[Issue Briefing] A Battle with Oneself? The Biggest Variable in the Global Economy in 2017 is U.S. Economic/Trade Policy

Editor's Note

This Issue Briefing is the result of a joint research project by EAI and major domestic think tanks, led by Yeoshijae (如時齋). A summary was published in the JoongAng Sunday on February 12, 2017. The Trump administration, immediately after its inauguration, declared its withdrawal from the Trans-Pacific Partnership (TPP), demonstrating that its campaign promises regarding trade and foreign policy were not mere rhetoric. In a situation where international political and economic conditions are becoming increasingly unstable and populism is on the rise, the United States, which previously served as a stabilizer, is paradoxically leading the destabilization of the global trade system and security framework. Leading U.S. research institutes analyze that the fundamental cause of this paradox lies in the U.S. domestic economy and living standards, which have not fully recovered since the 2008 global financial crisis. However, the economic and trade policies currently being pursued or promised by the Trump administration are pointed out as being fundamentally at odds with the prescriptions offered by experts.

From the Main Text

"The paradoxical situation where populists like Duterte are gaining power, and the two Anglo-Saxon countries that once championed free trade and market opening have now become icons of isolationism through Brexit and 'America First,' portends a continued bleak investment environment for the foreseeable future, according to a report by the Council on Foreign Relations."

"The presidential and general elections scheduled to be held sequentially not only in major developed countries but also in key Southern Hemisphere nations such as Argentina, Chile, Brazil, and Mexico are likely to serve as a watershed moment in determining the extent to which this populist and anti-liberal sentiment will spread and evolve."

"It is true that the U.S. economy has returned to normal levels in terms of GDP growth rate and unemployment rate since the 2008 financial crisis. The economists' assessments are not wrong. However, the issue lies in the 'historical trend.' That is, the GDP growth curve, which deviated below the trend line due to the 2008 economic crisis, has only seen its growth rate 'normalized' without rebounding to its original trajectory."

"The question is how well the economic and trade policies of the Trump administration align with these prescriptions aimed at promoting investment, encouraging employment, and easing the cost of living. Above all, the expansion of private sector investment, which can be considered a long-term and fundamental solution, is a task that can never be achieved through protectionism, thus making contradictions inevitable."

"Given that the Asia-Pacific region is almost certain to become a region that will determine the vital interests of the United States politically and economically in the future, the U.S. withdrawal from TPP negotiations is not only a signal that offers no benefit to the U.S. allies in the Asia-Pacific region but also carries the risk of being a decisive strategic blunder for the United States."

"In early January, CSIS published a report titled 'Reinvigorating U.S. Economic Strategy in the Asia-Pacific' with the subtitle 'Recommendations for the Incoming Administration,' presenting eight recommendations to the Trump administration. However, within days of its inauguration, the new administration is unhesitatingly forging ahead on a path completely contrary to the advice to 'present a clear vision for America as a Pacific nation,' 'complete TPP negotiations to maintain and expand free markets,' 'strive for a reciprocal U.S.-China relationship,' and 'improve and maintain the economic structure of the Asia-Pacific region.'"

EAI Issue Briefing provides expert diagnoses and analyses for a correct understanding of major domestic and international issues, and contains recommendations for desirable policy-making directions. EAI strives to produce ideas necessary for our society by providing a balanced perspective and preparing a forum for constructive policy discussions.