Imagine a scenario straight out of a Hollywood screenplay: as Donald Trump prepares to make his return to the White House, the World Economic Forum’s (WEF) annual meeting in Davos kicks off. It’s a fascinating clash, with Trump, the fierce advocate of protectionism, going up against the longstanding champions of globalization gathered 5,000 feet up in the Swiss Alps.
The elite crowd at Davos has a complicated relationship with Trump. They disdain his policies, yet when he attended the forum as President, he was undeniably the star attraction. This year, though, the billionaires and power brokers will have to settle for a virtual appearance from Trump. Yet, even from across the Atlantic, his influence will loom large over the events. Understandably so, since most attendees have spent their careers tearing down trade barriers, not building them. To them, Trump’s protectionist stance is nothing short of blasphemy.
Economists largely agree that nations should focus on their strengths or mitigate their weaknesses, and deviating from this norm can lead to the support of inefficient industries while denying consumers the benefits of cheaper, better imports. But the debate goes beyond just economic theory. There’s the looming threat of a global trade war, the danger of escalating tensions between the US and China, and the risk of driving a wedge between the US and its traditional allies.
Historically, global economic powerhouses have favored dismantling trade barriers, but Trump’s stance is an exception. His tariffs are a reaction to China’s rapid ascent and the challenge it poses to US dominance. Thus, Trump’s return could spell trouble not just for America but for the global economy as well. If he implements the tariffs he discussed during his campaign, it could lead to higher prices for imports, which would invariably pass those costs onto businesses and consumers.
Even if Trump approaches these tariffs with more restraint or uses them as leverage in negotiations, there are still implications. The threat of tariffs alone can drive up prices and contribute to inflation, which would, in turn, make the US Federal Reserve hesitant to lower interest rates. Increased borrowing costs could make it more expensive for the US to manage its debts, and since economic shifts in the US reverberate globally, other countries might feel the pinch too. Should Trump push through with proposed tax cuts, inflationary pressures would only intensify.
It’s easy to see why there’s concern about Trump’s second coming, especially from figures like Rachel Reeves. The UK needs the Bank of England to cut interest rates swiftly. However, Trump’s protectionist leanings are not unique. Joe Biden’s Inflation Reduction Act, promoting green tech in the US, carried overt tones of protectionism. Europe’s hefty tariffs on Chinese electric vehicles were aimed at safeguarding the German car industry, and India remains a fast-growing yet increasingly protectionist economy.
Protectionism has historically been a tool for successful industrialization. Neither the UK nor the US industrialized without it. Trump harks back to when Alexander Hamilton first advocated for nurturing domestic industries back in the 1790s, challenging Adam Smith’s ideas favoring agriculture for America. Even President Lincoln favored protectionism.
In today’s world, globalization seems to be on the decline, and the World Trade Organization, once the bastion of free trade, struggles to forge new global agreements or uphold existing ones. Public confidence in the free-market promises of the Davos elite has eroded, with citizens demanding more active government involvement.
Britain stands out somewhat here. With a robust service sector yielding surpluses, but a flagging manufacturing sector struggling since the 1980s, the UK might benefit from emulating the rapid industrialization strategies of East Asia.
Countries like Japan, South Korea, and Taiwan didn’t expose their emerging industries to harsh international competition until they were ready. These ‘tiger economies’ demonstrated that, under the right circumstances, protectionism can spur economic growth—it needs to be applied judiciously, though. Such prudence isn’t typically associated with Trump, which is why his approach warrants close scrutiny.
