Trump may find tough sledding ahead

Any country attempting to run a closed-door market parallel to an open global one will suffer by losing its competitiveness

Some people have begun comparing Donald Trump with Ronald Reagan. Under the Reagan administration, the US economy underwent remarkable growth, as did the US dollar (against other currencies) and the US stock market. For Trump himself, this is of course what he would like to achieve, if only he can.

There are also observers saying Trump's chances are slim on various grounds - such as too few people to hire (for a plan of 25 million new jobs), delayed results (from infrastructure investment), and meager domestic saving. These are all arguments on the technical level.

More fundamentally, however, the questions that one has to ask are: What industries will the new policies benefit? And what consumers will those industries serve?

Doubtless, low interest rates and tax cuts will conspire to encourage companies to invest more and produce more. But in a situation many investors are calling asset famine, what industries are worth so much new investment? Or, where can investors find good returns of their investment?

The building of infrastructure is an answer that one can easily think of. But no country can fully develop itself by building infrastructure solely.

Admittedly, building and renovation of infrastructure can generate a lot of manufacturing jobs. A high-speed rail system needs new rails, engines and new passenger and cargo cars, along with construction of new facilities . But they cannot realize their value unless they eventually win more customers and generate more sales.

Hardly any country - and not even the Chinese government, with its not-so-small sector of state-owned enterprises - can realize a profit directly from building infrastructure, which is by definition a public good whose use is open to all. It is only its users who, by lowering cost from their newly gained convenience, can make a good profit. And the most efficient users are usually from the private sector.

So infrastructure will have to serve an industrial purpose, to help other industries in their value-added production and services.

Maybe, in a more favorable policy environment, some industrial activities, like the making of air-conditioners, can remain in the United States for a few more years. But it is the same kind of manufacturing activities that workers in Mexico can perform. If the United States shuts its door completely to competition at this level, it will take the risk that in a few years other less-protected countries will be able to turn out even better and cheaper air-conditioners for the global market.

The logic of globalization cannot be reversed. Part of it is the global market. Any country attempting to run a closed-door market parallel to an open global market is going to suffer in the end by losing its competitiveness almost entirely. This is a lesson that China has learned with so much pain from its past experience with a planned economy.

In an open, competitive market economy environment, what a government can do to stimulate growth - including providing direct and indirect incentives - is actually very limited. Government help is usually most effective with an industry in its nascent state that can be nurtured before releasing it to full-scale competition.

This being the case, it tends to work better in a more focused way rather than in all industries. It helps to promote growth in tech-heavy industries, and any industries where the way of doing things is likely to be different from the past, such as modernization of farming. And it does not help as much to generate jobs in traditional industries.

Right now, the hottest industry is perhaps that of artificial intelligence and robots, which potentially threatens many jobs rather than helping Trump deliver his promise of 25 million new jobs. It certainly does not help the non-college-graduate blue-collar workers keep getting paychecks.

For a while, the Trump factor can indeed suck a lot of capital in the world to the US market. But in a few years, whether or not he can impress the investors as a second Reagan depends not on the sheer number of jobs he can protect but on what new industries he can help build that prove competitive in the world.

Judging from the American wage level, those industries are bound to be making different things than mass market air-conditioner units or mobile phones that workers in other countries can also make. What are they? The world has yet to find out.

The author is editor-at-large of China Daily. Contact the writer atedzhang@chinadaily.com.cn

(China Daily European Weekly 12/16/2016 page13)