Viewpoints, December 2016
Prof. Shlomo Maital


It hard to nail down what US President-elect Donald Trump believes and will implement. But it is possible to piece together a fairly coherent picture of Trumponomics – his view of business and economics.

I’ve read mountains of columns by economists and experts vilifying Trump and scorning his views. A closer look at his speeches and statements reveals that he has a reasonably consistent world view and it is not at all stupid. Moreover, Trump has growing numbers of counterparts in Europe, as well, whose beliefs match his.

Trump and his ideas will powerfully impact politics in the US, the world and, perhaps, even in Israel.

Why is Trump against globalization?

Globalization is the process of eliminating national economic borders and fostering free trade and movement of goods, services, capital, information and people across countries. It accelerated with the fall of the Berlin Wall in November 1989 and the reunification of Germany, leading to the European Common Market, and with admission of China to the World Trade Organization in 2001.

Globalization has created enormous wealth for some individuals, businesses and countries. For two decades, world trade grew twice as fast as the world economy. But it also created enormous loss and suffering for many, and rampant financial speculation led to the 2008 global collapse that the world is still struggling to deal with.

Trump thinks America has lost out in free trade. He opposes NAFTA (the North American Free Trade Agreement that lowered or eliminated tariffs between the US, Canada and Mexico) and opposes the Trans-Pacific Partnership (TPP), which would do the same for US-Asia trade.

The global retailer Walmart has some 6,000 suppliers in China. As a result, American consumers can buy inexpensive products made in China. This is a major gain. But, on the other hand, Pittsburgh steel workers have lost their jobs and so have many other blue-collar American workers ‒ Chinese workers now have the jobs and the pay.

 “Israel should prepare for a world in which economic borders and walls are restored”

Economists claim that the net gains from free trade and globalization exceed the net losses. If, they say, the losers were compensated fully, there would still be wealth and income left over. That is small comfort to the millions of people whose job skills are now obsolete. They are Trump’s constituency.

And these losers are not only Americans. Many Israelis, too, have lost out through globalization.

Israel as a nation has gained a lot, because it has leveraged its entrepreneurship, innovation and hi-tech skills into powerful growth engines, made possible by free trade and access to world markets. But only eight percent of the Israeli labor force is hi-tech.  What about the other 92 percent?

Chinese blue-collar workers now have the jobs and the pay of Western workers; Credit: MarkoLovric / Pixabay.

Chinese blue-collar workers now have the jobs and the pay of Western workers; Credit: MarkoLovric / Pixabay.

Globalization of capital markets has enabled the wealthy to double their money effortlessly every decade. Low and even middle-class people who possess little or no wealth cannot. So, for the first time in decades, globally, the wealthiest one percent of the world hold more wealth than the poorest 99 percent.

Trump, though he is among the wealthiest, plays on this chord and finds it resonates with his supporters. Trump has threatened to slap tariffs on Chinese imports. He claims, with good reason, that China’s currency the renminbi is kept undervalued by Chinese purchases of dollars.

As I write, you can get 6.89 Chinese renminbi for one dollar. That will buy you a lot of Chinese goods. The true purchasing value of the renminbi is about four per dollar. This means that everything China sells to the world is one-third cheaper (in dollars) than it would be if its exchange rate were set in free markets.

A US tariff on Chinese imports will ignite a trade war, with China inevitably retaliating. This would hurt Israel because it depends crucially on its exports and free trade, and a reversal of globalization would entail large economic damage for Israeli exporters.

Chinese purchases of US treasury bonds are in part how borrow-and-spend America has paid for excessively high levels of consumption and trade deficits, now exceeding (according to Trump) $800 billion. Do Americans understand that they have been living on borrowed money and borrowed time, and that Trumponomics may signal an end to this party?

Strangely, Trump’s opposition to globalization is supported by the research of one of history’s greatest economists – the late MIT Professor Paul Samuelson, a Nobel laureate. Long ago, Samuelson proved that free trade does not benefit both trading partners. If one partner (US) cedes its manufacturing to another (China), through trade, by importing manufactured goods, China reaps all the gains from productivity increases inherent in manufacturing and America loses them

Trump speaks for those largely silent until now, who have been big losers. It is a huge irony that it took a billionaire to speak for the blue-collar underclass and an even greater irony that it is a right-wing Republican who is blasting the destructive impact of globalization and free trade.

Trump is largely unfamiliar with the Middle East quagmire, but part of his “Make America Great” program appears to involve making countries pay their fair share of defense capabilities and this bodes ill for the massive annual defense aid paid to Israel.

Israel should prepare for a world in which economic borders and walls are restored. It sounds fanciful, but perhaps Israel should seek associate membership of the European Union, as a preventive measure. Small trading nations need to join large powerful clubs, in a world of de-globalization.

Prof. Shlomo Maital is senior research fellow at the S. Neaman Institute, Technion and blogs at www.timnovate.wordpress.com. This is a modified version of an article that appeared in The Jerusalem Report, two months before the US election.