Why do most Economists oppose Trump’s Nationalism? – Part Two

This second section to my essay addresses why the majority of economist’s oppose nationalism, and how this is reflected in their views of migration and labour mobility.

Economic Nationalism is further viewed cynically by economists due to its implications for international labour mobility. The basis of economic nationalism is its prioritisation of domestic socioeconomic interests over foreign interests. To this extent, increased regulation of inward immigration to a country is under the umbrella of economic nationalist policy. However, most economists view this branch of economic nationalism to again be harmful to the country’s overall development. Theoretically, as labour is a factor of production, increasing its supply would increase the country’s productive potential, therefore allowing for more short term economic growth with reduced threat of demand-pull inflationary pressures. On the reverse, reducing a country’s immigration would mean a reduction in labour supply and the labour market skill pool. The country equally loses out on potential entrepreneurial individuals, who could have been greatly advantageous to the economy in the long run.

open-borders-day

Another economic nationalist argument supporting immigration restriction would be that increased immigrant density within an area pushes down wages, as labour supply increases relative to labour demand. However, counterintuitively, Professor Jonathan Wadsworth of Royal Holloway found “no distinct correlation between local average wage growth and share of immigrants in a local workforce.” This suggests that inward immigration does not impact local wage growth, but rather positively contributes to the labour skill set and entrepreneurial value of the area.

no borders.jpeg

Populists may claim that nationalist economic policies solve the problems of globalisation, however these so called problems can be solved through other means that are mutually beneficial to other economies also. For instance, in order to increase employment from jobs that are lost to more efficient foreign producers, rather than increasing import tariffs to protect infant industries and create jobs, the policy makers can instead subsidise research and development for infant industries so that they develop more efficiently and become internationally competitive, without increasing import tariffs and  threatening protectionist retaliation.

In summary, in order to deviate from the negative connotations of “nationalism”, certain enthusiasts of the populist policy have opted instead to call it “economic rationalism”. However, the majority of economists would agree that the counterproductive nature of anti-globalisation and anti-migration policies should deem the practice to be “economic irrationalism.” The devolution of globalism towards isolationism disregards the importance of specialisation within economies, which can lead to maximisation of output, competition and consumer choice when combined with free trade. The consequent retaliation of foreign markets to economic nationalism is in itself detrimental to export led growth. In terms of migration, expansion of the labour market is fundamental to improving labour skills and productivity, whilst having no recorded negative impact on local wages.

Ultimately, Economic Nationalism is a branch of political Populism that is not grounded by economic theory, but rather intended to appeal to the “ordinary person,” parallel to the intended demographic of Populism. However the majority of economists understand that, contrary to the flawed basis of economic nationalism, modern economies are intertwined such that creating inclusively beneficial policies that generate international prosperity, such as free trade and movement of people, does not come at the trade off of sacrificing your own nations welfare.

Dealing with Trade – What Trump and Brexit mean for American and British Trade Deals

Trump and Brexit. “Make America Great Again” and “Take Back Control”. In 2016, both Britain and America took great steps against the development of modern trade norms. Trump wants wants to redesign the bulk of America’s trade deals, from South Korea to NAFTA, increasing import tariffs to encourage domestic industry and derived job creation. Whereas a hard Brexit’s promise to leave the European single market contradicts the economic principle that Free Trade is vital to sustain the theory of comparative advantage.

This is not to say that America and Britain have now entered a period of mercantilism, but rather the rejection of globalisation for a more economic nationalist approach is telling that Trump wishes to “Put America First.” Therefore, both nations must now act quickly to strike preferential trade deals in order to maintain trade and therefore justify their nationalist deviations. Who better to strike a trade deal with than each other?

At the G20 summit in July, Trump spoke of a “powerful deal” in development between Britain and America, stressing that it would be completed “very, very quickly.”

May and Trump

However, the spontaneity of these kind of trade deals may have long term repercussions for Britain’s feasibility to trade with Europe in the future. For instance, currently in the UK, the EU laws and regulations on financial and business services’ export potential has a “trade dampening effect equivalent of a tariff of 30%” (The Economist). Indeed, the recent controversy over American farmers’ potential to export chickens washed in chlorinated water to Britain is also symbolic of the bilateralism between the two nations. The conflicting laws and regulations between America and Britain gives Britain two options. Either, during Brexit negotiations, new British trade regulations can be more weighted towards EU legislation, or American legislation. Either way, this comes at the trade off of sacrificing potential trade for whoever Britain does not align with, as increased border checks and security reduces the attractiveness and ease of trade between nations.

Therefore, it is too simple to say that Brexit and Trump represent a return to isolationism. However, Britain should think carefully of the terms of trade it wishes to conduct with America, as this may come at the cost of losing out in European trade. Currently, British-EU trade accounts for 44% of British exports, whereas British-America exports accounts for 19%. Economists estimate that if Britain were to leave the European single market, then American trade would have to increase by 58% to make up for lost European trade. This is an improbable increase in trade, regardless of whether or not Britain ultimately agrees to allow the import of chlorinated chicken.