Donald Trump‟s first meeting with Xi Jinping was all about business”, The Economist, 8 April 2017,
http://www.economist.com/blogs/democracyinamerica/2017/04/coldly-transactional-china-policy
9) Robert Kagan, “Trump marks the end of America as world‟s „indispensable nation‟”, The Financial Times, 20 November 2016, https://www.ft.com/content/782381b6-ad91-11e6-ba7d-76378e4fef24
10) Ross Garnaut, Open Regionalism and Trade Liberalization: An Asia-Pacific Contribution to the World Trade System (Singapore: ISEAS Yusof Ishak, 1996).
11) Amitav Acharya, “Ideas, Identity, and Institution-building: From the „ASEAN Way‟ to the „Asia-Pacific Way‟?”, The Pacific Review, Vol. 10, No. 3 (1997), pp. 319-346.
12) Malcolm Cook and Nick Bisley, “Contested Asia and the East Asia Summit”, ISEAS Perspective, No. 46, 18 August 2016.
13) Hal Hill and Jayant Menon, “Asia‟s new financial safety net: Is the Chiang Mai Initiative designed not to be used?”, Vox, 25 July 2012, http://voxeu.org/article/chiang-mai-initiative-designed-not-be-used
14) See Seng Tan, “The Institutionalisation of Dispute Settlements in Southeast Asia: The Legitimacy of the Association of Southeast Asian Nations in De-securitising Trade and Territorial Disputes”, in Hitoshi Nasu and Kim Rubenstein, eds., Legal Perspectives on Security Institutions (Cambridge: Cambridge University Press, 2015), pp. 248-266.
15) WSim, “Australia, Japan lobby for TPP-11”, The Straits Times, 21 April 2017, http://www.straitstimes.com/asia/east-asia/australia-japan-lobby-for-tpp-11 “’TPP 11′ to Washington: We’ll keep your seat warm”, Nikkei Review, 16 May 2017,
http://asia.nikkei.com/Politics-Economy/International-Relations/TPP-11-to-Washington-We-ll-keep-your-seat-warm
16) Shefali Rekhi, “Will RCEP be a reality by the end of 2017?” The Straits Times, 23 April 2017,
http://www.straitstimes.com/asia/se-asia/will-rcep-be-a-reality-by-the-end-of-2017
17) Eric Johnston, “16-nation RCEP talks resume in wake of TPP‟s demise”, The Japan Times, 27 February 2017,
http://www.japantimes.co.jp/news/2017/02/27/business/16-nation-rcep-talks-resume-wake-tpps-demise/#.WR1RaU21v3g
18) Mireya Solís, “China flexes its muscles at APEC with the revival of FTAAP”, East Asia Forum, 24 November 2014.
19) Parthapratim Pal, “Regional Trade Agreements in a Multilateral Trade Regime: A Survey of Recent Issues”, Foreign Trade Review, Vol. 40, No. 1 (2005), pp. 27-48.

* This is a presentation manuscript in the panel “Regionalism After Liberalism”, Jeju Forum, 31 May 2017.