CPTPP is good for Malaysia

March 22, 2018

CPTPP is good for Malaysia


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Malaysia’s MITI Minister Dato’Mustap Mohamed

THE Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the rebranded TPPA, was finally signed by 11 countries on March 8.

The pact had earlier raised anxiety among certain parties that it would jeopardise Malaysia’s sovereignty and undermine the well-being of its citizens. But if we look at the bigger picture, the pact will benefit the country in the long run because our economy depends largely on trade activities.

According to Moody’s last week, Malaysia would be the biggest winner from the deal as the CPTPP covers a market of nearly 500 million despite the absence of the United States.

This fact was reinforced by the Peterson Institute for International Economics’ (PIIE) research, which showed that the CPTPP would benefit palm oil, rubber and electronics exporters like Malaysia with export access to new markets including Canada, Peru and Mexico.

Looking at current data by the Malaysia External Trade Develop­ment Corporation (Matrade), Malaysia’s dependence on trade is undeniable, recording RM935.39bil in exports last year and RM838.14bil in imports. Malaysia enjoyed a trade surplus of RM97.28bil.

The electrical and electronics sector remains the top exporter accounting for 36.7% while palm oil products stood at 5.8%. Malaysia is also currently the largest producer of gloves, controlling almost 65% of the world market.

In view of this, the CPTPP will encourage existing manufacturers to expand as it provides access to new or untapped markets. It will indirectly reduce our reliance on the US market as well.

Ahmad Shahir Abdul AzizUniversiti Sains Malaysia

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READ: http://www.ipsnews.net/2018/02/model-trade-deal-con –by Dr Kwame Jomo Sundaram

Samuel Huntington, a Prophet for the Trump era

March 3, 2018

Sometimes a prophet can be right about what will come, yet torn about whether it should.

Robert Carter for The Washington Post; based on photos by Steve Liss/The Life Images Collection/Getty Images (Huntington) and Aaron P. Bernstein/Reuters (Trump)

President Trump’s speech in Warsaw, in which he urged Europeans and Americans to defend Western civilization against violent extremists and barbarian hordes, inevitably evoked Samuel P. Huntington’s “clash of civilizations” — the notion that superpower rivalry would give way to battles among Western universalism, Islamic militance and Chinese assertiveness. In a book expanded from his famous 1993 essay, Huntington described civilizations as the broadest and most crucial level of identity, encompassing religion, values, culture and history. Rather than “which side are you on?” he wrote, the overriding question in the post-Cold War world would be “who are you?”

So when the President calls on the nations of the West to “summon the courage and the will to defend our civilization,” when he insists that we accept only migrants who “share our values and love our people,” and when he urges the transatlantic alliance to “never forget who we are” and cling to the “bonds of history, culture and memory,” I imagine Huntington, who passed away in late 2008 after a long career teaching at Harvard University, nodding from beyond.

It would be a nod of vindication, perhaps, but mainly one of grim recognition. Trump’s civilizational rhetoric is just one reason Huntington resonates today, and it’s not even the most interesting one. Huntington’s work, spanning the mid-20th century through the early 21st, reads as a long argument over America’s meaning and purpose, one that explains the tensions of the Trump era as well as anything can. Huntington both chronicles and anticipates America’s fights over its founding premises, fights that Trump’s ascent has aggravated. Huntington foresees — and, frankly, stokes — the rise of white nativism in response to Hispanic immigration. He captures the dissonance between working classes and elites, between nationalism and cosmopolitanism, that played out in the 2016 campaign. And he warns how populist demagogues appeal to alienated masses and then break faith with them.

This is Trump’s presidency, but even more so, it is Huntington’s America. Trump may believe himself a practical man, exempt from any intellectual influence, but he is the slave of a defunct political scientist.

Huntington’s books speak to one another across the decades; you find the origins of one in the unanswered questions of another. But they also reveal deep contradictions. More than a clash of civilizations, a clash of Huntingtons is evident. One Huntington regards Americans as an exceptional people united not by blood but by creed. Another disowns that idea in favor of an America that finds its essence in faith, language, culture and borders. One Huntington views new groups and identities entering the political arena as a revitalization of American democracy. Another considers such identities pernicious, anti-American.

These works embody the intellectual and political challenges for the United States in, and beyond, the Trump years. In Huntington’s writings, idealistic visions of America mingle with its basest impulses, and eloquent defenses of U.S. values betray a fear of the pluralism at the nation’s core. Which vision wins out will determine what country we become.

To understand our current turmoil, the most relevant of Huntington’s books is not “The Clash of Civilizations and the Remaking of World Order” (1996) or even “Who Are We? The Challenges to America’s National Identity” (2004), whose fans reportedly include self-proclaimed white nationalist Richard Spencer. It is the lesser-known and remarkably prescient “American Politics: The Promise of Disharmony,” published 36 years ago.

In that work, Huntington points to the gap between the values of the American creed — liberty, equality, individualism, democracy, constitutionalism — and the government’s efforts to live up to those values as the central tension of American life. “At times, this dissonance is latent; at other times, when creedal passion runs high, it is brutally manifest, and at such times, the promise of American politics becomes its central agony.”

Whether debating health care, taxes, immigration or war, Americans invariably invoke the founding values to challenge perceived injustices. Reforms cannot merely be necessary or sensible; they must be articulated and defended in terms of the creed. This is why Trump’s opponents attack his policies by declaring not only that they are wrong but that “that’s not who we are.” As Huntington puts it, “Americans divide most sharply over what brings them together.”

[Yes, Trump is a populist. But what does that mean?]

The book looks back to the Revolutionary War, the Jacksonian age, the Progressive era and the 1960s as moments of high creedal passions, and Huntington’s descriptions capture America today. In such moments, he writes, discontent is widespread, and authority and expertise are questioned; traditional values of liberty, individualism, equality and popular control of government dominate public debates; politics is characterized by high polarization and constant protest; hostility toward power, wealth and inequality grows intense; social movements focused on causes such as women’s rights and criminal justice flourish; and new forms of media emerge devoted to advocacy and adversarial journalism.


Huntington’s clash has been caricatured as a single-minded call to arms against Muslims, and certainly the argument is neither so narrow nor so simple. He is probably more concerned with China and fears a “major war” if Washington challenges Beijing’s rise as Asia’s hegemon. Yet the threat Huntington sees from the Muslim world goes far beyond terrorism or religious extremism. He worries of a broader Islamic resurgence, with political Islam as only one part of “the much more extensive revival of Islamic ideas, practices, and rhetoric and the rededication to Islam by Muslim populations.” Huntington cites scholars warning of the spread of Islamic legal concepts in the West, decries the “inhospitable nature of Islamic culture” for democracy and suggests that Islam will prevail in the numbers game against Christianity. In the long run, “Mohammed wins out,” he states. “Christianity spreads primarily by conversion, Islam by conversion and reproduction.”

[Why America is terrible at making the world a better place]

The vision evokes the zero-sum rhetoric of Trump political strategist Stephen K. Bannon, who was a force behind the administration’s travel ban targeting Muslim-majority countries, and of former national security adviser Michael Flynn, who authored a 2016 book heralding a multi-generational U.S. conflict against Islam’s “failed civilization.” Huntington, at least, has the grace to consider two sides of the clash.

“The underlying problem for the West is not Islamic fundamentalism,” he writes. “It is Islam, a different civilization whose people are convinced of the superiority of their culture and are obsessed with the inferiority of their power. The problem for Islam is not the CIA or the U.S. Department of Defense. It is the West, a different civilization whose people are convinced of the universality of their culture and believe that their superior, if declining, power imposes on them the obligation to extend that culture throughout the world.”

He does not regard Western values as universal. They are ours alone.

While Huntington foresees an America roiled by self-doubt, white nationalism and enmity against Islam, he does not predict the rise of a Trump-like leader in the United States.

But he would have recognized the type.

Consider his earliest books. In “Political Order in Changing Societies” (1968), Huntington examines how Latin American, African and Asian countries in the throes of economic modernization struggled to adapt their politics and incorporate new groups with new demands. The result, Huntington explains, was not political development but “political decay.”

And what sort of authorities personify this decay? Across the developing world, Huntington saw “the dominance of unstable personalistic leaders,” their governments rife with “blatant corruption . . . arbitrary infringement of the rights and liberties of citizens, declining standards of bureaucratic efficiency and performance, the pervasive alienation of urban political groups, the loss of authority by legislatures and courts, and the fragmentation and at times complete disintegration of broadly based political parties.”

These self-styled revolutionaries thrive on divisiveness. “The aim of the revolutionary is to polarize politics,” Huntington explains, “and hence he attempts to simplify, to dramatize, and to amalgamate political issues into a single, clear-cut dichotomy.” Such leaders attract new rural voters via “ethnic and religious appeals” as well as economic arguments, only to quickly betray their aspirations.

“A popular demagogue may emerge,” Huntington writes, “develop a widespread but poorly organized following, threaten the established interests of the rich and aristocrats, be voted into political office, and then be bought off by the very interests which he has attacked.” Such interests include those of the leaders’ close relatives, he explains, because for them “no distinction existed between obligations to the state and obligation to the family.”

Huntington’s “The Soldier and the State” (1957), a study of civilian-military relations, is instructive on the self-regard of such leaders, especially when the author contrasts the professionalism of military officers with the imperiousness of fascist strongmen. “Fascism emphasizes the supreme power and ability of the leader, and the absolute duty of subordination to his will,” Huntington writes. The fascist is intuitive, with “little use or need for ordered knowledge and practical, empirical realism. He celebrates the triumph of the Will over external obstacles.”

[How does Donald Trump stack up against American literature’s fictional dictators?]

Such obstacles take the form of popular protests against unpopular leaders. Today, some writers even find solace in our national upheaval, arguing that the activism and energy Trump’s election has wrought will strengthen U.S. democracy. But in a book titled “The Crisis of Democracy” (1975), Huntington examines a time of similar civic resurgence, and is not encouraged by the outcome.

“The 1960s witnessed a dramatic renewal of the democratic spirit in America,” Huntington writes. Not yet dismissive of identity politics, he praises the “markedly higher levels of self-consciousness” and mobilization on the part of African Americans, Latinos, students and women in that era, noting that “the spirit of equality [and] the impulse to expose and correct inequities were abroad in the land.” The problem, he explains, is that the political system also became weighed down by popular mistrust, however deserved, of American institutions. “The vitality of democracy in the 1960s,” he writes, “raised questions about the governability of democracy in the 1970s.”

The biggest questions involved the highest office. “Probably no development of the 1960s and 1970s has greater import for the future of American politics than the decline in the authority, status, influence, and effectiveness of the presidency,” Huntington writes. He fears that a delegitimized executive threatened not just national cohesion but national security. “If American citizens don’t trust their government, why should friendly foreigners? If American citizens challenge the authority of American government, why shouldn’t unfriendly governments?”

Huntington was writing in the aftermath of the Watergate scandal, and now the current White House faces its own crisis of credibility. Trump, so obsessed with his electoral victory that a framed map of the 2016 results was recently spotted in the White House, would do well to heed warnings about governability.

“Once he is elected president,” Huntington writes, “the president’s electoral coalition has, in a sense, served its purpose. The day after his election the size of his majority is almost — if not entirely — irrelevant to his ability to govern the country. . . . What counts then is his ability to mobilize support from the leaders of the key institutions in society and government.”

It feels odd to write of Trump as a Huntingtonian figure. One is instinctual and anti-intellectual; the other was deliberate and theoretical. One communicates via inarticulate bursts; the other wrote books for the ages. I imagine Huntington would be apprehensive about a commander-in-chief so indifferent to a foreign power’s assault on the U.S. electoral system, and one displaying so little of the work ethic and reverence for the rule of law that Huntington admired.

What makes the professor a prophet for our time is not just that his vision is partially reflected in Trump’s message and appeal, but that he understood well the dangers of the style of politics Trump practices.

Where they come together, I believe, is in their nostalgic and narrow view of American uniqueness. Huntington, like Trump, wanted America to be great, and came to long for a restoration of values and identity that he believed made the country not just great but a nation apart. However, if that path involves closing ourselves off, demonizing newcomers and demanding cultural fealty, then how different are we, really, from anywhere else? The central agony of the Trump era is that rather than becoming great, America is becoming unexceptional.

And that’s not a clash of civilizations. It’s a civilization crashing.

Books cited in this essay:

  • The Soldier and the State: The Theory and Politics of Civil-Military Relations by Samuel P. Huntington. Belknap Press. 534 pp. 1957.
  • Political Order in Changing Societies by Samuel P. Huntington. Yale University Press. 488 pp. 1968.
  • The Crisis of Democracy: Report on the Governability of Democracies to the Trilateral Commission by Michel Crozier, Samuel P. Huntington and Joji Watanuki. New York University Press. 220 pp. 1975.
  • American Politics: The Promise of Disharmony by Samuel P. Huntington. Belknap Press. 303 pp. 1981.
  • The Clash of Civilizations and the Remaking of World Order by Samuel P. Huntington. Simon & Schuster. 368 pp. 1996.
  • Who Are We? The Challenges to America’s National Identity by Samuel P. Huntington. Simon & Schuster. 428 pp. 2004.
*Carlos Lozada is the nonfiction book critic of The Washington Post. He has also served as The Post’s economics editor, national security editor and Outlook editor. Previously, he was managing editor of Foreign Policy magazine. Follow @CarlosLozadaWP

Tech and Higher Education

February 21, 2018

Tech and Higher Education

Universities pride themselves on producing creative ideas that disrupt the rest of society, yet higher-education teaching techniques continue to evolve at a glacial pace. Given education’s centrality to raising productivity, shouldn’t efforts to reinvigorate today’s sclerotic Western economies focus on how to reinvent higher education?

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CAMBRIDGE – In the early 1990s, at the dawn of the Internet era, an explosion in academic productivity seemed to be around the corner. But the corner never appeared. Instead, teaching techniques at colleges and universities, which pride themselves on spewing out creative ideas that disrupt the rest of society, have continued to evolve at a glacial pace.

Sure, PowerPoint presentations have displaced chalkboards, enrollments in “massive open online courses” often exceed 100,000 (though the number of engaged students tends to be much smaller), and “flipped classrooms” replace homework with watching taped lectures, while class time is spent discussing homework exercises. But, given education’s centrality to raising productivity, shouldn’t efforts to reinvigorate today’s sclerotic Western economies focus on how to reinvent higher education?

One can understand why change is slow to take root at the primary and secondary school level, where the social and political obstacles are massive. But colleges and universities have far more capacity to experiment; indeed, in many ways, that is their raison d’être.

For example, what sense does it make for each college in the United States to offer its own highly idiosyncratic lectures on core topics like freshman calculus, economics, and US history, often with classes of 500 students or more? Sometimes these giant classes are great, but anyone who has gone to college can tell you that is not the norm.

At least for large-scale introductory courses, why not let students everywhere watch highly produced recordings by the world’s best professors and lecturers, much as we do with music, sports, and entertainment? This does not mean a one-size-fits-all scenario: there could be a competitive market, as there already is for textbooks, with perhaps a dozen people dominating much of the market.

And videos could be used in modules, so a school could choose to use, say, one package to teach the first part of a course, and a completely different package to teach the second part. Professors could still mix in live lectures on their favorite topics, but as a treat, not as a boring routine.

A shift to recorded lectures is only one example. The potential for developing specialized software and apps to advance higher education is endless. There is already some experimentation with using software to help understand individual students’ challenges and deficiencies in ways that guide teachers on how to give the most constructive feedback. But so far, such initiatives are very limited.

Perhaps change in tertiary education is so glacial because the learning is deeply interpersonal, making human teachers essential. But wouldn’t it make more sense for the bulk of faculty teaching time to be devoted to helping students engage in active learning through discussion and exercises, rather than to sometimes hundredth-best lecture performances?3

Yes, outside of traditional brick-and-mortar universities, there has been some remarkable innovation. The Khan Academy has produced a treasure trove of lectures on a variety of topics, and it is particularly strong in teaching basic mathematics. Although the main target audience is advanced high school students, there is a lot of material that college students (or anyone) would find useful.

Moreover, there are some great websites, including Crash Course and Ted-Ed, that contain short general education videos on a huge variety of subjects, from philosophy to biology to history. But while a small number of innovative professors are using such methods to reinvent their courses, the tremendous resistance they face from other faculty holds down the size of the market and makes it hard to justify the investments needed to produce more rapid change.

Let’s face it, college faculty are no keener to see technology cut into their jobs than any other group. And, unlike most factory workers, university faculty members have enormous power over the administration. Any university president that tries to run roughshod over them will usually lose her job long before any faculty member does.

Of course, change will eventually come, and when it does, the potential effect on economic growth and social welfare will be enormous. It is difficult to suggest an exact monetary figure, because, like many things in the modern tech world, money spent on education does not capture the full social impact. But even the most conservative estimates suggest the vast potential. In the US, tertiary education accounts for over 2.5% of GDP (roughly $500 billion), and yet much of this is spent quite inefficiently. The real cost, though, is not the squandered tax money, but the fact that today’s youth could be learning so much more than they do.

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Universities and colleges are pivotal to the future of our societies. But, given impressive and ongoing advances in technology and artificial intelligence, it is hard to see how they can continue playing this role without reinventing themselves over the next two decades. Education innovation will disrupt academic employment, but the benefits to jobs everywhere else could be enormous. If there were more disruption within the ivory tower, economies just might become more resilient to disruption outside it.

Post-Davos Depression

February 4, 2018

Post-Davos Depression

by Dr. Joseph E. Stiglitz@www.project-syndicate. org

The CEOs of Davos were euphoric this year about the return to growth, strong profits, and soaring executive compensation. Economists reminded them that this growth is not sustainable, and has never been inclusive; but in a world where greed is always good, such arguments have little impact

..,the lessons of history are clear. Trickle-down economics doesn’t work. And one of the key reasons why our environment is in such a precarious condition is that corporations have not, on their own, lived up to their social responsibilities. Without effective regulations and a real price to pay for polluting, there is no reason whatsoever to believe that they will behave differently than they have..–Joseph E. Stigltz

DAVOS – I’ve been attending the World Economic Forum’s annual conference in Davos, Switzerland – where the so-called global elite convenes to discuss the world’s problems – since 1995. Never have I come away more dispirited than I have this year.

Image result for The Economic Elites at Davos 2018Demonstrators in Zurich this week. While many are poised to recoil at President Trump’s arrival in Davos this week, much of the moneyed elite there are willing to overlook what they portray as the president’s rhetorical foibles in favor of the additional wealth he has delivered to their coffers. Credit Ennio Leanza/European Pressphoto Agency.


The world is plagued by almost intractable problems. Inequality is surging, especially in the advanced economies. The digital revolution, despite its potential, also carries serious risks for privacy, security, jobs, and democracy – challenges that are compounded by the rising monopoly power of a few American and Chinese data giants, including Facebook and Google. Climate change amounts to an existential threat to the entire global economy as we know it.

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Perhaps more disheartening than such problems, however, are the responses. To be sure, here at Davos, CEOs from around the world begin most of their speeches by affirming the importance of values. Their activities, they proclaim, are aimed not just at maximizing profits for shareholders, but also at creating a better future for their workers, the communities in which they work, and the world more generally. They may even pay lip service to the risks posed by climate change and inequality.

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But, by the end of their speeches this year, any remaining illusion about the values motivating Davos CEOs was shattered. The risk that these CEOs seemed most concerned about is the populist backlash against the kind of globalization that they have shaped – and from which they have benefited immensely.

Not surprisingly, these economic elites barely grasp the extent to which this system has failed large swaths of the population in Europe and the United States, leaving most households’ real incomes stagnant and causing labor’s share of income to decline substantially. In the US, life expectancy has declined for the second year in a row; among those with only a high school education, the decline has been underway for much longer.

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Justin Trudeau of Canada and Narendra Modi of India–The Globaists at Davos 2018 who together with Germany’s Angela Merkel, Emmanuel Macton of France and China’s Xi Jinping will make America First’s Donald Trump irrelevant.

Not one of the US CEOs whose speech I heard (or heard about) mentioned the bigotry, misogyny, or racism of US President Donald Trump, who was present at the event. Not one mentioned the relentless stream of ignorant statements, outright lies, and impetuous actions that have eroded the standing of the US president – and thus of the US – in the world. None mentioned the abandonment of systems for ascertaining truth, and of truth itself.

Indeed, none of America’s corporate titans mentioned the administration’s reductions in funding for science, so important for strengthening the US economy’s comparative advantage and supporting gains in Americans’ standard of living. None mentioned the Trump administration’s rejection of international institutions, either, or the attacks on the domestic media and judiciary – which amounts to an assault on the system of checks and balances that underpins US democracy.

No, the CEOs at Davos were licking their lips at the tax legislation that Trump and congressional Republicans recently pushed through, which will deliver hundreds of billions of dollars to large corporations and the wealthy people who own and run them – people like Trump himself. They are unperturbed by the fact that the same legislation will, when it is fully implemented, lead to an increase in taxes for the majority of the middle class – a group whose fortunes have been in decline for the last 30 years or so.

Even in their narrowly materialistic world, where growth matters above all else, the Trump tax legislation should not be celebrated. After all, it lowers taxes on real-estate speculation – an activity that has produced sustainable prosperity nowhere, but has contributed to rising inequality everywhere.

The legislation also imposes a tax on universities like Harvard and Princeton – sources of numerous important ideas and innovations – and will lead to lower local-level public expenditure in parts of the country that have thrived, precisely because they have made public investments in education and infrastructure. The Trump administration is clearly willing to ignore the obvious fact that, in the twenty-first century, success actually demands more investment in education

For the CEOs of Davos, it seems that tax cuts for the rich and their corporations, along with deregulation, is the answer to every country’s problems. Trickle-down economics, they claim, will ensure that, ultimately, the entire population benefits economically. And the CEOs’ good hearts are apparently all that is needed to ensure that the environment is protected, even without relevant regulations.

Yet the lessons of history are clear. Trickle-down economics doesn’t work. And one of the key reasons why our environment is in such a precarious condition is that corporations have not, on their own, lived up to their social responsibilities. Without effective regulations and a real price to pay for polluting, there is no reason whatsoever to believe that they will behave differently than they have.

The Davos CEOs were euphoric about the return to growth, about their soaring profits and compensation. Economists reminded them that this growth is not sustainable, and has never been inclusive. But such arguments have little impact in a world where materialism is king.

So forget the platitudes about values that CEOs recite in the opening paragraphs of their speeches. They may lack the candor of Michael Douglas’s character in the 1987 movie Wall Street, but the message hasn’t changed: “Greed is good.” What depresses me is that, though the message is obviously false, so many in power believe it to be true.

Trump’s Foreign Policy Priorities in 2018 and beyond

January 29, 2018

Trump’s Foreign Policy Priorities in 2018 and beyond

by Sheila A Smith, CFR


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“The central role given to US economic priorities is striking, with an emphasis on renegotiating trade agreements and on reducing the country’s trade deficit.”–Sheila A Smith

On 18 December 2017, Trump’s National Security Strategy offered the first glimpse of his translation of ‘America First’ rhetoric into policy priorities. The central role given to US economic priorities is striking, with an emphasis on renegotiating trade agreements and on reducing the country’s trade deficit. But the actual practice of Trump’s approach to Asia — while differing in rhetoric from the previous administration — suggests the possibility of continuity rather than change.


In his first year in office, Trump was largely reactive rather than proactive with respect to world affairs. Washington’s response to Pyongyang’s growing missile threat is to bolster allied defences and extended deterrence while it builds a coalition of international pressure on the regime to return to the negotiating table. UN economic sanctions (via the United Nations itself as well as via a growing appetite for secondary sanctions) are the primary mechanism of coercion. Kim Jong-un seems determined to be able to strike the continental United States, so the North Korea problem remains at the top of the Trump administration’s priority list.

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The Harry S. Truman Department of State Building, near The George Washington University’s Lloyd Hartman Eliot School of International Affairs, Washington D.C.

The administration is woefully understaffed for the challenges that face the United States. The President’s tweets confound efforts to communicate policy, and the White House’s protracted effort to undermine the Secretary of State ensures that US diplomacy is weak. The administration has been slow to make appointments to high-level foreign policy posts, with the notable exception of the Department of Defense. The lack of expertise on the complex array of foreign policy challenges confronting Washington has left the administration painfully ill-prepared for diplomacy.

2018 will bring some of these difficulties into sharper relief. While the National Security Strategy was the first step towards steadying the administration’s foreign policy, filling out the government ranks of foreign and security policy professionals would go a long way.

Politics will likely obstruct focused diplomacy. The Republican Party is no longer a predictable, internationalist advocate for US foreign policy. The splintering of the Republican Party and leadership challenges for the Democratic Party make midterm elections in 2018 difficult to predict. One thing is sure: these elections will stir querulous political currents once more and keep Trump focused on his popularity at home.

Three foreign policy issues will confront the Trump administration in its second year. First, Washington’s trade policy will create dissonance between the United States and virtually all of its partners (particularly in Asia). While some US pushback on Chinese trade practices is welcome, a tit-for-tat trade war is not. The National Security Strategy takes a harder tack on US China policy — particularly on Beijing’s economic practices — which sets the stage for confrontation.

This alongside the ongoing difficulties in the North American Free Trade Agreement negotiations suggests that 2018 will bring trade to the forefront of US foreign policy. Many US allies are already girding themselves for a far stronger push by Washington to reopen existing agreements and to insist on new bilateral trade agreements on terms more favourable to the United States. As Trump’s trip to Asia in November revealed, the President wants to play hardball on trade — even with allies.

The second problem is North Korea — a problem that is likely to worsen in 2018. Sooner or later, some sort of showdown between the United States and North Korea is inevitable. Pyongyang continues its missile development, and the probability that one or both sides will use some sort of military force continues to be relatively high. With little evidence that Kim Jong-un is interested in abandoning his nuclear ambitions, regional fears over potential conflict on the Korean Peninsula will remain. Maintaining international support for sanctions on North Korea will require constant diplomatic effort.

A third challenge for the Trump administration is its relationship with Russia. The Mueller investigation into Trump’s alleged ties to the Kremlin has expanded to cover several of Trump’s campaign advisors, while congressional committee investigations will continue into 2018. The United States will need to put in place new measures to protect its elections from manipulation from Moscow by the midterm elections. Contrary to early expectations that the President would pursue friendlier relations with Russia, the National Security Strategy now clearly identifies Moscow as hostile to US security interests — a point that drew ire from Russian President Vladimir Putin.

Within the United States, the daily news cycle surrounding the administration’s difficulties is overwhelming. Lost in the drama is a serious debate over policy choices that will have long-term consequences not only for priorities at home, but also for Washington’s landscape abroad. Trump has withdrawn the United States from defining multilateral initiatives on trade and climate change. He has threatened partners into reassessing their economic ties with the United States. While advocating for a bulkier military presence abroad, he has yet to embrace the most important foreign policy tool of all: diplomacy.

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69th Secretary of State–Rex Tillerson

While much of the Trump administration’s first year difficulties can be attributed to the President’s inexperience, 2018 will bring far higher expectations of his leadership and ability to demonstrate that his vision for the United States brings results. The honeymoon phase of his presidency is now over. All eyes will be on Trump as he navigates a complex world increasingly challenging to US interests.

Sheila A Smith is Senior Fellow for Japan studies at the Council on Foreign Relations (CFR).

This article is part of an EAF special feature series on 2017 in review and the year ahead.

Economic Policy making under Trump Presidency

January 28, 2018

Economic Policy making under Trump Presidency

Commentary from Project Syndicate

by Edmund H Phelps


We are living in worrisome economic times. One year ago, I observed that US President Donald Trump’s bullying of companies and individuals who get in his way is reminiscent of Benito Mussolini in the 1920s. Like Mussolini, Trump poses a clear danger to the rule of law.–Edmund


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For decades, America has suffered from a long-run productivity slowdown that has sapped the economy of its former dynamism, and left median wages stagnant. Will the tax legislation recently enacted by congressional republicans and the Trump administration finally reverse this trend, or will it make a bad situation worse?

PHILADELPHIA – We are living in worrisome economic times. One year ago, I observed that US President Donald Trump’s bullying of companies and individuals who get in his way is reminiscent of Benito Mussolini in the 1920s. Like Mussolini, Trump poses a clear danger to the rule of law.

My subject here, however, is the tax legislation that Trump signed into law in December, on the promise that reducing the rate at which corporate profits are taxed will help an ailing US economy.

Political Responses to  the Malaise

For several decades, the US economy has exhibited various symptoms of economic malaise. Now, we have a political upheaval on our hands. While real (inflation-adjusted) median wages have been nearly stagnant for decades, private saving from profits and enormous capital gains have continued apace. As asset prices – to say nothing of the wealth-wage ratio – have climbed to vertiginous levels, established wealth has grown more powerful, and wealth managers have done well.

Worse still, in industries hit hard by foreign trade or automation, many jobs have been eliminated, and real wages have actually declined. As these new developments continued over the past few decades, they placed increasing pressure on society as a whole. Ultimately, there was an electoral realignment, marked by a shift in voting patterns among key economic constituencies.

Remarkably, neither Democrats nor Republicans seemed to register these economic and social ailments, or the consequences they could have. When Hillary Clinton launched her 2016 presidential campaign with a speech on Roosevelt Island, she focused heavily on achieving social justice for marginalized groups. She did not address the fact that, some six decades ago, the US economy lost the sustained growth it had been generating since the 1820s, despite depressions and inflationary cycles.

While Democrats became increasingly fixated on notions of “fairness” and what academics call the “just economy,” they apparently didn’t notice that the country had been operating for decades without a good economy. Countless people have had little or no chance of feeling fully included in economic life. They have been deprived of jobs that are actually engaging, and of opportunities to feel that they have succeeded at something.

As the renowned Columbia University philosopher David Sidorsky recently pointed out to me, ancient philosophers spoke of “the good and the just” (boni et aequi), not “the just and the good.” Clearly, the Democrats put the cart before the horse. First, we need a good economy. Only then can we devise a just way to reward participants for contributions that the economy empowers them to make.

An Attempt at a Cure

After securing the presidency – in addition to both houses of Congress – in 2016, Republicans have tried to run the ball through the opening left by the Democrats. Throughout 2017, they pursued a range of reforms to address weak investment and stagnant wages, and ended the year with the newly enacted tax legislation, which cuts the tax rate on corporate profits from 35% to 21%.

Economists who support the Republicans’ tax legislation have relied on a textbook growth model to claim that it will boost investment activity. According to their model, investment will drive up the capital stock until it reaches the steady-state level where the after-tax rate of return falls to the level of the real interest rate. The real interest rate is exogenous, and reflects investors’ time preferences, world interest rates, and other factors. The point where the rate of return intersects with the real interest rate is shown in Figure 1. (A more classical case, in which the rate of return is pulled down by capital accumulation, is shown in Figure 2.)

Supporters of the tax legislation reason that if the tax cut pushes up the after-tax rate of return, investment activity will increase, and the capital stock will expand, boosting productivity until the capital stock reaches a new steady state, which they calculate will happen in around ten years.

But, as is always the case with supply-side economics and more radical forms of Keynesianism, this approach is profoundly short-sighted. After ten years, there is no reason to think the faster growth will continue.

Without the same level of indigenous innovation that was achieved during the golden era of high growth rates, from the 1820s to around 1970, the Republican tax law will amount to nothing more than a stop-gap measure. And even over the next decade, it will not deliver truly rapid growth.

The Problem with Models

More fundamentally, we ought to ask whether it is right to expect tax cuts to translate into higher productivity growth. I would argue that, because the tax package will add to the annual fiscal deficit and the public debt, it might actually block investment, and thus derail a productivity pickup.

When I was a young economist working on my 1965 monograph, Fiscal Neutrality Toward Economic Growth, I would have looked at today’s favorable short-term conditions and actually called for a tax increase across the board, in order to stanch the federal government’s fiscal hemorrhaging. A tax hike might push down bond yields, and thus bring about higher share prices and a considerable drop in interest rates over the entire yield curve, provided the US Federal Reserve didn’t offset the move by unwinding its bond holdings.

Thinking back even further, to when I was a young student, I can remember congressional Republicans voicing their opposition to fiscal deficits, and President Harry Truman, a Democrat, enacting a run of fiscal surpluses aimed at mopping up the federal debt. These policies, helped by inflation (which lowered the real value of the debt), did not lead to a depression. There was only the 1949-1950 recession.

Nowadays, a crude form of Keynesianism is so deeply ingrained in voters’ minds that any program aimed at achieving a fiscal surplus, or even balance, has become unthinkable. Yet one wonders if the new tax law will arouse worries about the sustainability of the growing federal debt, which is already high after the presidencies of George W. Bush, a supply-sider, and Barack Obama, a Keynesian. If so, such concerns would push up interest-rate risk premia in anticipation of a depreciating dollar. Yes, the Republican plan does include some provisions to raise revenue or cut spending, but that is not entirely reassuring.

Of course, those who support the law would argue that the supposed increase in investment activity will immediately push up the dollar’s exchange rate, and that the dollar’s real value would then depreciate gradually to where it had been. Otherwise, no one would want to continue holding foreign capital. This points to a paradox in the law. Trump ran on the promise of boosting American exports, but in standard models, an appreciating dollar will depress export demand.

On the other hand, a stronger dollar will prompt domestic firms in import-competing industries to cut their markups so that potential foreign rivals will be less inclined to invade the US market. As a result, wage rates might be pulled up along with the amount of labor supplied. These particular industries, then, would experience an expansion of output and employment.

An Uncertain Prognosis

But for those who do not share the perspective of the law’s supporters, this scenario is hardly a sure thing. After all, who’s to say if the tax package will drive up business investment until the marginal productivity of capital has fallen enough to raise substantially the marginal productivity of labor? That scenario might be possible; but it is in no way assured. As New York University’s Roman Frydman and I argued in a commentary last month, the real-life US economy is not a “mechanical system in which changes in tax parameters and other inputs explain exactly why and how investment occurs and the economy grows.”

Unfortunately, the economics profession has ignored the potential implications of human agency. If far more people were to start conceiving and creating innovations, investment and wage rates might rise well beyond what the textbook model would have predicted. By the same token, if fewer people engage in innovation, investment and wages rates may rise less than expected, or even fall.

In other words, the innovation factor could very well dwarf the effect of the cut in the corporate-tax rate over the next ten years. By that point, we might not have enough evidence to determine if the tax cut was effective, or merely an inconsequential drop in the bucket.

And the uncertainty goes deeper than that. The problem is not just that the traditional model’s disturbance terms may be so large that they overshadow the effects of the tax cut, but also that the coefficients for measuring the tax law’s effect on investment or wages might not even be knowable. The innovators driving (or failing to drive) gains in productivity cannot be certain ahead of time what form their new products or methods will take, or whether they will be adopted at all. How, then, could economists ever foretell precise changes in investment patterns as a result of a tax cut, or what effects new investments will have on the marginal productivity of labor?

As I suggested in November, what we call the “natural” unemployment rate can be affected by insecurity and fear. Similarly, if an unfunded tax cut conjures visions of insolvency, corporate executives might be wary of making new investments. Or they might decide to invest predominantly in labor-saving technologies, which could actually reduce wages and eliminate jobs in some industries. Given that possibility, one cannot be sure whether the tax law will have a positive or negative effect on wages, employment, or productivity.

None of this is to say that we should avoid new departures. Certainly, we must keep trying in the hopes of making progress. Or, as Candide (in the musical) tells Cunégonde after they have both endured many difficulties, “We’ll do the best we know.”

About the Author:

Edmund S. Phelps, the 2006 Nobel laureate in Economics, is Director of the Center on Capitalism and Society at Columbia University and the author of Mass Flourishing.

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