The age of disgruntlementThe improbable came true. A group of 370 economists, including eight Nobel laureates in economics, signed a letter warning of the harmfulness and misleading delusion contained in the economic platform of Republican presidential nominee Donald J. Trump. Nevertheless, he won the election.
How was it possible? There were three factors behind his victory despite his overhyped and contradictory economic promises.
First of all, Americans have become deeply frustrated by the slow recovery of their economy since the 2007-2008 global financial meltdown. Nearly a decade has passed but recovery has come at a snail’s pace. To the common eye, mainstream policymakers all looked like a bunch of nincompoops who simply were unable to push the economy out of its slump. Trump’s promise to deliver an economy moving at 4 percent growth through his “America First” platform was music to the ears to many. He evidently convinced many people with the argument that he made himself a billionaire.
Secondly, Trump arrived at a time in which the disgruntlement of low-income white Americans reached a boiling point. These people lived comfortably when America was an industrial powerhouse. Real incomes of non-college educated Americans has remained stagnant for the last four decades. The fruits of prosperity from capital expansion were harvested exclusively by the rich.
There are reasons behind such polarization. Many economists believe the higher-educated population benefited more from the fast advances in technology. Incomes of educated people who adapted quickly to IT and other innovations increased along with the technological advance, while automation and machination replaced simple office work or manual labor and pushed many out of the workforce. The advances in technology seeped into everyday life. From the perspective of the blue-collar white population, they felt their work had been jeopardized by cheap imports coming out of Chinese factories and immigrants working for cheaper salaries. They were relieved at Trump lashing out at immigrants and the flood of cheap imports. They felt they were responsible for stealing their jobs.
The third reason could be disgruntlement with mainstream politics. Politicians have all promised policies for the low-income groups, but their lives didn’t get any better. The fat paychecks Democratic nominee Hillary Clinton earned for making speeches did not help her earn votes from the poor working class. The crude formulations of political novice and self-proclaimed outsider Trump sounded refreshing compared to the established politicians who talk grandiosely of universal values like human rights. Voters chose Trump because he bluntly championed American interests and put down the hypocrisy of politicians.
We have entered the Age of Trump. He will put his controversial policies into action. How will they affect our economy?
First of all, we must brace for higher U.S. interest rates. However slowly, the U.S. economy is in a recovery phase. If Trump acts on his campaign promises and bumps up fiscal spending, prices will go up. U.S. Federal Reserve chair Janet Yellen said that a rate hike was appropriate “relatively soon,” indicating a move in December. International markets have been unsettled by the close of an era of low interest rates, rocking the local currency market. We must be fully ready before the rates are decisively raised.
The trade front will likely turn unfavorable. Washington could move to brand Beijing a currency manipulator. Seoul too could come under attack as the country runs a current-account surplus tantamount to more than 7 percent of gross domestic product, of which a great part comes from the United States. Korea could be asked to further weaken its currency. Trump may also demand renegotiated terms for the bilateral free trade agreement. But a current-account surplus does not entirely hinge on the currency rate. Seoul must persuade Washington that a surplus cannot be viewed so simply and that keeping up trade serves both countries.
Lastly, there is the risk of the U.S. economy turning unstable. Trump plans to cut taxes for the rich and revise Medicare. His agenda could worsen income inequalities. Toughened immigration rules would hurt ethnic minorities. These changes threaten instability in the U.S. What we can do for ourselves is to strengthen and enlarge our domestic economy to compensate for — and weather — any upsets on the global front.
JoongAng Ilbo, Nov. 24, Page B8
*The author is a professor of economics at Korea University